Muni board seeks to end "masking" of US bond prices

Mon Jan 30, 2012 12:14pm EST

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(Reuters) - Underwriters of U.S. municipal bonds could soon be banned from designating some new issues as "not reoffered," or "NRO," a phrase used to keep the market from knowing the prices or yields of bonds.

The Municipal Securities Rulemaking Board (MSRB) said on Monday it would propose a change in coming weeks to force underwriters to provide complete information to vendors that give the $3.7 trillion market real-time data on sales of new bonds.

"By eliminating the ability of underwriters to mask price and yield by using the 'NRO' designation, there will be full price discovery by the marketplace as a whole," MSRB Chairman Alan Polsky said on a call with reporters. "And existing inconsistencies in the information flow to the market will be eliminated."

The NRO designation is most commonly used in competitive deals in which buyers bid on new debt at a set date and hour. Those sales totaled $59.6 billion in 2011, or about 21 percent of the $287.2 billion of munis sold last year, according to Thomson Reuters data.

Frequently, the information on the sales sheet released by data vendors such as Ipreo simply state "NRO" for the price or yield.

In the same manner, they may include "NRO" when disclosing the price for one of the maturities sold through a negotiated deal.

For example, a $418 million general obligation competitive sale by triple-A-rated Maryland in July was won by Bank of America Merrill Lynch, which listed NRO for yields in nine of the deal's 13 maturity levels.

That makes it difficult to determine overall yield levels for the market, according to Bob Nelson, managing analyst at Municipal Market Data, a unit of Thomson Reuters that produces a daily triple-A benchmark scale for the market.

"It's great news for price transparency," he said, adding the move was long overdue.

Ultimately, underwriters must send all prices to the MSRB, a self-regulatory organization, to put on its centralized website known as EMMA. But that can take days and the board would like to make the information known almost immediately, Executive Director Lynnette Kelly said on the conference call.

The proposal must be approved by the Securities and Exchange Commission, which enforces the rules that the MSRB writes.

(Reporting By Lisa Lambert in Washington and Karen Pierog in Chicago; editing by Jeffrey Benkoe)

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