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Contact:     Leah Szarek, Chief External Relations Officer


Washington, D.C. – New research by the Municipal Securities Rulemaking Board (MSRB) examines the use of external liquidity in the municipal securities market and reviews how much that has changed over the last 10 years. By looking at how municipal market participants accessed the market during the years 2011, 2015, 2019 and 2020, the MSRB found that the use of external liquidity has increased significantly for individual investor-sized transactions of $100,000 or less, while the use of external liquidity for institutional investor-sized transactions of $1 million or more has decreased.

“The rise of electronic, algorithmic and proprietary trading, and the proliferation of liquidity aggregation tools have caused significant changes in municipal market structure and how participants access the market,” said John Bagley, MSRB Chief Market Structure Officer. “Electronic trading efficiently aggregates tens of thousands of offerings and provides tools to help financial professionals and individual investors efficiently sort offerings to identify potential purchases. The growth of these tools has not only influenced how investors access the market but also what types of firms are providing liquidity to the market.”

External liquidity is defined as when a customer purchase or sale is filled using the offering or bid of a dealer that is different than and not affiliated with the client’s dealer. For customer transactions of $100,000 or less, the use of external liquidity increased from 30.2% in 2011 to 42.4% in 2020. During the same period, the use of external liquidity for transactions of $1 million or more decreased from 16.3% to 13.0%.

Meanwhile, the profile of the firms providing external liquidity significantly changed between 2011 and 2020. In fact, of the top 10 providers of external liquidity in 2011, only three remained in the top 10 in 2020. In 2011, the providers of external liquidity were dominated by large wealth management firms with large numbers of individual investor clients. In 2020, the providers of external liquidity were almost evenly divided between these large wealth management firms and firms that have few or no individual investor clients, whose business model is to make markets on a wide variety of bonds on various trading platforms. These relatively newer entrants into the market have grown their market share dramatically in the past 10 years and established themselves as significant providers of liquidity in the odd-lot and smaller block position sizes.

Read the paper.
Access additional research and market data publications from the MSRB.


The Municipal Securities Rulemaking Board (MSRB) protects and strengthens the municipal bond market, enabling access to capital, economic growth, and societal progress in tens of thousands of communities across the country. The MSRB fulfills this mission by creating trust in our market through informed regulation of dealers and municipal advisors that protects investors, issuers and the public interest; building technology systems that power our market and provide transparency for issuers, institutions, and the investing public; and serving as the steward of market data that empowers better decisions and fuels innovation for the future. The MSRB is a self-regulatory organization governed by a board of directors that has a majority of public members, in addition to representatives of regulated entities. The MSRB is overseen by the Securities and Exchange Commission and Congress.