The success of craigslist makes me ponder the idea of establishing a listing service for selling seasonal municipal bond.
Munis are traded over-the-counter, i.e, buyers and sellers do not directly interact, but instead, they trade through a dealer. Dealer stand-by as a party ready to take the opposite side of the trade, and their role of an intermediator solved the problem of pair-wise matching. Munis are not traded on the exchange because dealers can better engineer the trade when the buy and sell part of the trade remain anonymous. The fact that bonds are mostly bought for income not speculation make them very illiquid, maintaining an illiquid market for over millions of bond on an exchange is very inefficient. Yet, OTC transaction has its drawback. The illiquidity and the anonymity gives the dealer enormous market power. This is reflected in the large spread they earn through each trade.
Internet based listing service seems to be the middle ground between an exchange and dealer mediated OTC market. Buyers and Sellers can directly match each other without incurring large search cost. Significant saving in dealer's spread is possible when buyers and sellers directly negotiate.
In my mind, an ideal municipal bond listing service should be inexpensive ( or free like craiglist), handles paperwork such as ownership transfer easily as paypal, and able to avoid fraud and default, much like a security clearing house. Owners of the bond should be verified through the bond registration database and transfer of money should be easy.
Will it occur one day that a hybrid of Craiglist, Eebay and stock exchange changed the landscape of financial transaction? Will the internet one day really step into the terrain of wall streeters?
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment