Market structure experts at the MSRB provided their analysis of pre-trade quote data for municipal securities traded on two alternative trading systems ("ATSs").
The report focused on price discovery and usefulness of ATS quotes as pre-trade information by looking at request-for-quotes ("RFQ") data and live offer data from two ATS platforms. The key findings of the report include:
- almost 70 percent of the trades reported to the MSRB had a live offer quote on at least one of the two ATSs during the time of a trade execution;
- over 90 percent of the quoted municipal bonds had one or two offer quotes on each ATS at any given time;
- the median difference in price between customer buy trades and the best offer quote at any time during a trade was 75 basis points;
- the median difference in price between customer sell trades and the best offer quote at the time of the trade was 73 basis points;
- generally, inter-dealer trades occurred at the best offer price;
- RFQs received a median of three responses;
- there is an increased chance that an RFQ will result in a trade as the number of respondents to an RFQ rises; and
- 75 percent of RFQs did not lead to a trade.
The report notes that pre-trade quote data may benefit the market by enhancing price discovery and market liquidity. However, the report notes that additional research is necessary in order to reach a definitive conclusion on this issue.
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