Bonds

MSRB: Trade prices improving due to increased number of quotes

An increase in trading activity and the number of pre-trade pricing quotes in the municipal securities market is leading to improved pricing, a research report from the Municipal Securities Rulemaking Board detailed.

The report, released Thursday, looked at the number of live quotes and trades on two ATS platforms from three month periods in 2021 and 2022. This follows the report released in 2020 which looked at data from 2018.

“There has been a significant increase in the number of live quotes and trades on the two ATS platforms since 2018, as well as measurable improvement in trade prices relative to best quotes for both customer buy and sell trades,” said MSRB chief economist Simon Wu. “This trade price improvement may be the result of increased quote provision and increased quote price competition informing execution prices on the ATS platforms.”

“There has been a significant increase in the number of live quotes and trades on the two ATS platforms since 2018, as well as measurable improvement in trade prices relative to best quotes for both customer buy and sell trades,” said MSRB chief economist Simon Wu. “This trade price improvement may be the result of increased quote provision and increased quote price competition informing execution prices on the ATS platforms.”

The analysis recognizes the imperfect nature of analyzing such data, noting the declines in the median number of responses to requests for quotes (RFQs) from seven in 2021 to five in 2022, as well as the difference between customer buy trade prices and best offer quotes increasing to 22 basis points in 2022 from five basis points in 2021. The MSRB still said that the statistics for 2022 were superior to those in 2018.

“While there was some decline in market quality between 2021 and 2022, that decline was not unexpected, considering the markedly different market conditions in 2021 and 2022,” Wu said. “It’s clear that pre-trade data continued to demonstrate its relevance and usefulness for the market.”

Some of the averages for 2022 can be chalked up to the unusually heavy trade volume that year, but the number of requests for quotes also rose significantly. The monthly average number of RFQs rose to 423,000 in 2022 from 199,000 in 2018 in addition to the growth rate for responses to RFQs was similar at 92.4%.

Live quotes also rose dramatically to 88.5 million live quotes in 2022 from 39.3 million live quotes per month in 2018 , a 125.4% increase.

“Unlike in prior years, when the quote volume had grown noticeably faster than the trade volume on the two ATS platforms, it appears that their respective growth rates between 2018 and 2022 were similar,” the MSRB report said. “By comparison, market-wide trades only grew 37% during the relevant period.”

This analysis comes ahead of the expected request for information on pre-trade data, the third pillar in the MSRB’s yearslong look at time of trade, post-trade and pre-trade data.

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