WASHINGTON -- The Municipal Securities Rulemaking Board's pilot program to require dealers to report bond prices and transactions represents a "significant stride" in making bond prices more available to investors, the Public Securities Association said yesterday.
The PSA fully supports the development of the pilot program, the trade group said.
The strong endorsement came in a two-page comment letter signed by PSA chairman R. Fenn Putman that was sent to the Securities and Exchange Commission in response to the agency's request on Aug. 4 for comments on an MSRB rule that laid the groundwork for the board's upcoming pilot program.
The rule, which was approved by the board earlier this year, would require all dealers to report transactions in municipal securities to the board or its agent, the National Securities Clearing Corp. The information would be used beginning in January 1995 when the board launches a pilot program, announced on Jan. 11, that would supply daily volume and prices for frequently traded municipal bonds in the interdealer market. Comments on the board's rule were due Aug. 25.
Putman's comments came as representatives of dozens of securities firms, industry groups, and news services met in New York yesterday morning to hear MSRB officials explain the pilot program.
"We believe that information vendors in the marketplace will use the reports produced through the pilot program and possibly provide value-added services," said Putman, managing director at Lehman Brothers. "This will serve to further expand the dissemination of the information, thereby increasing the audience for the information produced by the pilot program."
The pilot taps an existing central source for this type of information, the National Securities Clearing Corp.'s comparison system, Putman said. As a result, "the MSRB will be providing valuable information while not placing any additional burden on the marketplace by collecting the information. We, therefore, commend the board for working to improve transparency while minimizing costs," Putman said.
Putman's statement is the strongest to date by the PSA, which generally has supported broader price transparency since regulators began pushing for improvements in the area several years ago.
The group, however, has had little success in its own reform efforts. A PSA panel in late 1989 aborted a plan to come up with ways of supplying regular price information to investors in a market where securities often trade sporadically.
The SEC is concerned that bond dealers are charging customers arbitrarily because their prices generally do not have to be posted in major national newspapers or some other publicly available vehicle.
The public daily reports of volume and prices will not specifically identify dealers, the MSRB says. But federal enforcement officials will receive more detailed surveillance reports that will identify dealers involved in and the prices of individual transactions.
The MSRB says that the pilot initially will make prices available the first business day after the trade. The board adds, however, that after a year it will ask for comment on whether to upgrade the pilot to make prices available the same day of the trade -- a move being pushed by the SEC. The board also says that after a year it will seek comment on whether to expand the pilot program beyond frequently traded securities, which it defines as those that trade four or more times a day.
Putman noted in the letter that the board hopes to expand its daily report in the future by including figures on institutional trades and information on the time of trade. "We believe this represents a logical next step [that will result in! a more representative picture of the 'wholesale' market for municipal securities," he said.
