Months before new Municipal Securities Rulemaking Board rules on transparency in the municipal bond market take effect, 280 CapMarkets plans to offer a free cloud-based service to help advisors find the most appropriate and best-priced municipal securities for their clients, starting this fall.
“When an advisor searches for bonds for clients the result is thousands of securities,” says Dave Rudd, co-founder of 280 CapMarkets and head of institutional sales. “They have to differentiate the good from the bad.”
But that’s very difficult to do because of the nature of the muni market. “There are millions of active CUSIPs in the municipal bond market compared to 85,000 ticker symbols in the corporate bond market and a vast difference in liquidity,” says Rudd. “Advisors struggle to compare apples to apples, and the dealer community has taken advantage of that. Our goal is to represent a free-market solution by making it transparent.”
Most important, the new service will make the prices of muni bonds more transparent and help advisors manage and monitor muni portfolios, according to Rudd and Gurinder Ahluwalia, co-founder and CEO of 280 CapMarkets.
In the current muni market, markups and markdowns of a bond’s price can range between 1% and 5%, growing larger each time the bond changes hands, but they’re not disclosed. They are hidden within the price an advisor pays when buying a bond or receives when selling one.
The new service from 280 CapMarkets will deliver one price to advisors that can be done as a commission or fee-based trade. It aims to provide advisors access to the whole municipal bond market — the bonds that in a typical Wall Street bank are available from three separate divisions: capital markets, institutional sales and trading and wealth management — and the expertise to navigate that market, says Rudd. Independent advisors working outside that arena as well as fee-based advisors working within it currently cannot access bonds from all those sources, says Rudd.
“Our value proposition is to provide advisors access to the whole market, not a fragmented piece, where the whole street is in competition for every trade,” says Ahluwalia. “We check every available exchange when the order comes in, on all three desks, in a technology offering in one place, in the cloud and easy to access … We put our best trade ideas [and] only get paid if they trade with us.”
The new service is currently a pilot in alpha testing with a number of firms, and Ahluwalia and Rudd expect to launch it this fall. In the meantime, advisors interested in the service can visit the 280 CapMarkets website and the link to bondnav.com (short for bond navigator). The firm’s goal is to be included in the platforms of multiple custodians serving advisors. It has already engaged TD Ameritrade, Schwab, Fidelity and Morgan Stanley for that, and Pershing is its own clearing and custodian bank, says Ahluwalia.
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