WASHINGTON -- The Public Securities Association is developing a program to provide retail investors with bond pricing information in hopes the SEC will drop its controversial proposal to require dealers to disclose markups in riskless principal transactions.
Heather Ruth, PSA's president, outlined the framework of the program for reporters after telling those attending a meeting of the National Association of Securities Dealers in New York City on Wednesday that the PSA is taking a more "proactive" stance on price transparency.
Ruth's comments about the new pricing information program come as Securities and Exchange Commission officials have been saying they are willing to consider alternatives to their controversial proposal on riskless principal transactions.
The SEC proposed amendments to Rule 15c2-13 last March that would require securities dealers, in their bond confirmations, to disclose markups and markdowns in riskless principal transactions.
These are transactions in which a dealer almost simultaneously buys and sells bonds without holding them in inventory, usually to fill an order, so that the dealer runs little risk of losing principal.
The SEC's goal is to give the investor more information about how these bonds are priced.
But the PSA has vigorously opposed the proposed requirement, contending it would confuse investors, hurt small and regional securities firms, and hamper market liquidity.
The PSA has been trying to come up with its own program to provide more bond pricing information to retail investors in hopes that might serve as an alternative to the proposed disclosure of markups in such transactions.
Ruth told reporters at the NASD meeting that while the PSA is still developing its program, the goal would be to put bond pricing information in regional newspapers such as the L.A. Times or the Chicago Tribune so that it is widely accessible to retail investors.
The published information would include "generic" prices and yields for municipal bonds with various maturities, the kind of information that is currently widely available to municipal finance professionals but not to individual investors, Ruth said.
The idea, she said, is to "aggressively educate investors" about bond prices and to give them enough information so they can make a general determination of what prices should be for various municipal bonds.
She said that while the PSA is a strong supporter of the MSRB's pilot program to improve price transparency, that program probably will not make publicly available any prices from bond trades between dealers and retail investors until 1996.
The PSA's program would be designed to make bond pricing information to retail investors much sooner.
"This is the only way we can be sure of getting to the retail investor soon," she said.
Meanwhile, Christopher Taylor, the Municipal Securities Rulemaking Board's executive director, who was speaking at the same meeting, said the board plans to start working with the NASD over the next few months to get broker-dealers to increase their "comparison rate" so they are more prepared to move to a three-day clearance and settlement regime.
The comparison rate is the rate at which the trading information reported by dealers matches up with the information reported by their counterparties or customers the first day after trading.
Taylor said the comparison rate in the municipal market is only about 70%, compared with 90% in the corporate market, and needs to be "in the high 90s" as the market moves toward a proposed June 1995 deadline for clearing and settling trades in three instead of five days.
Taylor said he is concerned that if the buyer and seller have mismatched trading information, they only have one day to resolve their differences before the transaction has to be settled under a three day settlement regime.
Taylor told those at the meeting that the goal of clearing and settling bond transactions in three days and many other regulatory proposals pending before the SEC and MSRB are forcing a "revolutionary" change in the municipal market.
