Comments on: SEC must look beyond US borders to reform the fixed income markets Bridges, budgets, bonds Mon, 24 Nov 2014 00:29:08 +0000 hourly 1 By: DogFase Thu, 11 Apr 2013 21:44:13 +0000 There are a lot of reasons why munis don’t trade on exchanges. First, while there are maybe around 7000-8000 listed equities in the US, there are literally millions of outstanding municipal CUSIPS, most of which are very small in size. Second, unlike equities, where all listed issues trade actively all day long, the vast majority of outstanding munis go months or even years between trades. Most issuers do not get a lot of dealer coverage because it simply isn’t economical–or even possible–for a dealer to monitor the credits of tens of thousands of small municipal issuers. When a potential odd-lot trade is put out to a brokers’ broker or ATS for bids, it isn’t uncommon to receive no bids whatsoever or for all the bids to be off the market.

These aren’t easy issues to solve. Pricing and trading in the general market is easy. Everybody knows where Cal GOs trade, and bid-ask spreads are small. But what’s the right price for a Blytheville, Arkansas School District 4% coupon due in 2027? Simply pushing the market to an exchange isn’t the answer. Just because you post an offering to the NYSE’s platform doesn’t mean anybody is going to trade there.