Bond Brokers Bid Farewell to Fat Commissions.
Tuesday, April 4, 2006 | Dylan JovineRating:
Question (sent in by wcein7): I own a portfolio of municipal bonds, and can never seem to get pricing information on them. Is there a service I could use to get this information? Answer: The information that I'm about to give you may be directly responsible for your bond broker not being able to buy that new set of skis or go on that extra vacation. But, I'm going to tell you anyway - what's one more Wall Street enemy anyhow?
Just go to www.investinginbonds.com, the web site of the Bond Market Association. Click on "municipal bond trade information." On the next page, you can search for bonds by state, and sort by credit rating, maturity and interest paid. You can also find a bond by using its identification number. Of course, the pricing information you receive will be 15 minutes old, but what do you expect for a free service? (The website will also be rolling out data on investment grade corporate bonds and high-yield bonds as well.)
For those of us who buy and sell municipal bonds, this is the first place you'll want to visit before you call your broker for a trade. By seeing the recent pricing activity, you'll be able to determine if your broker has been doing to you what most politicians have been doing to the people since the beginning of time.
And there is certainly proof that brokers have been less than honest in regard to the prices they've been charging customers for municipal bonds. Oftentimes, municipal bonds are thinly traded, which can create a large "spread" between the "bid price" and the "offer price." The bid price is the price you get when you want to sell a bond. The offer price is the price you pay when you want to buy a bond. If that spread is too large, bond dealers could be selling you bonds "at the offer" that they purchased from another investor "on the bid" - and then throwing a "normal" commission on top of it (the one you see) all without you knowing about it.
The good news is that last June, eight investment firms paid $610,000 in fines and restitution after regulators determined that investors had received less than market prices for their municipal bonds. But over the long-term, offering investors transparency will be far more powerful than a regulator can be - it will shift the bargaining power to individual investors - much like the internet has changed the economics of the stock trading business.
Your Question was Answered By: Dylan Jovine, Editor of Fallen Angel Stocks.
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Dylan Jovine
Chief Investment Officer
The Tycoon Report
