WASHINGTON — The Municipal Securities Rulemaking Board is proposing to create a trade data product that would allow academic researchers to tie trades to specific dealers whose identities remain anonymous.
The self-regulator said the proposal is a result of data requests from academics.
"Academic researchers have requested access to trade data containing dealer identifiers to gain a better understanding of secondary market trading practices in the municipal securities market, including issues related to intermediation costs, dealer participation and liquidity," the MSRB said.
Larry Harris, chair of the University of Southern California's finance department, said the proposal would help academics conduct more in-depth research, specifically on riskless principle and agency trades.
"With a better understanding of [those] we could find out to what extent the inter-positioning of the dealers is necessary and how it can be improved if we had electronic systems that matched buyers to sellers or at least made it easier for them to find each other," Harris said.
Dealers are currently required to submit data on most of their transactions to the MSRB's Real-time Transaction Reporting System within 15 minutes of execution. That post-trade information is made public, but does not differentiate between dealers.
Under the MSRB's proposal, the information could come with anonymous identifiers that would allow researchers to track the actions of specific dealers. The researchers would have to be associated with an institution of higher education to obtain the data.
The Financial Industry Regulatory Authority released a similar proposal on Thursday that would apply to corporate bond data.
In an effort to prevent academics from reverse engineering the data to figure out the dealers' real identities, the MSRB would require the researchers agree not to engage in the practice. Access to the data would require a $500 set-up fee and an additional $500 for each calendar-year data set requested. The self-regulatory agency will also prohibit redistribution of the data and require the users to disclose their specific intentions for requesting the information.
If the MSRB decided to end an agreement with an academic or institution, the data will have to be returned or destroyed. Requests could also only be made for information that covers at most the past two years.
"Quality academic research is a great resource for regulators as we consider potential rulemaking and technology initiatives," said MSRB executive director Lynnette Kelly.
The MSRB asked for public comments on the proposal to be submitted by Sept. 14. The board asked commenters to weigh in on whether there are better ways to balance giving timely information while also protecting dealers.
It also asked about the effectiveness of the two-year delay period, the ability to anonymously identify dealers by instead grouping them based on similar characteristics, and the effect on dealers who are discovered through a researcher's reverse engineering.
In addition, commenters were asked to weigh in on whether only providing data to academics with institutions of higher education is sufficient or whether the data should available to a larger group of researchers.
