With increased transparency demanded on municipal bonds, Wall Street is turning its attention away from the muni market. Rules put in place in 2005 demand that dealers disclose data about trades within 15 minutes of making them. This has cut costs for municipalities but it—along with lower interest rates—is causing dealers to step back from the market.
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The Municipal Securities Rulemaking Board (MSRB) began demanding that municipal securities be traded in real time. Before the 2005 ruling, traders had 24 hours to post pricing on trades.
These observations are initial findings from a report that will be made public next month. But a report issued by the Federal Reserve in March also showed that Wall Street firms had cut inventories of municipal securities by 21% last year.
The pullback could affect liquidity in the municipal securities market. With demand rising
from the new tax laws, municipals could become expensive even while interest rates remain low. So there are multiple factors to be considered as investors contemplate how to prepare for the tax hike.