On March 7, to little fanfare, the MSRB
Pre-trade price transparency – accessibility of quotes by market participants – has been made available to market participants for about as long as the MSRB has been studying "whether pricing mechanisms and liquidity in the market could be improved with higher levels of pre-trade price transparency" – 14 years. Thus, it should not be surprising that the MSRB's January concept release highlighted some of the benefits of quotes citing three research reports from the MSRB itself and "other MSRB research papers that demonstrate the increasingly predictive value of pre-trade data for pricing bonds." That said, since the release asks, lets add that the benefits of access to quotes (pre-trade price data) has been validated in the purest way possible – two entrepreneurs started a business 14 years ago to parse pre-trade quotes and that business is thriving today, continuing to extract relevant data from messages and spreadsheets and do much more. SOLVE has been using natural language processing to extract quotes across the fixed income market and its clients – market participants of all types and sizes – have recognized the value of pre-trade price transparency.
Further, and again this is addressing the January concept release and in anticipation of it being raised again, the MSRB's suggestion of limiting data collected due to an inability to (i) de-duplicate and (ii) parse unstructured data dramatically increases the burden on those providing quotes and negatively impacts the value of the output. As one who has built software and data solutions, ease of implementation is a foundational key to success. Telling users to do it one way that benefits the "vendor" raises costs and creates barriers for potential users. This is especially so when the suggested "limitations" have been solved. SOLVE Quotes™ parses structured and unstructured messages and attachments in real time and de-duplicates quotes to prevent false liquidity signals. This ensures market participants see accurate, relevant data for the bonds and market segments that matter most to them.
If the MSRB pursues this initiative—though its necessity is debatable given the private sector has already addressed this need—it should leverage existing tools and services used by market participants. These solutions enable seamless data collection from all sources without creating undue burdens, while parsing structured and unstructured data and de-duplicating quotes effectively. The concept release notes that there is no "freely available public source for pre-trade data." One can make the same statement around trade data. While available for "free" on EMMA, that free service is paid for by market participants to maintain the service and through data feed license fees those same market participants subscribe to in order to efficiently and effectively utilize trade data. So much for "free." Importantly, innovators have continued to demonstrate their ability to listen to and meet (and sometimes exceed) the needs of the market and to do so cost-effectively.
Finally, the MSRB cites the fact that retail investors "likely have little or no pre-trade data despite being the largest holders of municipal securities." While true, it is also true the vast majority of retail muni investor holdings are held via SMAs, ETFs, funds and individual bonds procured by and held at their financial institution. Even if a retail investor has access to such data, what are they to do with it? Can they execute on it? Can they identify comparable bonds that meet their needs? Going out on a limb here but, I will guess, the vast majority of retail investors (all?) are and will continue to go to their trusted advisor or self-directed service provider. That said, if access for retail investors was the necessary result to finally put this exercise to rest, that seems to be a Solve-able problem – no pun intended.
This leads back to the point at the outset – as this has been a subject of request for comment, concept releases, etc., for 14 years, one can expect it to rear its head again. In anticipation of the same and, more importantly, to provide market participants with the known benefits of access to pre-trade quotes, now is the time to leverage this data and services surrounding the same.
