Using EMMA To Protect Yourself Against Municipal Bond Markups

Our firm regularly uses experts from Securities Litigation and Consulting Group (SLCG).  Craig McCann, head of SLCG and his associate Geng Deng have recently published an excellent guide which can be used by municipal bond investors to protect themselves against excessive dealer markups.  The municipal securities rule-making board (MSRB) distributes statistics, documents, educational material and trade data through its electronic municipal market access (EMMA) system.  This information is an invaluable resource for municipal bond investors and should be used regularly by anyone who consistently invests in tax free, municipal bonds.

Using data from EMMA the SLCG experts determined that there were somewhere between $1.84 billion and $6.45 billion of excessive markups and markdowns since 2005 to investors on a subset of publicly available municipal bond trades.  The SEC issued on July 31, 2012, a “report on the municipal securities market” which noted that markups in the municipal bond market were higher than in the corporate bond and equity markets.  The same report noted that the markups on small municipal trades were much higher than for those on larger trades.

The SEC recommends greater transparency but no specific action has been taken to increase the degree of protective transparency for municipal investors.  This means, as with many things, that investors need to act, first and foremost, to protect themselves.  It is reasonable for investors to inquire of broker dealers what mark up is being charged on an individual trade.  If dealers did disclose the actual markup that was being charged, the markups on municipal bonds would contract and in short order, would be far more similar to those charged for other securities.

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