CHICAGO -- Concern over the integrity of The Bond Buyer Municipal Bond Index futures contract at the Chicago Board of Trade is apparently not dying down.
At a seminar in Chicago on Thursday, exchange officials announced that the six interdealer brokers responsible for pricing the index will soon begin listing high and low quotes on The Bond Buyer's Munifacts Newswire twice a day in an effort to enhance price transparency.
Sylvie Bouriaux, an advisory economist at the exchange, said the quotes will not be identified with a particular broker. The listing should begin by the end of the year.
Bouriaux said the move is not connected to an investigation undertaken by the exchange earlier this year into the alleged manipulation of bond prices in the index by Goldman, Sachs & Co.
The investigation, which exonerated Goldman, was triggered by complaints from several institutional investors. They charged that Goldman was faxing to the interdealer brokers prices on bonds in the index that the firm later refused to honor when investors called seeking to buy or sell bonds at the quoted prices.
In late June, the exchange released a statement saying that it uncovered "no irregularities" in the index's pricing.
Bouriaux said that the exchange has been mulling the dissemination of high and low quotes "for a long time" as a way to make more information available to users of the contract.
"The goal is to add to the transparency of pricing," she said.
But Tom Clark, a vice president of Merrill Lynch's futures and options group who spoke at the exchange-sponsored seminar, said that concerns about the integrity of the index persist and urged the futures contract's users to "step forward and be counted."
"It's also incumbent upon every user and dealer to put pressure on the cash side of the market and be vocal about it," Clark said, adding that the market should "put pressure" on the prices being quoted for bonds in the index.
Nat Singer, a senior managing director at Bear, Stearns & Co. and seminar speaker, agreed.
"The major issue is that entities have to play their role in keeping the dealers honest on the quotes," he said.
Still, some attendees grumbled that the exchange was unwilling to take more of a leadership role in addressing the problems.
Steve Pumilia, an assistant vice president at Cargill Financial Services, said that he has been talking to the exchange for six months about how transactions in the cash market are not "showing up in the pricing of The Bond Buyer Index."
He said that at expiration, there is "a complete divergence between the cash and futures at a time when they should be coming together."
More discussion about the index's pricing is expected this Thursday, when the exchange holds the same seminar in New York City.
Exchange officials also announced that on March 1, the board of trade will reset the municipal bond contract coefficient back to 1.0000, where it was at its inception on Dec. 12, 1983. The move will affect the September contract. The coefficient has since drifted to 0.8100, and futures market caretakers say the move will address the problem.
In addition, noncallable and deep discount bonds will for the first time be added to the municipal bond index on June 30, 1995, after the coefficient has been reset and has had time to take effect. Bonds with prices ranging from 85 to 105 will now be allowed in the index, compared with the old range of 95 to 105.
Both changes are subject to approval by the Commodity Futures Trading Commission. Board officials said Thursday that approval is expected next month.
