Muni Bond Market Structure
The municipal bond market is largely OTC (over-the-counter) with limited pre-trade transparency. Thousands of different issuers, each with multiple bond issues, create a fragmented market where price information is difficult to obtain. FINRA's TRACE system provides post-trade transparency for muni bonds, but retail investors often lack access to real-time pricing.
Dealer Markups in Muni Markets
Municipal bond dealers charge markups on bond purchases, which are not always transparent to retail investors. FINRA and MSRB (Municipal Securities Rulemaking Board) have rules requiring disclosure of markups on principal transactions with retail investors. These rules were adopted to address long-standing concerns about excessive markups charged to retail muni bond buyers.
Finding Fair Prices for Munis
Retail investors buying municipal bonds can use FINRA's TRACE data (available at finra-markets.morningstar.com) to see recent trade prices in the bonds they are considering. Comparing recent transaction prices to dealer quotes helps identify whether a markup is reasonable.
MSRB Rules and Retail Protection
The Municipal Securities Rulemaking Board (MSRB) writes rules governing dealers in municipal bonds. MSRB rules require fair dealing, disclosure of material information, and supervisory procedures. Retail investors with complaints about municipal bond dealers can contact the MSRB or FINRA.