WASHINGTON Aug 5 U.S. regulators are stepping
up their push to unmask municipal bond dealers' compensation,
and could soon require dealers to post reference prices on trade
confirmations sent to investors.
Most individual investors are in the dark about how much
dealers add to prices in trades to cover their compensation.
Under a proposal the Municipal Securities Rulemaking Board
(MSRB) will release this fall, a retail investor would be able
to compare a price paid or received for a bond with a market
price, and discern how much the dealer made in the trade.
The reference prices would be based on "a corresponding
dealer transaction in the same security that occurred on the
same day," said Daniel Heimowitz, chair of the MSRB, on a call
In its proposal, the board will ask for comments on
alternatives to providing reference prices. Heimowitz said one
possible method would be simply to have dealers post the
compensation they tack on to trades, frequently called
In a sweeping report on the market released two years ago,
the Securities and Exchange Commission specifically recommended
requiring dealers to disclose how much they add to trades for
The MSRB, a self-regulatory organization made up of bankers,
issuers and advisers, writes the rules for the $3.7 trillion
U.S. municipal bond market that the SEC enforces. The SEC will
have to approve the MSRB proposal, after a comment period.
This year the chair of the SEC, Mary Jo White, and two of its
Republican commissioners, Daniel Gallagher and Michael Piwowar,
have all taken issue with the practice of not disclosing
At the same time, Virginia Democratic Senator Mark Warner
and Oklahoma Republican Senator Tom Coburn have introduced
legislation calling for better markups information.
The requirements for posting compensation are different,
depending on the role of a dealer in a trade. The SEC
commissioners and others have said the distinctions are not
Currently, municipal bond dealers must disclose compensation
if they act as agents facilitating trades but not if they act as
principals in the trades. For most trades in the municipal
market, dealers are considered riskless principals, purchasing
securities from their customers and immediately reselling them
to other dealers. As such, dealers' compensation information is
(Reporting By Lisa Lambert; Editing by Tom Brown)