What the MSRB’s Markup Disclosure Rule Means for Muni Investors and Advisors

The Municipal Securities Rulemaking Board (MSRB)’s new “markup disclosure rule” is on track to go into effect in the U.S. in May 2018, as part of a broader move toward greater transparency in the municipal bond market. Approved by the Securities and Exchange Commission (SEC) last year, the MSRB rule will require municipal bond brokers to provide retail customers with a clear breakdown of the fees charged for most trades – a significant change that is likely to spur greater dialogue around the costs associated with retail municipal bond transactions.

Before and after the MSRB rule

In the past, investor trade confirmations for municipal bond transactions have shown only the total price paid, with any markup already included in the price and not explicitly defined. After the new rule goes into effect, retail investors will see an explicit outline of the markup (or markdown) they paid, including the following required information:

  • The total dollar amount of the markup/markdown (i.e., the dollar difference between the customer’s price and the security’s prevailing market price, or PMP)
  • The total percentage amount of the markup/markdown (as a percent of the security’s PMP)
  • The time of the trade
  • A reference or hyperlink to Electronic Municipal Market Access (EMMA), the MSRB’s official repository for information, which includes historical trade price data (see snapshot below)

Trade confirmation before and after the markup disclosure rule

This insight into broker-dealer markups and how investment professionals are paid may generate mixed reactions from clients and could come as a surprise for some. Consider the example above: The markup on a $200,000 trade was over $5,000, which would likely stand in stark contrast to the commissions an investor is used to seeing in other markets, such as equities, where transaction costs are typically just cents per share or a flat (generally low) dollar amount per trade regardless of size