The MSRB Rule

On May 14th 2018, the Municipal Securities Rulemaking Board (MSRB) implemented a rule that requires brokerage firms to disclose to retail investors the pricing mark-up or mark-down on many corporate, agency and municipal bond trades. While individual fixed income bond trades typically do not involve a commission, some involve a transaction cost. This may be a cost not necessarily disclosed to retail investors.

MSRB rule and transaction
cost transparency

While costs for individuals transacting in small quantities of bonds have declined in recent years, they remain significantly higher than those seen on comparably-sized stock trades.1 Reduced dealer inventory within the municipal bond market may be one contributing factor. Because bonds aren’t exchange-traded, and lack readily accessible market prices, regulators are looking to increase transparency to bring reporting standards more in line with those surrounding equity trades.

The MSRB rule has introduced meaningful transparency on many bond transactions.

Did you know?
      The average implied transaction cost on bonds is 145 basis points, while the average implied equity transaction cost is <1basis point. 2

How does this impact investors?

  • Bond pricing details must be disclosed on investors’ trade confirmation statements.
  • Upwards of 8,000 retail transactions each day in municipal securities alone may be impacted by these new MSRB disclosure requirements.3
  • Disclosure will be required when certain bonds are bought and sold by the dealer within the same trading day.
  • Specifically, disclosure on the retail buyer’s trade confirmation will need to include:
    • The price charged to the customer.
    • The price to the firm of the same-day trade (reference price).
    • The difference between those two prices.

These developments may signal a shift away from trading individual bonds toward managed fixed income strategies.

MSRB changes

Make BlackRock your
municipal fixed income partner

Managing municipal fixed income portfolios can be more challenging than ever with fragmented bond markets and increasing regulations.

The changing regulatory landscape may signal a shift away from individual bonds, toward managed fixed income strategies, including fixed income SMAs, iShares, iBonds, and Mutual Funds.

With the broadest array of fixed income solutions in the industry4, investors trust us with more assets than any other fixed income manager.5

Benefit from professional municipal bond management:

  • A disciplined investment process
  • Credit research
  • Pricing advantages
  • Bond access

We offer a custom approach for portfolios and are the #1 provider of separately managed accounts by AUM.6

See how top producing advisors are migrating to managed bond portfolios.