Using EMMA to Access Municipal Bond Markups

Abstract

In the past, assessment of the reasonableness of municipal bond markups depended on anecdotal recollection of markups and subjective judgment about what was customary. Interested parties including regulators can now use the MSRB’s EMMA service to determine the markups charged on a set of transactions and can make precise and accurate statements about how unusual such markups were, controlling for many factors thought to effect the reasonableness of markups.

We analyze over 13.7 million customer trades, totaling $3.9 trillion in par amount traded in fixed-coupon, long-term municipal bonds. We estimate that investors were charged $10.65 billion in municipal bond markups between 2005 and 2013 in our sample - $6.45 billion in trades on which excessive markups appear to have been charged.

Our sample includes about 30 percent of the fixed-coupon municipal bond trades and so the total markups charged from 2005 to 2013 is likely to be at least $20 billion. $10 billion of this $20 billion in markups were charged on trades on which excessive markups appear to have been charged. These markups are a transfer from taxpayers and investors to the brokerage industry and could be largely eliminated with simple, low-cost improvements in disclosure.

Keywords: Municipal Bond, MSRB, Trading, Markups