In terms of outstanding issuance in Fixed income, the $3.8 trillion Municipal Securities market is dwarfed by the $13.9 trillion US Treasury market and the $8.1 trillion US Corporate Bond market, but there’ another measure that really matters.
At the inaugural meeting of the SEC’s Fixed Income Market Structure Advisory Committee meeting held on January 11th of this year, Chairman Jay Clayton provided us with some additional context regarding these markets. To quote the Chairman1.
These markets are massive—and growing.
• The U.S. corporate bond market has experienced significant growth since the early 2000s. Issuance in the corporate bond market has hit record highs five years running. In 2016, almost 1,400 companies issued $1.5 trillion of corporate bonds, and there was over $8.5 trillion of corporate bonds outstanding. By comparison, in 2006 there was over $4.8 trillion of corporate bonds outstanding.
• Growth in the U.S. corporate bond market has also outpaced growth in U.S. equities: between 2006 and 2016 the value of corporate bonds outstanding rose by about 76 percent, while the equity market cap rose by 40 percent.
• The municipal bond market is also large and vital and has experienced significant growth in recent years. By the end of 2016, a total of 31,000 different municipal bond issuers had approximately $3.8 trillion bonds outstanding, up 17 percent from the end of 2006.
The smallest market by issuance just happens to have the largest number of issuers with the widest variety of characteristics!
1Opening Remarks at the Inaugural Meeting of the Fixed Income Market Structure Advisory Committee, https://www.sec.gov/news/public-statement/opening-remarks-inaugural-meeting-fixed-income-market-structure-advisory
2See 2017 SIFMA Factbook at 23-24, 31, available at https://www.sifma.org/wp-content/uploads/2016/10/US-Fact-Book-2017-SIFMA.pdf .
We have a paradox. The smallest market in terms of issuance has the largest number of issuers and individual issues! In order to navigate these complex markets successfully, institutional traders turn to technology for help, and to a segment of the market known as Broker’s Brokers who serve as neutral intermediaries in helping to source liquidity.
It would be nearly impossible to keep track of the hundreds of thousands of issues that come to market from the tens of thousands of issuers without technology and the technology that nearly all of the Broker’s Brokers rely on is MuniBrokers.
MuniBrokers was designed by brokers to automate and digitize key components of the institutional municipal market and leverage the benefits of delivering a technology that enhances the skills of the human broker in curating such a diverse and complex market.
The data itself is diverse and complex with a variety of formats, terms, maturities, ratings, and yields.
MuniBrokers aggregates the vast majority of the Broker’s Broker market into a single website, enabling institutional traders to log in once and access fifteen competing brokerage firms.
The system provides complete front-, middle- and back-office functions as well as compliance and management reports. It is a technological solution designed specifically to deal with the most diverse securities market in the US.
By focusing on the needs of the key participants in the market and tailoring the technology to address these needs, MuniBrokers has become essential to the Broker’s Broker market and serves as a model for other complex securities products. This is unique in the fixed income market and has applications to the corporate bond market as well.
The aggregation of the broker data also provides the broader market with a technology that enables useful insights into the municipal market. The data is just the beginning. MBIS, the Municipal Bond Information Services, provides municipal data and market indicators to promote improved price transparency and enhance monitoring and pricing practices. This is a private initiative designed to deliver an industry solution.
The FinTech industry has introduced numerous solutions which often struggle to gain traction. It goes without saying that the technology must be fit for purpose and for the audience, but in order to succeed, the technology needs to find the balance between solving existing problems and supporting those who provide the service. Having the very professionals whose success is based on their knowledge and skills design a system that transfers those skills into a technology can be unsettling, but the MuniBrokers experience has shown that it can be done successfully.
As more and more businesses are relying on technology, it’s important to make certain that we don’t create technology for technology’s sake. Delivering the tools designed specifically for the users to help them do their job better is the core of our philosophy and has helped us serve our clients better and create more transparent, efficient and liquid markets with MuniBrokers.