The sizes of some large U.S. municipal bond trades should continue to be kept under wraps, a securities trade group said in a letter released Friday to the board that writes the rules for the $3.7 trillion municipal market.
Currently, the Municipal Securities Rulemaking Board is considering ending the practice of denoting trades that exceed $1 million as "1MM+" for the first five days after the trade, saying that revealing the par value of large trades immediately would improve market efficiency and investor protections.
The Securities Industry and Financial Markets Association, or SIFMA, said that "eliminating the mask entirely could potentially have a deleterious effect on liquidity and is not justified at this time."
Instead, it suggested the MSRB raise the threshold for concealing the full par value amount of larger trades. For example, masking only the size of trades greater than $5 million.
According to the MSRB, the "1MM+" label came into being when the board first introduced real-time trade reporting in 2005. Traders and others in the market said that posting exact amounts of large trades could threaten the already limited liquidity of the market, where only a small fraction of securities are traded each day.
Specifically, they said that exact amounts could help identify those trading the bonds, which could hurt price negotiations.
Suggesting a compromise, SIFMA said some of its members "believe that the 1MM+ mask affords them and their customers a degree of anonymity when executing large transactions." Some are also "concerned that the real-time disclosure of actual trade sizes would affect their ability to obtain fair pricing when they attempted to liquidate their inventories."
On the other hand, some members say they can determine the buyers and sellers in a trade even with the mask and that eliminating the mask would not affect their trading, SIFMA said.
"We believe this approach would improve transparency without significantly threatening market liquidity, and the number of transactions that would continue to be affected by the mask would represent a tiny portion of market activity," it said.
(Reporting by Lisa Lambert; Editing by Dan Grebler)