Municipal Bond Pricing, Part II: What Trade Data Reveal—or Not

The first part of this two-part article (published in the Fall 2015 issue of the Securities Litigation newsletter) discussed basic elements of fair pricing for municipal bonds, including the requirement of a fair price reasonably related to the market value of the security, and the challenges of finding that value in a thinly traded market. It also introduced the useful Electronic Municipal Market Analysis (EMMA) service, which provides access to data about municipal security trades and is made available by the Municipal Securities Rulemaking Board (MSRB). It ended with a discussion of how much a municipal securities dealer may charge as markup, markdown, or commission on a trade. An important question related to this discussion is this: How can one assess the fairness of that charge if it is not shown on a trade confirmation (by rule, commissions on as-agent trades are disclosed)?