A white paper released by SEC-registered investment adviser Gurtin Fixed Income Management has outlined proposed regulations that would require municipal bond dealers to disclose markups to customers, a requirement that aims to increase transparency in the municipal market.
According to the white paper, current and proposed regulations from the Municipal Securities Rulemaking Board (MSRB) and the Financial Industry Regulatory Authority (FINRA) are a good start, but unfortunately fall short of the level of full transparency available in other liquid markets such as equities. Gurtin also believes that the magnitude of markups and commissions vary across asset classes, with marked differences between markets with established disclosure requirements and the municipal market. Retail investors, meanwhile, are typically most disadvantaged, historically paying larger markups on municipal bonds than do institutional investors.
"Current regulation does little to protect retail investors from excess markups on municipal bonds," says Bill Gurtin (pictured), CEO and CIO at Gurtin Fixed Income. "Investors can facilitate transparency through understanding markups and using tools – which are free and publicly available – to at least approximate the actual commission they're being charged. Alternatively, retail investors can benefit from exploring institutional managers who not only offer professional investment expertise, but also reduce transaction costs by working with multiple dealers and purchasing the bonds at the bid price with no markup at all."