Analysis of Municipal Securities Pre-Trade 

Data from Alternative Trading Systems 

OCTOBER 2018 

Simon Z. Wu, John Bagley and Marcelo Vieira 
© 2018 Municipal Securities Rulemaking Board msrb.org 2 

OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

CONTENTS

2 Abstract 

3 Background on the Municipal 

Bond Market 

8 Existing Literature 

12 Pre-Trade Analysis Data and 

Methodology 

13 Report Findings 

23 Future Research 

24 Conclusions 

25 References 

26 Appendix A—About the Authors 

Abstract1 

With the recent focus on potentially improving municipal market transparency through 

increased public availability of pre-trade pricing information, the Municipal Securities 

Rulemaking Board (MSRB) obtained quote data from two alternative trading systems (ATSs) 

with signifcant presence in the municipal securities market and conducted an in-depth 

analysis of the data for the period from February 1, 2015–May 31, 2015.2 The MSRB currently 

publishes certain pre-trade information to the public, such as yield curves, municipal market 

indices and new issue pricing scales, in addition to collecting and disseminating post-trade 

data. For the purposes of this report, pre-trade information refers to the indication of size 

and price of prospective trading interest in specifc securities. The access to this type of 

pre-trade pricing information is limited to market professionals, and some information may 

be further limited to market professionals involved in some of those potential transactions. 

This analysis of quote data indicates that live posted quote information could be useful pretrade data for price discovery purposes. For Request-for-Quote (RFQ) data, it is possible that 

public disclosure of responses to RFQs may still add value to the price discovery process 

even if the RFQ process does not result in a trade execution. Public disclosure of RFQ 

responses could lead to potential benefts for pricing effciency, investor confdence and 

market liquidity in the municipal market. Additional research in this area, particularly with 

more recent data, is needed to arrive at a defnitive conclusion about the value of pre-trade 

data. 

The authors welcome feedback and suggestions on this report, as well as recommendations 

on additional data and analysis that could be helpful to municipal market stakeholders. 

Please contact Simon Wu, MSRB Chief Economist, at swu@msrb.org or 202-838-1500. 

1 The views expressed in this research paper are those of the author(s) and do not necessarily refect the views and 

positions of the Board of Directors of the MSRB. 

2 ATSs are sometimes referred to as electronic platforms or electronic venues. 
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OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

Background on the Municipal Bond Market 

The U.S. municipal bond market is the predominant source of capital for municipal 

entities. Both the public purpose and size of the municipal securities market underscore 

its importance in the U.S. economy. In addition to fnancing critical government projects 

and operations, municipal securities are used by state and local governments to meet 

a wide variety of other public needs, including transportation, infrastructure, economic 

development, and educational and healthcare facilities, among others. Issuers of municipal 

securities include towns, cities, counties and states, as well as state and local government 

agencies and entities with authority to issue debt. There are estimated to be over 50,000 

issuers of municipal securities.3 At the end of the second quarter of 2018, the outstanding 

principal value of municipal securities was estimated to be $3.85 trillion.4 

The municipal bond market also provides investment and trading opportunities for 

investors—both retail and institutional—and other market participants. By purchasing 

municipal bonds, investors are, in effect, lending money to a bond issuer in exchange 

for a promise of interest payments—usually semi-annually—and the return of the original 

investment, or “principal.”5

 The return of principal occurs on a pre-specifed maturity date 

or on a call date, or the date on which the issuer repays the bond before its stated maturity 

date. Generally, the interest on municipal bonds is exempt from federal income tax and may 

also be exempt from state and local taxes depending on investors’ state of residency.6 Other 

market participants, such as brokers, dealers and municipal securities dealers (collectively, 

“dealers”), including algorithmic and proprietary-trading frms, seek trading profts by 

making a market for municipal bonds and charging a spread (the difference between an 

ask and a bid for a security) or a commission on trades with investors or other market 

participants. 

The MSRB, which is a self-regulatory organization (SRO) created by Congress in 1975, 

has collected and disseminated post-trade municipal securities data since 1995 through 

the Real-Time Transaction Reporting System (RTRS) and its predecessor, the Transaction 

Reporting System (TRS). In addition, the MSRB provides certain pre-trade information to 

the public, such as yield curves, municipal market indices and new issue pricing scales on 

its Electronic Municipal Market Access (EMMA®) website. The MSRB neither collects nor 

disseminates other pre-trade information, such as quote data about the price and size of 

quotes for municipal bonds signaling trading interests available on electronic or proprietary 

systems. Potentially, this pre-trade information could provide securities regulators, investors 

and all other market participants with important information currently only accessible to 

select market participants. Thus, this information could improve pricing effciency, investor 

confdence and market liquidity in the municipal market. 

3 Securities Industry and Financial Markets Association (SIFMA), “2017 Fact Book,” August 25, 2017. This compares 

to the public corporate securities market, which has approximately 5,500 issuers who have issued approximately 

50,000 individual securities. 

4 Board of Governors of the Federal Reserve System, “Financial Accounts of the United States,” Table L-212, 

Federal Reserve Bank, September 20, 2018. 

5 Bond investors typically seek a steady stream of income payments and tend to be more risk-averse and more 

focused on preserving, rather than increasing, wealth. 

6 Given the tax benefts, the interest rate for municipal bonds is usually lower than on comparable taxable fxed 

income securities, such as corporate bonds and even some Treasury securities. 
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OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

In 2018, the U.S. Securities and Exchange Commission (SEC) and its Fixed Income Market 

Structure Advisory Committee (FIMSAC) have been focused on pre-trade price information 

on municipal bonds, and in July 2018 the SEC’s Division of Economic and Risk Analysis 

(DERA) published a study on municipal bond trading and quotes on ATS platforms. The 

SEC study primarily addressed transaction costs for customer and inter-dealer trades using 

the ATS quote data as a benchmark. The MSRB staff authors sought to assess the quality 

of the live posted quote and RFQ data collected from two ATSs prominent in municipal 

bond trading to determine whether quote information on ATSs is useful for price discovery 

purposes and may provide value for investors and market participants. The report provides 

an in-depth analysis of the ATS quote data and RTRS trade data for the period from February 

1, 2015–May 31, 2015. 

Municipal Bond Market Structure 

In general, municipal securities investors tend to be “buy and hold” investors. Trading 

patterns for municipal securities typically involve relatively frequent trading during the 

initial period after issuance, followed by infrequent or sporadic trading activity during 

the remaining life of the security. Of the one million outstanding municipal securities, 

approximately one percent of those bonds trade on a given day.7

 Aggregate daily trading 

activity from 2010–2017 averaged nearly 39,000 transactions each business day, resulting in 

an average total par value of about $11 billion traded per day. 

The municipal bond market largely functions as an over-the-counter (OTC) market, where 

investors place their orders with dealers directly. Dealers either execute the orders by 

committing dealer capital (in the case of principal trades) or by searching for a counterparty 

in the market to facilitate the transactions (known as riskless principal trades or agency 

trades), with the dealers charging a mark-up, commission or management account fee to the 

investors. 

The municipal securities market is highly fragmented due to, among other reasons, its 

size, number of issuers, low trading volume for a typical municipal bond and lack of 

centralized exchanges. In contrast to other securities markets, the relatively illiquid nature 

of the municipal market under certain circumstances and the mostly buy-and-hold investor 

positions make the ability to locate a counterparty to trade municipal securities more 

diffcult. Furthermore, market participants cannot cost-effectively short municipal securities 

for various reasons, including tax implications under Internal Revenue Service (IRS) rules and 

the diffculty of locating municipal bonds for borrowing.8

 Therefore, any type of shorting 

strategy to arbitrage or hedge certain risks in the municipal market is very diffcult or can 

incur signifcant costs to market participants. 

7 MSRB, “2017 Fact Book,” February 27, 2018. 

8 See Internal Revenue Code, U.S. Code Section 6045(d). Most municipal securities are exempt from federal 

income tax and in some cases, state and local income tax. However, the IRS does not allow both a borrower and 

lender of a municipal security to claim a tax exemption; as a result, short positioning of municipal securities is 

rare because the lender of a municipal security would be trading tax exempt interest for taxable interest. See also 

FINRA Regulatory Notice 15-27, July 2015. 
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OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

Electronic Trading Venues 

The advent of electronic trading venues in the fxed income markets has changed the 

trading landscape in recent years. The two main functions of an electronic trading venue, 

such as an ATS, and some broker’s brokers are: 1) posting (live quotes) and soliciting price 

quotes (request for quotes) electronically and 2) electronic execution of a trade in response 

to posted quotes. Electronic trading may facilitate the management of dealer inventory and 

reduce counterparty search costs.9 

An ATS is an electronic trading system that is not regulated as an exchange but is instead 

a venue for matching the buy and sell orders of its participants. Most ATSs are regulated 

as broker-dealers under the Securities Exchange Act of 1934 (“Exchange Act”), as well 

as Regulation ATS adopted by the SEC in 1998. Regulation ATS was designed to protect 

investors. Regulation ATS requires stricter recordkeeping and more intensive reporting when 

an ATS reaches more than fve percent of the trading volume of any given security.10 

ATSs offer anonymity to participants that post quotes on their systems. As a result, market 

participants such as dealers, proprietary trading frms and institutional investors often prefer 

using an ATS to fnd counterparties for trading without disclosing their trading position to 

the broader market. 

Traditionally, broker’s brokers perform similar functions to those provided by the modern-day 

ATS, such as aggregating liquidity and acting as agent or riskless principal in the purchase 

or sale of securities for dealers, institutions and other sophisticated market participants. 

A broker’s broker acts in a limited capacity when providing anonymity, information fow, 

liquidity, transparency and order matching, and is compensated by a transaction commission 

or a mark-up. The business model has also evolved from a pure voice brokerage (i.e., via the 

usage of a telephone) historically to a hybrid usage of telephone negotiation and electronic 

systems.11 

Pre-Trade Information 

Regardless of the method of searching for liquidity and counterparties for trading, most 

electronic platforms do not share the pre-trade information (bids and offers of a security) 

with the broader market; this information is available only to ATS participants, predominantly 

fnancial professionals who are engaging directly with such venues. Financial economists, 

regulators and policymakers have shown a keen interest in learning whether the currently 

non-publicly available pre-trade information has implications for the broader market’s price 

discovery process. 

Pre-trade information broadly includes quote data (bid-side and offer-side) signaling trading 

interests available on electronic platforms, new issue pricing scales, yield curves and indices, 

evaluated prices and other material disclosure information. For purposes of this report, 

pre-trade information specifcally refers to the indication of size and price of prospective 

trading interest in specifc securities. This includes frm quotes of a specifed size—that is, a 

commitment to buy or sell a specifc quantity of a municipal security at a stated price. There 

is currently no central repository in the municipal securities market and other fxed income 

9 Staff of the DERA of the SEC, “Report to Congress: Access to Capital and Market Liquidity,” Page 178, August 

2017. 

10 These requirements are provided in Exchange Act Rule 301(b)(5)(ii) of Regulation ATS. 

11 SIFMA, “The Role of Municipal Securities Broker’s Brokers in the Municipal Markets,” 2017. 
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OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

markets through which such pricing information is made broadly available to the public 

in a comprehensive manner (i.e., no national best bid and offer indicators as in the equity 

securities market). To the extent that pre-trade pricing information is available, it typically 

is provided by electronic networks operated by broker’s brokers, ATSs and other similar 

systems, and occasionally through non-electronic venues. Not only is the access to pre-trade 

pricing information limited to ATS participants, information may be further limited to a few 

market participants involved in some of those potential transactions. The level of information 

disseminated is limited depending on each market participant’s willingness to share the 

information on some or all the bids and offers entered for a potential transaction.12 

Recent Regulatory Developments in Pre-Trade Disclosure 

In January 2012, the MSRB published a Long-Range Plan for Market Transparency 

Products, which highlighted the absence of widespread pre-trade transparency.13 The 

MSRB envisioned a new real-time central transparency platform (CTP) that would, over 

time, evolve to become a centralized venue that provides universal public access to 

pre-trade, concurrent/real-time and post-trade pricing information across the municipal 

market accumulated from primary market pricing and secondary market trade submission 

information required to be submitted under MSRB rules, as well as live and historical 

bid-offer and related pre-trade information provided voluntarily by private sector CTP 

participants. 

Around the same time in 2012, a Government Accountability Offce (GAO) report found, 

among other things, that the lack of access to pre-trade pricing information in the form 

of bids and offers for municipal securities was a key barrier for individual investors to 

independently assess the quality of bids and offers they received from their dealers.14 

Separately, in July 2012, the SEC published a report recommending enhancements to the 

fow of information to municipal securities investors.15 The report noted that investors had 

very limited access to the level of interest in a particular municipal security and specifc 

price levels. Furthermore, the report suggested that bids and offers are generally not made 

publicly available by ATSs, broker’s brokers or dealers that use their facilities, even though 

these electronic trading systems are primarily used for smaller, retail-size orders. 

In light of the 2012 GAO and SEC reports, the MSRB in July 2013 published a concept 

release seeking input from market participants and stakeholders with regard to the potential 

benefts and burdens of providing pre-trade pricing information on a voluntary basis to be 

disseminated to the public through the MSRB’s EMMA website.16 This concept release also 

sought input on the appropriate method and technology that could be used by the MSRB 

in collecting such information to support a broad array of data types in a manner that is 

most effcient for the MSRB, as well as for market participants that may have a role in the 

submission or dissemination of such data. 

12 For example, responses to RFQs are visible only to market participants who respond to RFQs. Also, market 

participants who post live quotes have an option to prohibit certain subscribers from viewing their quotes. 

13 MSRB, “Long-Range Plan for Market Transparency Products,” January 27, 2012. 

14 GAO, “Municipal Securities: Overview of Market Structure, Pricing, and Regulation,” GAO-12-265, January 17, 

2012. 

15 SEC, “Report on the Municipal Securities Market,” July 31, 2012. 

16 MSRB Notice 2013-14, “Concept Release on Pre-Trade and Post-Trade Pricing Data Dissemination Through a 

New Central Transparency Platform,” July 31, 2013. 
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OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

The MSRB received numerous comments in response to its concept release that refected 

differing opinions. For example, some commenters stated that pre-trade information is 

essential to closing the information gap between dealers and retail investors and should 

be made available immediately to help investors and inform valuation models. Several 

commenters believed that dealers should not be required to provide this information for 

a number of reasons, including that some data points may be confusing and data-quality 

issues could make the information diffcult to process; the information may not be valid or 

useful if no trade actually occurs; dealers’ trading strategies may be compromised; there 

could be negative impact on liquidity; and it could be diffcult to implement and would be a 

signifcant cost to the municipal securities industry. 
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OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

Existing Literature 

An emerging body of fnancial economic research literature is devoted to recent changes 

in the municipal bond market, as well as in other fxed income securities markets such as 

corporate bonds and Treasury securities, particularly related to the impact of disclosure 

and transparency on market liquidity. In addition, some recent literature also focuses on 

electronic trading of fxed income securities, including studies that assessed the impact of 

bond quote data on trading costs. Generally, these studies found that electronic trading 

has had a positive impact on transparency, including reduced transaction costs. This section 

summarizes the relevant literature. It should be noted that the authors of this MSRB report 

neither endorse nor reject the conclusions or the views expressed in these research papers. 

Municipal Bond Pre-Trade Transparency and Electronic Trading 

There have been few studies conducted on the potential implications of pre-trade 

transparency in the municipal bond market, mainly because widely available pre-trade data 

are nearly non-existent to academic and industry researchers. Price quotes in the municipal 

bond market are available only to select market participants, and even the largest market 

participants have a limited view of pre-trade data. Researchers and policymakers have 

increasingly shown an interest in the potential impact of providing pre-trade transparency to 

the entire municipal securities market. 

Davies and Sirri (2017) summarized recent academic literature, fnding that trading costs in 

the corporate and municipal bond markets far exceed those in equity securities markets.17 

They mentioned several fundamental factors that contribute to the high cost of trading in 

fxed income instruments, including: 1) the large number of separate offerings particularly for 

the municipal bond market, with the odds of a buyer and a seller having coincidental interest 

to transact being low; 2) the diffculty of two investors fnding each other, even if they have 

simultaneous demand for the trade, unless they are customers of the same dealer; and 3) 

the information environment for municipal securities is very different than it is for publicly 

traded equity securities. The authors encouraged regulators to continue the trend of the last 

decade in improving the structure of the fxed income markets and the quality of information 

surrounding them. 

As mentioned previously, DERA published a white paper in July 2018 on municipal bond 

trading and quoting on four ATS platforms for the period of August 2014–November 2014. 

The paper combined live offer quotes with response to bid-wanted requests and formed a 

“two-sided” quote to evaluate market trade prices relative to the quotes on the four ATSs. 

This report found the majority of customer trades were executed at worse prices than the 

best available dealer quotes on the platforms, which the paper stated might indicate a lack 

of knowledge of existing quotes.18 The SEC paper concluded that these facts highlight the 

relative dearth of accessible pre-trade information in the municipal bond market. 

Finally, in addition to the literature cited above, in May 2015, the Financial Economists 

Roundtable released a statement on the structure of trading in bond markets in which 

member fnancial economists recommended pre-trade transparency for corporate and 

17 Ryan Davies and Erik R. Sirri, “The Economics and Regulation of Secondary Trading Markets,” March 16, 2017. 

18 This is likely because of the dealer mark-up built into the trade prices to compensate dealers (and fnancial 

advisors, if applicable). 
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OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

municipal bonds by urging the SEC, the Financial Industry Regulatory Authority, Inc. (FINRA) 

and the MSRB to require broker-dealers to post customer limit orders in an actionable 

electronically accessible order display facility.19 The economists believe this recommendation 

would substantially increase liquidity in fxed income markets. 

Municipal Bond Post-Trade Transparency 

Compared to the handful of empirical studies addressing pre-trade transparency, there is 

substantial research on information disclosure, post-trade transparency and the impact on 

municipal securities market liquidity in the last decade. These research papers generally 

agree that post-trade transparency and other information disclosure initiatives in the 

municipal bond market have had a positive effect on reduced investor transaction costs. 

Sirri (2014) studied the manner by which municipal bond dealers act as intermediaries for 

trades between customers and showed that the transition in January 2005 from next-day 

trade disclosure under transaction reporting system (TRS) to real-time transparency under 

RTRS reduced average customer trading costs, in spite of the signifcant dislocations to the 

market resulting from the fnancial crisis in the late 2000s.20 He also found that the effects of 

implementation of RTRS were not immediate, but took time to be realized over the course of 

several years. 

Chalmers, Liu and Wang (2017) confrmed what Sirri (2014) found and showed that both 

large and small municipal bond trades beneft from a signifcant reduction in overall trading 

costs and intra-day price dispersion.21 They concluded that timelier post-trade disclosure has 

reduced transaction costs in the secondary market for municipal bonds. 

Finally, Wu (2018) measured the decline in transaction costs for municipal bond customer 

trades from January 2005–April 2018 and explored the likely factors that may explain the 

drastic decline in transaction costs.22 The paper concluded that market-wide technology 

advancements and recent transparency initiatives were likely important contributors to the 

narrowing of effective spread. 

Other Fixed Income Securities’ Pre-Trade Transparency 

and Electronic Trading 

There is also abundant literature covering the issue of price transparency in other fxed 

income securities, such as corporate bonds and Treasury securities. The fndings from several 

research papers are summarized below and focus on the impacts of pre-trade and post-trade 

transparency, as well as the recent development of electronic trading on price discovery and 

transaction costs. 

19 Financial Economists Roundtable, “Statement on the Structure of Trading in Bond Markets,” May 11, 2015. 

20 Erik R. Sirri, “Report on Secondary Market Trading in the Municipal Securities Market,” Research Paper 

Commissioned by the Municipal Securities Rulemaking Board, July 2014. 

21 John Chalmers, Yu Liu and Z. Jay Wang, “The Difference a Day Makes: Timely Disclosure and Trading Effciency in 

the Muni Market,” Working Paper, September 2017. 

22 Simon Z. Wu, “Transaction Costs for Customer Trades in the Municipal Bond Market: What is Driving the 

Decline?” MSRB, July 2018. 
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OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

A 2015 study by Harris of the University of Southern California found that information 

asymmetry infated transaction costs in the corporate bond market.23 Harris suggested that 

a lack of pre-trade information causes trade-throughs to occur more frequently, where a 

trade execution is carried out at a suboptimal price even though a more favorable price was 

available in the market. He asserts that equity securities markets are more effcient, primarily 

because of the dissemination of the national best bid and offer (NBBO) and calls for an 

equivalent facility in the bond markets.24 

A paper by Hendershott and Madhavan (2015) examined the impact of electronifcation on 

the OTC fnancial markets.25 Using corporate bond data, they demonstrate that electronic 

trading typically results in lower one-way transaction costs. Their fndings suggest that 

the benefts of electronifcation are greater for liquid securities, which will generate more 

responses on an electronic platform. 

Mizrach (2015) explored liquidity provisions in the corporate bond market using a variety of 

metrics.26 In particular, the paper relied on survey data from Greenwich Associates to show 

that electronic platforms played an important role in facilitating trading of corporate bonds, 

with an estimate of 80 percent usage of electronic platforms for investment grade bonds and 

43 percent for high-yield bonds in 2014. However, most of these electronic platforms did not 

provide direct access to corporate bond investors; therefore, the market share of electronic 

trading volume was still very low as of 2014. 

Leveraging data from two Treasury securities trading platforms with differing levels of pretrade information, Dunne, Li and Sun (2015) examined the impact of additional pre-trade 

information on price discovery in the Treasury securities market.27 Their fndings imply that 

additional information does equate to improved price discovery, though price discovery 

does not derive equally from the two platforms. Rather, they fnd that more price discovery 

occurs on the more active, but less transparent, platforms. 

In their study of corporate bonds, Bessembinder, Jacobsen, Maxwell and Venkataraman 

(2017) documented that both banks and non-bank dealers reduced capital commitment as 

a percentage of volume traded in the portion of the market where electronically facilitated 

trades are most likely to occur.28 These results support the interpretation that electronic 

venues have reduced liquidity search costs and the need for dealer intermediation services 

in some segments of the corporate bond market, despite the fact that electronically 

facilitated trading still represents a relatively small share of the overall market in corporate 

bonds. 

23 Lawrence Harris, “Transaction Costs, Trade Throughs, and Riskless Principal Trading in Corporate Bond Markets,” 

October 24, 2015. 

24 SEC Regulation National Market System (Regulation NMS). 

25 Terrance Hendershott and Ananth Madhavan, “Click or Call? Auction versus Search in the Over-the-Counter 

Market,” The Journal of Finance, February 2015. 

26 Bruce Mizrach, “Analysis of Corporate Bond Liquidity,” FINRA Offce of the Chief Economist, 2015. 

27 Peter G. Dunne, Youwei Li and Zhuowei Sun, “Price Discovery in the Dual-Platform US Treasury Market,” Global 

Finance Journal, 28, 95-110. October 2015. 

28 Hendrik Bessembinder, Stacey Jacobsen, William F. Maxwell and Kumar Venkataraman, “Capital Commitment 

and Illiquidity in Corporate Bonds,” The Journal of Finance, Forthcoming. 
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OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

The SEC’s August 2017 study on capital markets and liquidity specifcally addressed pretrade transparency and electronic trading in the corporate bond market for the period 

from August 2014–November 2014.29 The SEC staff found that ATS trades were small 

in size. In addition, ATS quote activity was concentrated in bond issues with larger issue 

size, investment grade, longer original maturity and less complex features. Finally, when 

comparing pre-trade price quote information with customer trades, over 90 percent of 

customer trades had a quoted price on at least one of the ATSs at the time of a trade 

execution. 

29 Staff of the DERA of the SEC, “Report to Congress: Access to Capital and Market Liquidity,” August 2017. 
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OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

Pre-Trade Analysis Data and Methodology 

The MSRB obtained data for a four-month period from February 2015–May 2015 (“relevant 

period”) from two ATS platforms30 with signifcant presence in the municipal securities 

market and conducted an analysis of these data.31 Both platforms voluntarily provided the 

MSRB with pre-trade and post-trade data, including RFQ (bids and offers wanted), live quote 

and associated transaction data. The RFQ data include quantity and price information for 

each RFQ, RFQ responses and associated trades, if any, with nearly 700,000 requests and 

2.6 million responses. The live quote data contain bidding and offering amount, bidding 

and offering price, and bidding and offering yield information, with about 8.1 million quote 

updates from the two platforms.32 

Initially, this report sought to assess live quote and RFQ data as a frst step toward 

determining whether quote information could be useful for price discovery purposes and 

may have value for market participants. An in-depth analysis was then performed on the 

ATS quote data and RTRS trade data. For the purposes of this research report, only 

secondary market trades in municipal bonds are included in the analysis.33 

It is important to note that pre-trade data could also be available from other ATSs, broker’s 

brokers, dealers and third-party vendors. Dealers may have multiple offerings for an 

individual bond depending on where the quote will be shown (i.e., an offer quote on an 

ATS versus an offer quote to a client). The MSRB requested ATS data from two specifc ATSs 

because of the signifcant amount of retail-sized trades on those platforms, their prominent 

market shares at the time, and their ability and willingness to voluntarily deliver a large 

amount of data quickly and effciently. 

There are several data and methodology differences between this report and the July 

2018 SEC white paper on municipal bond trading and quotes on ATSs. The SEC paper: 

• analyzed four ATSs’ data for the period from August 2014–November 2014, while this 

report utilizes two ATSs’ data covering the period from February 2015–May 2015; 

• included all trades disseminated via RTRS, while this report excludes primary market 

offering trades disseminated via RTRS; 

• combined live offer quotes and requests for bids and focused on trades when there 

was at least one live offer quote and at least one response quote to a bid-wanted 

request contemporaneously. For purposes of this report, the live quotes and responses 

to bid-wanted requests are treated separately due to the difference between the two 

processes; 

• measured transaction costs for customer and inter-dealer trades using the ATS quote 

data as a benchmark, while this report focuses on price discovery and the potential 

usefulness of ATS quotes as pre-trade information. 

30 For confdentiality purposes, this report does not reveal the name of an ATS when describing detailed results. In 

addition, the MSRB removed redundant quotes from the same frm in the same bond. 

31 The SEC also obtained similar municipal bond ATS data from August 2014–November 2014, while the SEC and 

FINRA separately obtained corporate bond ATS data from August 2014–November 2014. See Staff of the DERA 

of the SEC, “Report to Congress: Access to Capital and Market Liquidity,” pages 178–190, August 2017. 

32 Duplicate quotes for each dealer across both platforms were removed for this analysis based on CUSIPs, date 

and general timeframe of the quotes. 

33 In addition to excluding primary offering trades, a few trades with erroneous information were also removed from 

the analysis, including securities with a maturity date before a trade date, or an issuance date before a trade date. 
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OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

Report Findings 

This report frst summarizes the overall picture of inter-dealer and ATS trading in municipal 

securities from 2015–2018 and then presents the analyses for RFQs and live quotes. 

Market Share of Inter-Dealer and ATS Trades 

This report compares the market share of different trade types for the relevant period to 

the period of January 2018–June 2018 to gauge whether the market share has changed 

signifcantly. Table 1 presents types of trades by market share and par value for customer 

buy, customer sell and inter-dealer trades. The percentage breakdown between customer 

buy, customer sell and inter-dealer trades, whether by trade type or by par value, does not 

differ substantially when comparing the two periods measured. 

Table 1. Percent of Total Market Trades Comparison 

Most Recent Period 

1/2018–6/2018 

Relevant Period 

2/2015–5/2015 

Trades Par Value Trades Par Value 

Customer Buy 37.3% 43.1% 39.8% 40.9% 

Customer Sell 23.8% 37.6% 22.2% 33.3% 

Inter-Dealer 38.9% 19.3% 37.9% 25.8% 

Table 2 on page 14 shows the percentage of inter-dealer trades executed via an ATS from 

August 2016–June 2018. About 60 percent of inter-dealer trades were executed on ATSs 

during each month in 2017 and the frst half of 2018, while the percentage by par value 

was approximately 30 percent. Both percentages are slightly higher than those in late 2016. 

Table 2 therefore confrms that ATS participation in the overall inter-dealer market has 

remained signifcant and steady throughout 2017 and 2018.34 

34 In November 2017, the MSRB produced a fact sheet summarizing inter-dealer ATS activity. See MSRB, “InterDealer Municipal Trading,” November 9, 2017. Prior to July 2016, the MSRB did not receive an indicator via the 

RTRS data for transactions conducted on an ATS, so the MSRB was not able to perform an assessment of the 

market share of ATS trades for the relevant period. 
© 2018 Municipal Securities Rulemaking Board msrb.org 14 

OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

Table 2. Market Share of ATS Trades Among Inter-Dealer Transactions 

Month Trades Par Value 

Aug-16 56.0% 27.0% 

Sep-16 57.2% 28.2% 

Oct-16 57.7% 24.9% 

Nov-16 58.0% 28.0% 

Dec-16 59.0% 27.2% 

Jan-17 59.9% 29.5% 

Feb-17 60.0% 32.3% 

Mar-17 59.5% 31.7% 

Apr-17 59.7% 30.1% 

May-17 60.9% 32.3% 

Jun-17 60.7% 33.6% 

Jul-17 61.1% 32.5% 

Month Trades Par Value 

Aug-17 60.4% 32.7% 

Sep-17 60.0% 33.6% 

Oct-17 59.6% 32.7% 

Nov-17 59.8% 32.1% 

Dec-17 58.9% 29.2% 

Jan-18 59.3% 29.7% 

Feb-18 59.4% 30.5% 

Mar-18 58.2% 28.9% 

Apr-18 59.2% 29.1% 

May-18 59.5% 28.5% 

Jun-18 58.8% 29.3% 

In terms of bond characteristics, municipal bonds quoted on the two ATS platforms, whether 

via RFQs or live quotes, had substantially higher principal amounts at issuance than an 

average municipal bond.35 

Table 3 shows that the average issuance size of municipal bonds quoted on the two ATS 

platforms, whether via the RFQ process or the live offer quote provision, were larger than the 

average issue size for all municipal bonds during the relevant period. 

Table 3. Issue Size of Bonds Quoted on ATS Platforms (2015)36 

Average Issue Size 

Median Issue Size for Median Issue Size for Bonds for All Tax-Exempt 

Bonds with RFQs with Live Offer Quotes Municipal Bonds 

$45,000,000 $40,800,000 $25,800,000 

This analysis shows the median maturity length is 14 years for bonds sought via RFQs and 12 

years for bonds offered via live quotes. 

Request-for-Quote Data 

Most of the RFQ data from the two ATSs are bids-wanted with only 0.3 percent of the data 

representing offers-wanted. There was a total of approximately 697,800 RFQs (see Table 4 

on page 15) in the relevant period, with an average of about 8,400 RFQs per trading day 

across the two platforms.37 By comparison, there were over 2.7 million total responses to 

35 Issue size refers to the total amount of a bond offering in an issuance, which includes securities with all maturity 

dates. 

36 The issue size for all municipal bonds is provided by Barclays Municipal Index as of September 2016. Bernhard 

H. Fischer, “Taxable U.S. Municipal Bonds Make Sense for Non-U.S. Investors,” Exhibit 6, Principal Global Fixed 

Income, October 18, 2016. 

37 Duplicated RFQs on both ATS platforms were eliminated based on CUSIPs, quantity and general timeframe of 

RFQs. 
© 2018 Municipal Securities Rulemaking Board msrb.org 15 

OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

the 697,800 RFQs with about 32,700 responses across the two platforms each day, with 

an average of almost four responses per each RFQ (the median is three responses). Eleven 

percent of RFQs on the two platforms received no responses. Table 4 also shows that, 

overall, there were about 173,800 trades associated with the 697,800 RFQs, with a trade-toquote ratio of 25 percent on the two platforms. Therefore, the remaining 75 percent of all 

RFQs, representing about 524,100 RFQs with an average of around 6,300 RFQs per trading 

day, did not result in a trade, but nonetheless represented a potentially signifcant amount of 

data that could be useful for the marketplace. The great majority of these trades on the two 

platforms (approximately 91 percent) are “retail-sized”—meaning 100 bonds or fewer. 

Table 4. Descriptive Statistics for RFQs Data 

February– 

May 2015 

Average 

Per Day 

Number of 

CUSIP Numbers 

Represented 

Per Day 

Number of RFQs 697,844 8,408 5,694 

Percentage of Bids Wanted 99.7% 

Number of RFQ Responses 

Average Number of Responses Per RFQ 

Median Number of Responses Per RFQ 

2,713,207 

3.9 

3.0 

32,689 5,242 

Percentage of RFQ’s with No Response 10.9% 

Number of Trades Resulting from RFQs 173,751 2,093 1,902 

Trade-to-Quote Ratio 24.9% 

Percentage of Retail-Sized Trades 91.2% 

Number of RFQs Resulting in No Trades 524,093 6,314 4,369 

Percentage of Total RFQs 75.1% 

Generally speaking, RFQ response information is not available to all ATS participants, unlike 

RFQ and live quote data, which are available to many participants on a platform unless a 

live quote submitter chooses to limit the view to select market participants. Regardless, as 

indicated here, the results of some RFQs can be useful information for both buy- and sellside market participants. 

The most frequently quoted and traded quantity is 10 bonds, or $10,000 par value, followed 

by 25 ($25,000 par value), fve ($5,000 par value), 20 ($20,000 par value) and 50 ($50,000 

par value) bonds as the next most-frequently quoted and traded on the two platforms38. 

Table 5 on page 16 illustrates the number of RFQs for each of those bond sizes under 100 

bonds, as well as the number of trades associated with each of the RFQ quantities. For the 

listed, most frequently used RFQ quantities, the trade-to-quote ratio was the highest for the 

25-, 20-, 30-, 40- and 50-bond RFQ sizes (between 28 percent and 29 percent, respectively), 

but the lowest for the fve-bond RFQ size (19 percent). In addition, for the 89 percent of 

RFQs receiving at least one response on the two platforms, the trade-to-quote ratio was 28 

percent, compared to the overall trade-to-quote ratio of 25 percent. 

38 In this example and in Table 5, on page 16, the illustrated quantities are discrete quoted quantities, not ranges of 

quantities. 
© 2018 Municipal Securities Rulemaking Board msrb.org 16 

OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

Table 5. RFQ Quantities and Trade-to-Quote Ratio 

RFQ 

Quantity 

Number of 

RFQs 

Percent of 

Total RFQs 

Number of 

Trades 

Trade-to-Quote 

Ratio 

5 85,332 12.2% 16,357 19.2% 

10 113,171 16.2% 28,896 25.5% 

15 59,399 8.5% 15,508 26.1% 

20 58,057 8.3% 16,375 28.2% 

25 92,377 13.2% 26,855 29.1% 

30 30,163 4.3% 8,442 28.0% 

35 16,804 2.4% 4,675 27.8% 

40 18,806 2.7% 5,257 28.0% 

45 9,943 1.4% 2,512 25.3% 

50 59,581 8.5% 16,702 28.0% 

55 5,833 0.8% 1,472 25.2% 

60 7,361 1.1% 1,819 24.7% 

65 5,010 0.7% 1,217 24.3% 

70 4,885 0.7% 1,213 24.8% 

75 12,050 1.7% 2,764 22.9% 

80 4,005 0.6% 919 22.9% 

85 3,098 0.4% 708 22.9% 

90 3,257 0.5% 744 22.8% 

95 2,085 0.3% 473 22.7% 

100 35,572 5.1% 8,374 23.5% 

Total for Above 

RFQ Quantities 626,789 89.8% 161,282 25.7% 

All RFQs 697,844 100.0% 173,751 24.9% 

All RFQs with 

Responses 621,977 89.1% 173,751 27.9% 

Further, when an RFQ received more responses, it became more likely to result in a trade. 

When examining the trade-to-quote ratios by the number of responses received on ATS 2 in 

Table 6 on page 17,39 the authors of this report found that the trade-to-quote ratio ranged 

from nine percent when an RFQ received only one response to 40 percent when an RFQ 

received 20 responses. 

39 The authors of this report found irregularity in data captured by ATS 1 in which some market participants 

essentially internalized many RFQ trades, but the data still show the number of responses as one. The authors of 

this report believe that the overall trade-to-quote ratio on ATS 1 was still valid, but the analysis of the ratios by 

number of responses received may not be meaningful. 
© 2018 Municipal Securities Rulemaking Board msrb.org 17 

OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

Table 6. Relationship Between Number of Respondents and Trade-to-Quote Ratio on ATS 2 

Number of Respondents Trade-to-Quote Ratio 

1 9.4% 

2 12.6% 

3 14.8% 

4 16.3% 

5 18.4% 

6 20.9% 

7 23.5% 

8 25.9% 

9 28.6% 

10 30.5% 

15 36.4% 

20 40.4% 

Next, the authors of this report examine what price levels at which those RFQ trades were 

executed. These RFQ trades were primarily inter-dealer trades, but also included some 

institutional customer trades. Table 7 shows that, for the 25 percent of RFQs that resulted in 

a trade execution on the two platforms, nearly all bid-wanted trades occurred at the highest 

bid price (or the lowest offer price for the very few offer-wanted RFQs). 

Table 7. Relationship Between RFQ Responses and Trade Price 

Trades Occurred at Most Favorable RFQ Response Price 172,643 

Trades Did Not Occur at Most Favorable RFQ Response Price 1,109 

Percent of Trades at Most Favorable RFQ Response Price 99.4% 

However, as mentioned, 75 percent of all RFQs, or 6,300 RFQs per day, did not result in a 

trade on the platform. The percentage of RFQs that did not result in a trade is even higher 

for those RFQs with few or no responses, as illustrated in Table 6. For those 6,300 RFQs 

per day that did not result in a trade, most of the market cannot discern at what price those 

trades might have been executed. Certainly, having multiple respondents improves price 

information, as demonstrated by the relationship between number of respondents and 

trade-to-quote ratio; however, even with 20 responses to an RFQ on ATS 2, 60 percent of 

those RFQs still did not lead to a transaction. 

Even if many RFQs resulted in no trades, could responses to RFQs still add value to the 

price discovery process, if publicly disclosed? Table 8 on page 18 shows that of all the 

trades during the relevant period, around 815,000 (or 27 percent of all trades), had at least 

one response to a bid-wanted RFQ in the same CUSIP number on the same trading day.40 

Perhaps not coincidentally, out of those 815,000 trades, there were nearly twice as many 

customer sell trades than customer buy trades. The ratio is a reverse from a normal day 

during the same period, where there were nearly twice as many customer-buy trades as 

40 CUSIP numbers and certain related descriptive information are copyrighted by the American Bankers Association 

(ABA) and are used with permission from CUSIP Global Services managed on behalf of the ABA by Standard & 

Poor’s. ©2018 ABA. “CUSIP” is a registered trademark of ABA. 
© 2018 Municipal Securities Rulemaking Board msrb.org 18 

OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

customer sell trades (see Table 1 on page 13), suggesting that there is a connection between 

bid-wanted RFQ activities and customer selling activities. 

Table 8. Market Share of Trade Types When Matched with Same-Day Responses to an RFQ 

Interdealer Customer Buy Customer Sell Total 

Number of Trades with SameDay Responses to an RFQ 323,350 173,147 318,529 815,026 

Percent of Total 40% 21% 39% 

When comparing customer sell prices for those 318,529 customer sell trades with the 

highest bid quotes from the same-day responses to an RFQ, Table 9 shows that the 

median difference was only about 12 basis points, in the range of what SEC staff found and 

published in their recent white paper (July 2018).41 

Table 9. Difference Between Best Bid Response Quote and Customer Sell Trade Price 

Percentile 

Customer Sell 

(Best Bid Quote — Trade Price) 

10th -1.44 

20th -0.56 

30th -0.12 

40th 0.00 

50th 0.12 

60th 0.39 

70th 0.63 

80th 0.83 

90th 1.10 

In conclusion, 25 percent of RFQs resulted in a trade execution. In addition, even though 

75 percent of RFQs did not lead to a trade, the bid responses to an RFQ process represent 

a signifcant amount of potential information that could still be benefcial to price discovery 

if publicly disseminated as a pre-trade indicator signaling the highest price a market 

participant is willing to pay at the time. More research would need to be performed in this 

area to assess the costs and benefts of releasing such information. 

Live Quote Data 

Unlike responses to RFQs, where only market participants who submit a bid-wanted request 

can observe all responding quotes, generally live quotes are more visible than RFQs to 

participants of ATS platforms and therefore are more widely broadcast to the trading 

community than RFQs.42 

41 Using a slightly different methodology, the SEC study illustrated that the mark-down for customer sell trades 

averaged 7.8 basis points, with a median of 23.2 basis points, during the period from August 2014–November 

2014. 

42 A live quote submitter does have the option to prohibit select subscribers from seeing the submitter’s quotes. 
© 2018 Municipal Securities Rulemaking Board msrb.org 19 

OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

Before the authors of this report present the analysis of live quote data, it is important 

to note relevant differences between the municipal bond market and other fxed income 

markets, such as the Treasury and corporate bond markets. Specifcally, the fragmented 

nature of the municipal bond market and the diffculty in shorting municipal bonds are 

unique characteristics that present signifcant market challenges. With a large number of 

municipal bonds in the market, fewer than one percent of the outstanding bonds trade on 

any given day, and many municipal bonds will not trade for extended periods of time, if at 

all, after the initial offering. This fragmentation discourages dealer quotes in many municipal 

bonds, since there is little economic incentive to do so because of the small chance that 

a quote could lead to a trade unless a bond is actively traded and quoted. Dealer capital 

would be better concentrated in a few highly traded municipal bonds. In addition, this 

limitation of dealer quoting activities is further exacerbated by bond shorting diffculties, 

as shorting tax-exempt municipal bonds is frequently cost-prohibitive, and dealers typically 

cannot offer a competitive quote unless they own the bond or have immediate access to it. 

By comparison, one could also expect that the percentage of bonds with only one offer at 

a given time in the corporate bond and Treasury bond markets would be substantially lower 

than the percentage of municipal bonds with only one offer. The ability of dealers to short 

corporate and Treasury bonds allows them to offer bonds they do not own. Because of the 

cost and diffculty in shorting municipal bonds, fewer dealers and other market participants 

would be able to offer municipal bonds to sell on an ATS unless they already own the bonds. 

In addition, live quotes in municipal bonds are heavily one-sided, as about 95 percent of all 

live quotes submitted are offer quotes and only fve percent are live bid quotes. Less than 

0.01 percent of all ATS quote submissions by a particular dealer contain bids and offers 

simultaneously. Further, there were very few two-sided markets during the relevant period.43 

By contrast, the corporate bond market has a substantially higher number of CUSIP numbers 

with bid and offer quotes on ATSs. For example, using corporate bond ATS quote data from 

2014, the SEC economists found that an average of about 35 percent corporate bonds have 

both bid and offer quotes during the covered period. 

For most CUSIP numbers, there is only one dealer offering the bond at a time on a given 

ATS. To get an idea of the depth of offerings on the ATS platforms, the authors of this report 

took a snapshot at 10 a.m. ET every trading day during the relevant period for both ATSs 

and found that: 

• 79.4 percent of CUSIP numbers on ATS 1 had only one dealer offering a quote;44 

• 95.4 percent of CUSIP numbers on ATS 1 had two or fewer dealers offering a quote; 

• 94.4 percent of CUSIP numbers on ATS 2 had only one dealer offering a quote; and 

• 99.4 percent of CUSIP numbers on ATS 2 had two or fewer dealers offering a quote. 

Having over 90 percent of all CUSIP numbers with only one or two dealer quotes is unique 

to the municipal bond market. As previously described, because of the vast number of 

securities in the municipal market and the relatively high cost of shorting tax-exempt 

municipal bonds, very few dealers can offer a quote for a majority of individual CUSIP 

numbers. This is in stark contrast to the corporate bond market. This analysis shows that on 

43 While two-sided markets can happen when different dealers submit bids and offers for the same CUSIP, a twosided market is highly unlikely, due the fact that only fve percent of all live quotes are bids. 

44 On ATS 1, a certain dealer appeared to be duplicating other frms’ offerings, meaning this dealer’s offerings were 

redundant, as this dealer had the most offerings of any dealer on ATS 1 but less than one percent of all trades on 

ATS 1. This duplication caused ATS 1 to appear to have fewer unique offerings. The percentages shown for ATS 1 

in this report therefore represent the percentages after excluding that one dealer’s quotes by the MSRB. 
© 2018 Municipal Securities Rulemaking Board msrb.org 20 

OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

an average trading day only 12 percent of municipal bonds outstanding had at least one 

quote on at least one platform; by comparison, a SEC report from August 2017 shows over 

54 percent of corporate bonds have at least one quote across the two ATSs in their sample.45 

Table 10 shows that there was a total of 8.1 million live quote updates during the relevant 

period, with an average of 98,000 live quotes per day. Nearly 95 percent of these live 

quotes, or 7.7 million, were live offers. During the four-month period, a total of 194,300 

CUSIP numbers were represented by these live offers, with an average daily total of 125,400 

CUSIPs. This report also examined the number of CUSIP numbers quoted at the 10 a.m. ET 

snapshot and found that an average of 47,300 CUSIP numbers, or 38 percent of all CUSIP 

numbers quoted on a given day, were quoted at that moment. 

Table 10. Descriptive Statistics for Live Quotes 

February – May 2015 Average Per Day 

Number of Live Quotes 

Number of Live Offers 

Percentage of Live Offers 

8,120,471 

7,694,560 

94.8% 

97,837 

92,706 

Number of CUSIPs Quoted 194,317 125,389 

Number of CUSIPs Quoted at 

10 AM Snapshot 

47,286 

In terms of trading, Table 11 shows a total of about 667,100 trades executed against offer 

quotes on these two ATS platforms, with an average of about 8,000 trades per day. The 

median offer size on the two ATSs is 35 bonds or $35,000 par value. By comparison, the 

median trade size on the platforms is 25 bonds or $25,000 par value, while the average 

trade size is 53 bonds or $53,000 par value. Overall, 88.7 percent of the trades executed 

on the two platforms have a trade size of 100 bonds or less (or $100,000 par value or less), 

which is in the range of a typical municipal bond retail-sized trade.46 The average trade 

size on the ATSs was signifcantly smaller than the average trade size of about $260,000 

par value for all municipal bonds during the relevant period as well as in 2017 and 2018. 

However, the median trade size of $25,000 par value on ATS platforms was nearly the same 

as the overall median trade size during those periods. 

Table 11. Descriptive Statistics for Trades Executed Against Live Offer Quotes 

February – May 2015 Average Per Day 

Number of Trades 667,120 8,038 

Percentage of Retail-Sized Trades 88.7% 

Median Offer Size $35,000 

Average Trade Size $53,000 

Median Trade Size $25,000 

45 SEC, “Report to Congress: Access Capital and Market Liquidity,” Table 18, Page 200, August 2017. 

46 A trade size of 100 bonds or less is frequently used as a proxy for retail-size trades; however, some of these 

executions came from institutions. 
© 2018 Municipal Securities Rulemaking Board msrb.org 21 

OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

When matching live offer quotes with all secondary market trades, almost 70 percent of 

trades in the market had a live offer quote on at least one of the two platforms at the time of 

an execution, with a median of three live offer quotes on ATS 1 and one live offer quote on 

ATS 2.47 The analysis shows that bonds that were more frequently quoted were more likely to 

trade. 

For those inter-dealer trades with at least one live quote available, the median price 

difference between inter-dealer trades and best offer quotes residing on the two ATSs 

at the time of a trade was zero, as shown in Table 12. In addition, nearly half of all interdealer trades were executed within 25 basis points of a best offer quote. Furthermore, the 

spread of price differentials between inter-dealer trades and best offer quotes seems to be 

symmetrical around the median price difference. 

Table 12. Difference in Trade Price and Best Offer Quotes for Inter-Dealer Trades 

Percentile Inter-Dealer Trades (Trade Price — Best Offer Quote) 

Number of Trades 851,415 

Percent of Total Trades 41% 

10th -1.36 

20th -0.57 

30th -0.25 

40th -0.06 

50th 0.00 

60th 0.00 

70th 0.19 

80th 0.51 

90th 1.09 

Note: All prices are expressed as a percentage of 100. 

For dealer-to-customer trades with at least one live offer quote at the time of execution, the 

authors of this report found that the median difference in price between the customer buy 

trade and the best offer quote (lowest offered price) was 75 basis points, or 0.75 percent 

higher than the best offer quote (equivalent to $7.50 per bond). On the other hand, the 

median difference in price between the best offer quote and the customer sell was 73 basis 

points, or 0.73 percent lower than the best offer quote (equivalent to $7.30 per bond). 

Table 13 on page 22 illustrates the difference in trade prices and best offer quotes ranked in 

percentiles for different types of trades. 

47 This report removed live quotes for one dealer on ATS 1 that was duplicating other frms’ quotes. In addition, this 

report removed redundant quotes from the same frm in the same bond. The authors believe that not removing 

the duplicated and redundant quotes would be an inaccurate representation of liquidity in the market. 
© 2018 Municipal Securities Rulemaking Board msrb.org 22 

OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

Table 13. Difference in Trade Price and Best Offer Quotes for Customer Trades 

Percentile 

Customer Buy (Trade Price— 

Best Offer Quote) 

Customer Sell (Best Offer 

Quote—Trade Price) 

Number of Trades 801,153 438,808 

Percent of Total Trades 38% 21% 

10th -0.29 -0.59 

20th 0.00 0.00 

30th 0.10 0.19 

40th 0.32 0.43 

50th 0.75 0.73 

60th 1.13 1.07 

70th 1.57 1.47 

80th 2.00 2.00 

90th 2.54 2.87 

Note: All prices are expressed as a percentage of 100. 

This symmetry also generally manifests in price differentials between best offer quotes and 

customer buy and sell trade prices, where the median distance of 75 basis points between 

customer buy and best offer quotes is nearly identical to the median distance of 73 basis 

points between customer sell and best offer quotes. As a further illustration, the 60thpercentile of the price distance between customer buy trades and best offer quotes is also 

nearly identical to the 60th-percentile of the price distance between customer sell trades 

and best offer quotes, with both about 110 basis points from the best offer quotes. The 

same is true for other percentiles presented in Table 13. 

These results seem to suggest that the best offer quotes on the two ATSs could be a useful 

pre-trade indicator for price discovery purposes, as prices for executed customer and interdealer trades on and off the platforms seemed to be related to quotes on the platform 

at the time of a trade. If quoted prices simply represented random price points and were 

not informative to trade executions in the market, it would be unlikely that the differential 

between best offer quotes and trade prices would have such an even distribution. More 

analyses are needed, however, to confrm this pattern using more recent ATS data. 
© 2018 Municipal Securities Rulemaking Board msrb.org 23 

OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

Future Research 

Since the MSRB solicited the 2015 quote data for this analysis from the two ATSs, the 

municipal securities industry has continued to evolve, especially in electronic quoting and 

trading in the secondary market. Many market observers believe there may have been an 

accelerated shift toward electronic quote and trading on ATSs, as opposed to the traditional 

voice-based OTC trading for fxed income securities, including municipal bonds.48 There are 

also signs that the traditional divide between the inter-dealer bond market, where dealers 

trade with each other, and the “dealer-to-customer” area, where dealers arrange trades for 

investors, is beginning to blur, as more and more institutional investors are using electronic 

platforms, such as ATSs, to place their own offers and bids. 

Furthermore, a new breed of market participants—proprietary trading frms that rely upon 

automated algorithms to trade their own capital—have increasingly occupied a signifcant 

space in the municipal securities market. While proprietary trading frms are often registered 

as broker-dealers, they are not a traditional broker-dealer (or an investment adviser, for that 

matter), since they only trade their principal accounts without acting as an agent, a dealer 

or an investment manager for their customers. Proprietary trading frms are naturally heavy 

users of ATS platforms, as they are drawn to the anonymity and speedy auto-execution 

features of ATSs to interact with other market participants. 

Today, the growth in algorithmic trading, coupled with increased usage by institutional 

investors, has led to signifcantly more offerings and responses to RFQs on ATSs. Based on 

these market changes, it would be prudent for researchers to solicit more current data from 

market participants and conduct further analysis. 

48 Robin Wigglesworth and Joe Rennison, “Bond Trading: Technology Finally Disrupts a $50 Trillion Market,” 

Financial Times, May 9, 2018. 
© 2018 Municipal Securities Rulemaking Board msrb.org 24 

OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

Conclusions 

This report focused on price discovery and usefulness of ATS quotes as pre-trade 

information by separately examining RFQ data and live offer data from two prominent 

ATS platforms in the municipal securities market. The main fndings are as follows: 

• There were information imbalances for quote data in the municipal bond market, as a 

majority of live quotes were offer quotes as opposed to bid quotes, while a vast majority 

of RFQs were for bids rather than for offers. 

• 89 percent of RFQs received at least one response on the two platforms, and 25 percent 

of RFQs resulted in an execution. The trade rate was higher when an RFQ received more 

responses. 

• Over 90 percent of all CUSIP numbers quoted had only one or two dealer quotes on 

each ATS platform at 10 a.m. ET each day. 

• Prices for executed customer and inter-dealer trades on and off the platforms seemed 

to be related to the best offer quotes on the platform at the time of a trade, with the 

median customer buy trade price 75 basis points higher than the best live offer quotes 

and the median customer sell trade price 73 basis points lower than the best live offer 

quotes. 

• ATS participation in the overall inter-dealer market has remained signifcant and steady 

throughout 2017 and 2018 (see Table 2 on page 14). 

In addition, the analysis of ATS quote data indicates that live quote information is likely 

useful pre-trade data for price discovery purposes, because trade prices for both customer 

and inter-dealer trades executed on and off the platforms seem to be related to the best 

offer quote. For RFQ data, it is possible that public disclosure of responses to RFQs may still 

beneft the market, even if the RFQ process does not result in a trade execution, because 

those responses would provide the market an indication of latent trading interest. 

More research is needed in this area to arrive at a more defnitive conclusion. In addition, 

since the ATS data used in this report are from early 2015, it would be prudent to examine 

more recent data. 
© 2018 Municipal Securities Rulemaking Board msrb.org 25 

OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

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15. MSRB. “Long-Range Plan for Market Transparency 

Products.” January 27, 2012. 

16. MSRB Notice 2013-14. “Concept Release on PreTrade and Post-Trade Pricing Data Dissemination 

Through a New Central Transparency Platform.” 

July 31, 2013. 

17. MSRB. “Inter-Dealer Municipal Trading.” November 

9, 2017. 

18. MSRB. “2017 Fact Book.” February 27, 2018. 

19. SEC. “Report on the Municipal Securities Market.” 

July 31, 2012. 

20. SEC. Rule 301 (b)(5)(ii) of Regulation ATS. 1998. 

21. SIFMA. “2017 Fact Book.” August 25, 2017. 

22. SIFMA. “The Role of Municipal Securities Broker’s 

Brokers.” 2017. 

23. Sirri, Erik R., “Report on Secondary Market Trading 

in the Municipal Securities Market.” Research 

Paper Commissioned by the Municipal Securities 

Rulemaking Board. July 2014. 

24. Staff of the Division of Economic and Risk Analysis 

of the SEC. “Report to Congress: Access to Capital 

and Market Liquidity.” August 2017. 

25. Wu, Simon Z., “Transaction Costs for Customer 

Trades in the Municipal Bond Market: What 

is Driving the Decline?” Municipal Securities 

Rulemaking Board. July 2018. 
© 2018 Municipal Securities Rulemaking Board msrb.org 26 

OCTOBER 2018 Analysis of Municipal Securities Pre-Trade Data from Alternative Trading Systems 

Appendix A—About the Authors 

Simon Wu, Ph.D., Chief Economist—Mr. Wu is the Chief Economist for the Municipal 

Securities Rulemaking Board (MSRB). With nearly two decades of experience applying 

economic expertise to securities policymaking and regulation, Mr. Wu oversees economic 

analysis of MSRB rulemaking and municipal market transparency initiatives, and leads related 

statistical, econometric and fnancial economic analysis. Before joining the MSRB’s Market 

Structure department, Mr. Wu served as a fnancial economic expert on securities trading, 

market structure, best execution, investment management and fnancial institution risk 

management at several economic consulting frms. Mr. Wu also served as Chief Economist 

at the Federal Housing Finance Agency (FHFA), Offce of Inspector General, where he was 

involved in regulatory oversight on mortgage-backed securities issuance and trading, capital 

market risk management and unsecured lending by banks. He began his career as senior 

economist at the Financial Industry Regulatory Authority (FINRA) where he led economic 

studies in support of securities rule proposals and policy impact analysis. Mr. Wu has a 

doctorate and master’s degree in economics from Vanderbilt University and a bachelor’s 

degree in economics from Belmont University 

John Bagley, Chief Market Structure Offcer—John A. Bagley is the Chief Market Structure 

Offcer for the Municipal Securities Rulemaking Board (MSRB). He leads the Market 

Structure department, which is responsible for the organization’s activities and functions 

related to market leadership, market structure, market transparency, economic analysis, 

research and industry operations. Mr. Bagley also oversees the Product Solutions and 

Operations department, which is responsible for the MSRB’s market transparency products 

and data subscription services. Mr. Bagley most recently served as president of BondDesk 

Trading LLC, where he was responsible for its broker-dealer and related trading platform 

activity. Previously, Mr. Bagley served in sales and trading roles at divisions of UBS and its 

predecessor, PaineWebber, for nearly three decades. Mr. Bagley serves as a non-voting 

member of the Securities and Exchange Commission’s (SEC) Fixed Income Market Structure 

Advisory Committee (FIMSAC). Mr. Bagley received his bachelor’s degree from Boston 

University and has a master’s of business administration from Columbia University. 

Marcelo Vieira, Director of Research—Marcelo Vieira is the Director of Research for the 

Municipal Securities Rulemaking Board (MSRB). As director of the research program, Mr. 

Viera’s main objectives are to facilitate investor protection, market education and support of 

other MSRB programs by producing and disseminating analytical and statistical information. 

He is responsible for producing the MSRB’s annual Fact Book and other research reports, 

and supports the organization’s use of data in rulemaking and transparency initiatives. Prior 

to joining the MSRB, Mr. Vieira served in various research-related roles at the Securities 

Industry and Financial Markets Association (SIFMA), including director of market statistics 

and analysis and vice president of securities industry research. Mr. Vieira received his 

bachelor’s degree in fnance from the Robert H. Smith School of Business at the University of 

Maryland. 
ABOUT THE MSRB 

The MSRB protects investors, state and local governments and other municipal entities, and the 

public interest by promoting a fair and effcient municipal securities market. The MSRB fulflls this 

mission by regulating the municipal securities frms, banks and municipal advisors that engage in 

municipal securities and advisory activities. To further protect market participants, the MSRB provides 

market transparency through its Electronic Municipal Market Access (EMMA®) website, the offcial 

repository for information on all municipal bonds. The MSRB also serves as an objective resource 

on the municipal market, conducts extensive education and outreach to market stakeholders, and 

provides market leadership on key issues. The MSRB is a Congressionally-chartered, self-regulatory 

organization governed by a 21-member board of directors that has a majority of public members, in 

addition to representatives of regulated entities. The MSRB is subject to oversight by the Securities 

and Exchange Commission. 

C O R P O R A T E O F F I C E M S R B S U P P O R T O N L I N E 

Municipal Securities 202-838-1330 msrb.org 

Rulemaking Board emma.msrb.org 

1300 I Street NW, Suite 1000 Twitter: @MSRB_News 

Washington, DC 20005 

202-838-1500