Article Outline
Glossary
Definition of the Subject
Introduction
Early Corporate and Municipal Bond Market Microstructure Research
Fixed Income Pricing Service (FIPS) Research
Municipal Bond Market Research
Transaction Reporting and Compliance Engine (TRACE) Research
The Links Between Bond Market Microstructure Research and Other Finance and Economics Research
Bibliography
Keywords
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- ABS:
-
Automated Bond System. The original automated limit-order market for bonds operated by the NYSE that executed orders according to strict price/time priority. ABS was replaced by the NYSE Bonds Platform in 2007.
- Agency trade:
-
A bond transaction executed by a broker‐dealer on behalf of another party. A broker‐dealers is compensated by a commission on an agency trade.
- Broker:
-
A firm that acts as an intermediary by executing agency trades.
- Broker‐dealer:
-
A firm that engages in both agency trades and principal trades.
- Broker's broker:
-
A broker‐dealer that exclusively executes agency trades of municipal bonds with other broker‐dealers. Broker's brokers do not execute principal trades and they do not trade directly with public investors.
- Commission:
-
A form of compensation that a customer pays a broker‐dealer for executing an agency trade. Broker‐dealers must explicitly disclose the commission to the customer as a separate item on the customer's trade confirmation.
- Dealer:
-
A firm that engages in principal trades for its own account.
- FINRA:
-
Financial Industry Regulatory Authority. The self‐regulatory organization (SR0) created in July 2007 from the consolidation of NASD and the member regulation, enforcement and arbitration functions of the NYSE. FINRA rules are approved by the SEC and enforced by themselves.
- FIPS:
-
Fixed Income Pricing Service. The electronic system operated by the National Association of Securities Dealers (NASD) from 1994 through 2002 to collect and disseminate real-time quotations and hourly trade reports for a subset of high-yield corporate bonds. FIPS was retired in July 2002 with the implementation of TRACE.
- Market maker:
-
A specific designation made by a regulatory authority for a broker‐dealer that holds itself out to trade securities by publishing regular or continuous quotations to buy (bid) or sell (offer). Currently, there are no broker‐dealers regulated as market makers in the US corporate or municipal bond markets.
- Mark-up and mark-down:
-
A form of compensation that a customer pays a broker‐dealer for executing a principal trade. Customers pay a mark-up when they buy a bond from a broker‐dealer; they pay a mark-down when they sell a bond to a broker‐dealer. Unlike commissions, mark-ups and mark-downs do not need to be disclosed on customer trade confirmations.
- MSRB:
-
Municipal Securities Rulemaking Board. The self‐regulatory organization (SRO) charged with primary rulemaking authority over broker‐dealers in connection with their municipal bond transactions. MSRB rules are approved by the SEC and enforced by FINRA (formerly NASD).
- NASD:
-
Formerly known as the National Association of Securities Dealers. The self‐regulatory organization (SRO) charged with, among other things, primary rulemaking authority over broker‐dealers in connection with their corporate bond transactions. In July 2007, NASD and the member regulation, enforcement and arbitration functions of the NYSE consolidated to form FINRA.
- NYSE:
-
New York Stock Exchange. Operates the NYSE Bonds Platform (formerly ABS) trading system for exchange‐listed corporate bonds.
- OTC securities:
-
Over the‐counter securities. Securities that are not traded on an organized exchange.
- Principal trade:
-
A bond transaction executed by a broker‐dealer for its proprietary account. The broker‐dealer is compensated by a mark-up or mark-down on a principal trade.
- Riskless principal trade:
-
A principal trade in which a broker‐dealer purchases a bond to satisfy a previously received order to buy, or a broker‐dealer sells a bond to satisfy a previously received order to sell. The transaction is riskless to the broker‐dealer because the firm does not bear any inventory (price) risk.
- RTTRS (or TRS):
-
(Real‐Time) Transaction Reporting System. MSRB's municipal bond transaction reporting and dissemination system.
- Serial offering:
-
A bond issuance in which several different bonds are offered with different, often consecutive, maturities. Municipal bonds are typically issued in serial offerings.
- SRO:
-
Self‐regulatory Organization. A non‐governmental industry association that has statutory authority to regulate members through the promulgation and enforcement of rules and regulations governing business practices. The SEC oversees SRO activities and approves SRO rules.
- SEC:
-
US Securities and Exchange Commission. The primary governmental overseer and regulator of US securities markets, including the corporate and municipal bond markets. Broker‐dealers and SROs are overseen by the SEC's Division of Trading and Markets (formerly Division of Market Regulation).
- TRACE (formerly NASD TRACE):
-
Transaction Reporting and Compliance Engine. FINRA's corporate bond transaction reporting and dissemination system.
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Speeches, Public Statements, and Testimony by US Bond Market Regulators and Participants
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April 25, 2002, Remarks Before the Annual Meeting of the Bond Market Association, by SEC Chairman Harvey L. Pitt, New York, NY, http://www.sec.gov/news/speech/spch553.htm
February 3, 2004, Legal & Compliance Conference – The Bond Market Association, by SEC Commissioner Cynthia A. Glassman, New York, NY, http://www.sec.gov/news/speech/spch020304cag.htm
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Miscellaneous Sources of Information on International Corporate Bond Markets
April, 2004, Markets in Financial Instruments Directive (MiFID), Directive 2004/39/EC of the European Parliament and of the Council, Article 65, http://europa.eu.int/eur-lex/pri/en/oj/dat/2004/l_145/l_14520040430en00010044.pdf
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May 2006, Centre for Economic Policy Research (CEPR), “European corporate bond markets: Transparency, liquidity, efficiency”, http://www.cepr.org/PRESS/TT_CorporateFULL.pdf
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Piwowar, M.S. (2009). Corporate and Municipal Bond Market Microstructure in the U.S.. In: Meyers, R. (eds) Complex Systems in Finance and Econometrics. Springer, New York, NY. https://doi.org/10.1007/978-1-4419-7701-4_6
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