A Municipal Bond ‘Dealer’s Dealer’ Trade

Whereas it’s common to listen to about each day fluctuations within the numerous market exchanges, akin to NASDAQ or DOW, few buyers are conscious of a fluid alternate going down each day between fixed-income broker-dealer buying and selling desks and their rivals. This alternate is an over-the-counter market the place bond sellers come collectively by way of the “dealer’s dealer platform” to purchase and promote securities with each other.

The dealer’s dealer (BB) is an middleman/negotiator for consumers and sellers of municipal (muni) bonds within the secondary market. Like an actual property dealer, the BB doesn’t personal any securities however acts as an agent, representing consumers and sellers of muni bonds. These brokers assist facilitate the buying and selling circulation within the $4 trillion municipal bond market.

This platform consists of corporations that compete for bonds and shoppers, and the BB acts as a facilitator between the corporations so sellers can purchase what they don’t have or promote what they don’t want. The events concerned within the trades stay nameless, however every should be a registered broker-dealer to take part.

So, why ought to your monetary advisor’s Dealer Vendor use a BB? And the way does utilizing a BB have an effect on the person investor?

To reply these questions, you could perceive that the shopping for and promoting of municipal bonds is finished in an over-the-counter market. Previously, gamers would look ahead to the morning supply of a publication referred to as “The Blue Checklist.” This publication listed municipal choices by state and included the promoting agency’s title. As a result of anonymity is a invaluable negotiating software, a supplier would enlist a BB to entertain a bid for the bond of their liking. Thus, the negotiating started, and if all events agreed, a commerce occurred. Neither purchaser nor vendor knew who was on the opposite aspect of the transaction, and the BB labored with every agency to facilitate the transaction.

These corporations throughout the U.S. would work together with the BB by cellphone quite a few instances a day, buying and selling bonds. In the present day, sellers work with extra subtle digital buying and selling platforms referred to as digital communication networks (ECNs). These programs permit sellers to promote choices, execute trades, and purchase and promote on the public sale platform — all with out ever selecting up the cellphone. This technique has added larger visibility to muni merchandise marketed within the market whereas saving invaluable time.

An try has been made to maneuver municipal buying and selling to a extra generic valuing system, however that hasn’t confirmed simple due to the distinctive variations amongst municipalities and their monetary circumstances. However, the digital buying and selling community (ETN) has come a good distance and affords a substantial effectivity degree.

The benefit of getting your monetary advisor’s Dealer Vendor agency work by way of a BB might be useful in a number of methods. First, in case your monetary advisor (FA) is in search of a particular sort of bond for you and doesn’t have it in stock, they need to go into {the marketplace} to supply it. On this occasion, enlisting a BB to search out that particular bond is advantageous to the supplier. Sellers at all times search to provide their shoppers as near what they request as potential, and the BB can present you bonds that may suit your shoppers’ necessities.

This example can even work in reverse. If a shopper has a bond their FA agency wouldn’t often buy, this supplier can go to a BB and get a bid for these bonds from one other supplier who traffics in that sort of paper. In these instances, the supplier satisfies the funding aims. Utilizing a BB can even guarantee you that if you promote bonds, the worth you might be quoted represents what {the marketplace} pays that day, not simply the in-house bid out of your FA.

When promoting your securities, the BB supplies auction-like companies by asking market members to bid in your bonds. This format assures the vendor that their bonds are proven to sellers all around the U.S. If the worth is correct, a commerce ensues. A horny block of bonds can obtain upwards of 10 bids, which might prevent from calling greater than 10 corporations your self to ask for a price in your securities. BBs present an assurance that the bid worth you obtain isn’t just consultant of your FA agency’s worth degree however that of the whole market on that day.

Sellers who actively take part in each day bond auctions have a chance to convey worth to their shoppers by buying bonds on the “bid aspect” of the market as an alternative of the “providing aspect.” This technique is helpful to the person investor as a result of it ensures the most effective execution — and better returns.

As with all investing, information is energy. Figuring out extra in regards to the functioning of the muni market will not be solely advantageous however important to attaining your funding aims. Discussing these points together with your fixed-income advisor is at all times time properly spent.

At The DRL Group, we focus on serving to high-net-worth buyers maximize their tax-free returns by proactively sustaining their customized bond portfolios by way of all market circumstances. For extra data on how we may also help, please go to us at or contact one among our specialists at 281-398-8600.

The knowledge offered right here will not be funding, tax or monetary recommendation. You must seek the advice of with a licensed skilled for recommendation regarding your particular scenario.

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