The rise of automation in municipal markets

Transcription:

Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.

Mike Scarchilli (00:05):
Hi everyone and welcome to the Bond Buyer Podcast, your go-to source for all things municipal finance. I’m Mike Scarchilli, Editor-in-Chief of the Bond Buyer. And this week we’re diving into the dynamic world of electronic trading and automation in the municipal bond market. Joining us are Marty Mannion and Matt Schrager, managing directors and co-heads at TD Securities Automated trading division. Marty and Matt transitioned to TD Securities following the acquisition of their previous firm, headwinds Tech Global Markets, where they were pioneers in applying automated trading technologies to the muni market. Marty and Matt transitioned to TD Securities following the acquisition of their previous firm, Headlands Tech Global Markets, where they were pioneers in applying automated trading technologies to the Muni market. In today’s discussion, we’ll explore their journey from headwinds to td, the impact of automation on municipal trading and how technology is reshaping market accessibility and efficiency. We’ll also discuss the challenges and opportunities that automation presents in both the primary and secondary muni markets. So let’s get started and dive into this episode’s conversation hosted by the bond buyers executive editor Lynne Funk.

Lynne Funk (01:23):
Welcome everyone to this Bond Buyer podcast. I’m pleased to welcome Marty Mannion and Matt Schrager who are managing directors and co-heads at TD Securities automated trading. So welcome to you both.

Matthew Schrager (01:34):
Thanks Lynne. Thanks Lynne. Great to be here.

Lynne Funk (01:38):
All right, so I am really excited to talk about electronic trading automation in this market in the muni space, and I think from your seats, I’d like you to walk me and the audience through your trajectory from where Headlands began, where you both were before, where you are now, where you sit under TD Securities. Can you talk about, just tell me the path that led to where you are now.

Matthew Schrager (02:08):
Definitely. Thanks Lynne. So I’ll give a little bit of an overview and Marty feel free to jump in here obviously if I miss anything. So as you mentioned Lynne, and by the way, this is Matt in case it wasn’t clear from the audio, we are now part of td, but we joined in a somewhat atypical way. We joined via acquisition from a proprietary trading firm that we previously worked at called Headlands, as you mentioned. So brief little background on Headlands. Headlands started in 2009. The founders came out of Citadel where they helped build out some, basically some of the foundational pieces of Citadel Securities. So for example, one of our old bosses at Headlands helped build the market making business at Citadel. One of the other ones helped build out the equity business. Actually Marty worked with them there. And as I mentioned, Headlands started in 2009 and it was originally focused on kind of typical low latency asset classes like futures for example.

(03:19):

But I think the founders of headlines were always very sort of attuned to market structure changes and how markets evolve. And I think they knew for a while that fixed income was very likely to be sort of the next frontier, if you will. And so they started our group within Headlands around 2014. Marty was actually employee number one, and the approach that we took is we basically adapted some of the best in class techniques from that low latency, high frequency trading world, but adapted it and applied it to these very, very different fixed income markets. And we think that we took certainly at the time back in 20 14, 20 15, a very different approach than anybody was kind of taking at the time. And even today we think what we’re doing is still pretty, pretty unique. We grew over time to become the largest liquidity provider in the secondary market for Munis the market we all know and love and we’re proud of that.

(04:27):

But as part of being a part of a small, smaller proprietary trading firm, one of the implications of that is that we were ultimately somewhat limited by balance sheet essentially. And so there was an opportunity there and we were ultimately acquired by TD in mid 2021 or so, which has really allowed us to scale our business pretty significantly since that acquisition due to better access to capital and just the general resources of being part of a bigger institution, which has been amazing. It’s even allowed us to enter a couple of new businesses that we could never have touched at Headland. So for example, we got into the competitive underwriting space in Munis, which we started basically from scratch a couple of years ago. And now if you look by deal count for the deals that we’ve participated in, which is ig, we’re actually number two by deal count, which is something we’re excited about. So I’ll pause there, but it’s really been a great journey and we’re very excited about what the future holds.

Lynne Funk (05:44):
My gosh, I just think, I’m just thinking you say 2014 when you delved into Munis, right? 10 years, 2014, 10 years ago. Geez.

Matthew Schrager (05:54):
Sorry. Hard to believe. Hard to believe, right.

Lynne Funk (05:57):
Well, I think it’s going to be interesting, Marty, I want you to weigh in here too obviously, but how this evolution has been, the question I’m probably going to have for you to both to answer is how many firms are doing what you are doing in 2014? How many are doing it now? Those types of things. But Marty, why don’t you weigh in here?

Marty Mannion (06:16):
Yeah, absolutely. And happy to hit directly on that point. I think really for Matt and I, the transformation that we’ve seen over the last 10 plus years has been remarkable. When we launched the business back in 2014, I think there was very few of any participants who were engaged in full electronic trading. There was some automation, but I think full electronic trading was quite rare. And I think at the time there was a fair amount of skepticism that a more systematic, fully automated approach would actually work in this type of market. Now, it wasn’t just an issue in Munis, I think Rading at the time was very much in its infancy in other fixed income markets, for example, an IG credit, maybe 10% or so of that market traded electronically today that number is 45% and growing each and every year. And it’s not all that surprising that Munis would lag the adoption that we’d seen elsewhere in fixed income, given the sheer number of QIPs, the fragmented nature of trading and the myriad funding structures and bond features that exist in the space.

(07:22):

In addition, one thing that we talk about a lot that really complicates things is the inability to short tax exempt munis. And it really complicates trading in a very profound way. Clients are able to sell bonds through the RFQ process much like you would in other fixed income asset classes, but you can only really buy bonds out of a deal or inventory by engaging with posted quotes, which means dealers have to automate two entirely different types of workflows depending on whether you’re buying or selling, and very few markets operate in that fashion. But with all that said, we’ve seen a very noticeable shift or uptick over the last, call it two years or so, and it’s not coming from just the dealers and the liquidity providers, it’s customers and retail brokers who are really accelerating. I think the use of technology and E-Trade capabilities, these firms are connecting to many more venues to access liquidity.

(08:23):

You’re seeing a heavy investment in workflow improvements and that extends from both pre-trade through the post-trade process. And I know one of the more exciting developments that you were discussing with James Morris and investor tools of the last podcast was the s and h channel. And I think we’ll probably get into that a bit later in the conversation. I think the final point I’d want to make is we’ve kind of skipped over maybe the most important catalyst that’s driving adoption of rading and that’s the change in the regulatory environment. And it was really in fact, the reason that we jumped in back in 2014. And it was because in 2012, the SEC, MSRB, FINRA really started to take a much closer look at munis and suggest possible improvements, whether that was best X were handling and proved disclosures. And many of those changes have now been implemented.

(09:15):

And I think what you’ve seen is it’s greatly increased market transparency. You’ve seen big improvements in overall execution quality, and if you take a step back, the results have really been quite staggering. So we’ve seen according to the MSRB about an 80% decline in effective spreads for smaller retail sized orders while at the same time trade counts today are averaging over 50,000 a day across the market. That’s been true since 2022. And I think if you looked prior to that, the high water mark was 43,000 trades at 2008. So some of that of course is driven maybe by a more volatile interest rate environment. But I think e trading’s been a major factor. And what we talk about a lot is that this exact same story played out in other asset classes, equities being a really good example of this. It was really regulatory change in the late nineties, early two thousands that if you fast forward to today, spreads have compressed 90% you trade for free, there are no commissions If you’re a retail investor and you’ve seen something in the neighborhood, we’ll call it a six, seven, eight x increase in trading volumes. So we think that same set of themes or factors are playing out in munis, which makes us really excited about where we’re headed over the next few years.

Lynne Funk (10:36):
You almost say it’s like maybe I’ve used this term before, like a democratization, a bit of the market of the environment.

Marty Mannion (10:43):
Absolutely.

Lynne Funk (10:46):
Can you touch a little more on how automation is aided in workflows both in the primary and the secondary markets?

Marty Mannion (10:56):
Yeah, absolutely. So this is Marty, I’ll take that first and I’m sure Matt will want to jump in as well. So I’ll first tackle the secondary market and maybe start with the impact to liquidity providers. So as you know, Lynne RFQ counts have increased dramatically over the last few years for a variety of reasons. On a typical day, we’re seeing somewhere in the neighborhood of 40 to 50,000 requests and they’re coming from an ever expanding list of venues and platforms. In addition, the curtain times on many of these responses continue to tighten in part due to automation. And then given the retail nature of the market, about 90% or more of these auctions are for sizes less than a hundred thousand in notional. So there’s simply no way for a dealer to respond to these requests without a heavy investment in automating that process. Another area where automation I think has greatly helped liquidity providers is in managing the overall risk of their portfolio.

(11:58):

So the ability to dynamically price your inventory and the outstanding orders that you’re responding to in response to changes in flows, interest rate movements and in other factors helps dealers increase the overall velocity of trading and turnover positions much more quickly. And as importantly, it allows dealers to do so at a much lower cost at scale, which is critical because as bid ask spreads tighten, that allows dealers to somewhat compensate themselves for trading in a much tighter spread environment. Now if you shift to the client side, you’ve seen big improvements there as well. So the most sophisticated firms that we deal with have built their own internal proprietary systems to aggregate liquidity for multiple venues where in the past they may have executed on one single at TS venue.

(13:00):

Another kind of slew of firms is using third party EMS and OMS providers like investor tools to more efficiently access the market. And the levels that are posted by dealers in most cases are firm and immediately accessible. So I think all of this connectivity and aggregation allows clients to stage and execute orders at scale while enabling them to invest their own investors’ assets in something like days rather than weeks or months. And I think tighter bid as spreads that we talked about earlier from the dealer perspective allow clients to take advantage of certain transactions like call it tax loss trades, certain portfolio rebalance trades more economically where maybe it just wouldn’t have made sense when there was more friction in the process to execute those types of orders. And then finally, if we shift to the primary market, Matt talked about how we’ve engaged in that space recently. We’re certainly not experts on the negotiated space, but in the competitive space we kind of look at that market or competitive deals much like a large RFQ. So all the benefits we outlined earlier for secondary trading we think can apply to the primary space as well. If you could price a new issue at a lower cost and then distribute those bonds more efficiently, it allows you to improve pricing for both the issuer and the end investor and hopefully do so in a very scaled fashion.

Lynne Funk (14:35):
Yeah. Matt, do you have anything to add there?

Matthew Schrager (14:37):
Yeah, I was just going to say, I think it’ll be interesting to see we’ve been part of the story and the firsthand seat to the evolution in the secondary market and a lot of progress has been made there. My impression, and Marty mentioned we will not call ourselves experts in the primary market yet. My impression is that that part of the market is further behind when it comes to automation and it’s tricky. It’s, there’s a lot of ugly nuances that need to be sorted out, but I would not bet against significant automation improvements in the primary market. I think we’re one example trying to apply automation to competitive underwriting, but I think there’s probably a lot more to go there.

Lynne Funk (15:26):
Can you explain what you mean by automation in the competitive market? Yeah, what exactly is it that you’re doing?

Matthew Schrager (15:34):
Yeah, well here, lemme ask you a question. How many competitive deals do you think there are in the market every year?

Lynne Funk (15:41):
In the year, let’s say if there’s issuance in what, let’s just make it easy. 400 billion, competitive is a percentage of maybe 25% of that. I’m not sure. No, actually, you know what? This is a trick question because so many of the competitive deals are very small.

Matthew Schrager (16:01):
That’s what I’m getting at. The answer is a lot. It’s like thousands, right? And a lot of them are really small, right? Well, how many people do you think it currently takes to deal with an underwriting even of a small deal? The answer is a lot, right? There’s a lot of human effort that currently goes into managing those thousands and thousands of competitive deals. Well, I could tell you we have exactly two people working on it, and we’re number two in the league tables. That’s how automation helps, right? And why does that matter? What does that allow us to do? It simply allows us to charge less. It allows us to provide a better price and that is good for the issuer, it’s good for the end customer, it’s good for us if we’re able to accrue market share and as the specifics of how we go about doing that, there’s all sorts of technological considerations, et cetera. I don’t want to bore the audience too much, but I think it’s a space. And in a lot of ways the dynamics I’m talking about here are the same dynamics that cause automation to become required in secondary trading. It’s, there’s a lot of events that currently require a lot of human effort. And over time the more efficient outcome is to apply automation.

Lynne Funk (17:33):
And we’re going to get into a little bit more about the human element and what it means for that question of headcount, but we’ll get to that later. So I think this is great. So I think actually we’re going to take a quick break here, but we will be right back with Matt and Marty and we have much more to talk about including SMA growth and how electronic trading has helped spurred that growth. So we’ll be right back. Alright.

And we are back with Matt and Marty from TD Securities automated trading. Let’s shift into that separately managed account growth. That is almost every discussion I have with pretty much anyone in the industry right now is about how this explosive growth has really shifted sort of the demands and in what’s happening in this market, with some peg the SMAs holding well north of a trillion, some say even more than one and a half trillion. So can we talk about how electronic trading automation has helped spur that growth? Yeah, I’ll leave it open to either of you Who wants to take it?

Matthew Schrager (18:45):
Yeah, I’ll take a stab at it. Thanks, Lynne. Yeah, the growth of SMEs I think has been pretty incredible to see. The exact number to your point is a little bit hard to pin down, but I think the scientific term is, it’s a lot of a UM in this space and we’ve had a bit of a front row seat to it. By nature, SMAs naturally transact in a lot of these smaller size trades that we’ve been talking about, and that naturally puts them in contact with the more automated liquidity providers like us. And we have certainly seen our activity with SMA shops grow pretty explosively over the past, call it decade or so. And I really think it’s actually a great illustrative example of the kinds of themes we’re talking about here, like the impacts of technology and automation on our market. So if you think about what is an SMA business, and I think most people are probably familiar, but just for anyone who isn’t, it’s basically a bunch of small individual bond portfolios that are managed by a professional investment team where each of those accounts is effectively a customized portfolio for an individual investor.

(20:09):

And a large SMA shop might have tens of thousands of those accounts, and each of those accounts is made up of a diversified, customized portfolio of bonds. Now, historically, when there wasn’t much automation in the market, managing all those accounts was super, super time intensive for some of a lot of the same reasons we were just talking about. You can imagine how difficult it is for people to manage thousands or tens of thousands of individual customizable bond ladders. It’s, it’s just nearly impossible. On the other side, historically, it was also just pretty expensive to transact in the smaller sizes that these SMA players require. Again, we’re not talking about a giant billion dollar fund here that’s going to trade in gigantic sizes for an individual diversified portfolio, $10,000 could be a large proportion of that whole account, but $10,000 in the market is a very, very small trade.

(21:22):

And historically transacting in those sizes was again pretty expensive. And why is that? Well, it’s because the liquidity providers on the other side faced a lot of the same challenges that we’re talking about. If every trade requires a human to look at it, small trades just aren’t worth anybody’s time unless they can charge a whole lot to do them, which is what they used to do. So you had this situation where on one side managing thousands of individual accounts was difficult for the SMA providers. And on the other side, providing cheap effective liquidity across tons and tons of small tickets was difficult for liquidity providers. Automation has been the key to unlock both sides of that equation. So SMA providers can nowadays seamlessly manage these tens of thousands of portfolios through technology, basically improve workflows and liquidity providers like us and others can provide really cheap effective liquidity in sizes down to as small as $5,000, which happens to be at the minimum increment that munis are even allowed to trade in.

(22:41):

And in this way, I kind of often talk about SMA and algorithmic liquidity providers as sort of having a symbiotic relationship where they’ve helped each other grow. And again, I think in the end here, why do we care about any of this? The biggest winner in the end is the end investor in the marketplace, right? All these things that we’re talking about have allowed SMA firms to produce this great cheap, flexible, customizable offering that clients love. And I think equally importantly, to lower the account minimums on the offering, it used to be that you would need to have a million dollars minimum just to get into an SMA business, which obviously restricts the potential client base. Nowadays that number, I think gets as low as a hundred thousand and that makes the asset class a lot more accessible to average investors rather than just ultra high net worth individuals. And I think that that’s a really great thing. That was a really interesting point.

Lynne Funk (23:44):
I, it’s such a, to digress here for a second, but the story of the municipal market is often just told is it’s high net worth, it’s super wealthy, but really what this is making it more accessible and people obviously don’t really know about this market as much as everyone should.

Matthew Schrager (24:08):
I totally agree and look, of course, due to the nature of the tax-exemption, it’s always going to be most attractive to relatively higher net worth individuals, but you shouldn’t need to have a million dollars to get exposure to municipal bonds. It can be a very, very attractive asset class with much less money than that.

Lynne Funk (24:31):
So much has been said in this market particularly this is the conversation about liquidity and that everyone has these concerns or maybe rather not concerns, but liquidity has been a problem in this market. And then now we’ve been hearing actual concerns over Citigroup’s exit from the muni market, but particularly from the secondary market as a liquidity provider there. And a lot of folks like, well, when times are okay, that’s not going to be a problem, but maybe when volatility strikes, how will that secondary market fare? So I’m curious to see what you both think as liquidity providers. What’s your role? How’s it going to fare? Is the muni market going to make it through without Citi?

Marty Mannion (25:20):
Yeah, absolutely. It’s a really good question, Lynne, and I’ll take it maybe from our perspective and then zoom out on the broader market. We’ve never been more bullish about the opportunity set in Munis, and I think Matt touched on earlier, one of the primary reasons for the transaction or acquisition by td, which was access to more capital. And what we’re doing is using that capital to scale our portfolio, continually reinvest in our trading capabilities and service a much broader and more diverse mix of clients. I don’t think we’re alone, we’re seeing many other large dealers do the same. Now on the volatility point, I think it’s fair to say we probably have zero concerns there in how the market would respond. And in fact, I think if you look at the last three to four years, we’ve really lived through selling unprecedented times in Munis with the shock inflicted first by Covid and then just the rapid rise in interest rates over the last couple of years.

(26:23):

And I think if you look at bid as spreads, and we talked about this earlier, they’ve continued to tighten throughout this period and we track very closely when we’re competing in these RFQ auctions, how many bidders are responding. And if anything, that number has gone up. I think on average you’re seeing eight plus bidders per auction. And there are times where you’ll see 20, 25, 30 people responding to a single RFQ request from a client. So it’s a very healthy ecosystem from that standpoint. I think the period of March, 2020 in particular is especially illuminating. We had days, we all were living through 50 basis point moves in MMD, it was really unprecedented, but during that period it was actually, in many cases the algo providers were the systematic firms that were providing liquidity throughout that volatile stretch. And the only way you could do that was through automation.

(27:27):

You had to be able to dynamically respond to those types of pricing moves and be able to continue to move and churn that inventory that you had to continue to add risk. Now I think all of that being said, I think the concerns are understandable, but again, we always like to refer to other asset classes and equities provides another great example here. If you look at the late nineties, early two thousands, you had the dot-com bubble burst, you had DECIMALIZATION introduced, and then you had a whole bunch of other regulatory rules pass, which were called rem ms. And at the time many traditional dealers ended up exiting that space, but what you saw was a number of new liquidity providers kind of rush into the void. And if you fast forward to today, I think it’s fair to say in equities, pricing has never been better, especially for retail.

(28:28):

And we think that’s the same general story that’s playing out in Munis. And just a few more quick points to hit on, do you have, I think new proprietary market makers that have come into the space? You’ve seen not just TD acquiring us, but I think some other dealers acquire smaller electronic players to add to their capabilities and try to scale. And then finally you have firms in many cases through all to all trading, also providing liquidity. And that’s something that just frankly wasn’t available eight to 10 years ago without some of these improvements in automation or just technical capabilities that the platforms are offering. So I think for all those reasons, it’s a very healthy ecosystem that I think can continue to respond to changes in market dynamics.

Lynne Funk (29:21):
Do you think if there’s a dealer out there who doesn’t have this capability, that doesn’t have a platform, or is that going to lead them in the dust?

Marty Mannion (29:31):
I think it’s going to be really hard to compete in the part of the market that we’re talking about, which is the odd lot algorithmic part of the market. And as you know in munis, over 90% of trades are in small odd lot sizes. So it is probably the most retail centric market in finance. And so I think it will be a real challenge. That’s not to say there might be spots you can compete, whether it’s a new issue or maybe in larger block institutional sizes, but in this part of the market, I think automation is at this point, probably a prerequisite.

Matthew Schrager (30:09):
Yeah, I do think for the much larger trades, the really esoteric stuff, maybe the lower grades of high yield, et cetera, I think you’re going to have people involved in more or less the traditional way for a long time, even inequities, which again is extremely highly automated nowadays, if a $500 million block of risk is going off, a person’s looking at that trade, the difference in equities versus corporate bonds for example, is that just proportionally a lot more of the volume happens in those larger sizes. Now munis are kind of somewhere in between. There’s a lot of, as Marty mentioned, he said 90% of the market is odd, lots that’s below a hundred thousand dollars. The corollary status is 97% of trades are for less than a million dollars. I think that part of the market, if you don’t have any automation, is going to be really difficult to keep up. But I do think that the larger sizes will still sustain the more traditional model, but it’s definitely an evolution.

Lynne Funk (31:24):
Alright, so this is such a great conversation. I want to just talk, I guess the question I have now is really more broadly, you kind of answered it, but maybe you could sum it up a bit. How do you see technology really aiding? Does it aid in muni market growth?

Matthew Schrager (31:40):
Yeah, so great question and I think we’ve already discussed a lot of the major threads here about how it helps improve the market, improved efficiency, transparency, lower transaction costs, higher trading volumes, better accessibility. I think all of those trends are going to continue to play out. But I think the biggest thing to remember when we’re talking about this, and one that I think is very exciting for us personally, is that I think we are still in the very early innings of this evolution in this market. So if you look at credit, for example, corporate bonds, right? Nowadays something like 50% of all volume in that market is now executed electronically. And if you go back in time like five years, it was like 15% and it’s only going in one direction. I think it’s going to keep going up in Munis right now the best estimates for that number is closer to 20%.

(32:48):

Now, Munis might not reach exact parity with other asset classes, but we know where this train is headed and we see it firsthand. Although there are a number of very forward-looking firms that have embraced technology and been sort of early adopters. There’s still tons of firms out there who are grappling with how to adapt to these kinds of trends, how to incorporate technology both on the buy side and the sell side. And we see it all the time. Some of the more advanced firms, the really large SMA providers, they’ve sort of jumped into the pool with both feet and they do a great job. But there’s this giant tail of smaller firms who maybe don’t have the same kinds of tech budgets or just firms that are trying to figure it out, trying to figure out how to get there. And I think over time it’s just inevitable that more and more of them are going to get on board.

(33:55):

The forces that drive this trend are inexorable. There are a lot of things we talked about, greater efficiency, lower costs. It’s frankly the only way to make money in a world of decreasing management fees, decreasing bid, ask spreads. You need technology to help manage your cost structure in order to be able to keep up with those trends. I think in other asset classes, and we like to try to draw parallels between, we’ve done this a few times in other asset classes and I imagine we’ll see this here. You’ve seen some amount of consolidation over the years and truthfully this has already been happening even in Munis for years. If you look at the MSRB publishes a stat of just the raw number of dealers in the market, and I think over the last 10 years it’s down by like 50% or something like that. So this is happening already, right?

(34:51):

Yeah. Because it doesn’t make sense for thousands of Chinese firms to all have to make the same investments in technology are going to be required that are just going to become table stakes. Some amount of consolidation allows the industry basically to share those investments across more investors, which is a more efficient outcome. Exactly how far all of this will go in Munis, I think it’s hard to say, but I think the trends that we’ve been talking about are natural and ultimately good for the people that the market should serve, which is not us. It’s the investors, the investors, the end investors in the market who most benefit from all of the things that we’re talking about.

Lynne Funk (35:43):
So I guess this begs the question then. This is what I kind of were getting at here is headcount is people’s jobs. It’s still about you all too, right? I mean it’s about people who want to work in the business and provide services like this, but so how do you address that? Because it definitely has changed. It’s definitely shrinking businesses in certain ways. And how do you talk about headcount? How do you think about it?

Marty Mannion (36:09):
Yeah, it’s a really good question and I think Matt just hit on the point around consolidation. And I think there’s no question that we’ll see probably more or not less of that over time. And it’s probably somewhat inevitable that greater automation and use of technology is going to change the nature of certain roles. And I think it means for many shops are going to end up doing more with less, right? Or you’re going to augment what you’re doing with technology. But as we’ve seen in other asset classes, more automation also results in an increase in trading volumes. So the overall market we think in terms of secondary trading will continue to grow. And I think technology opens up other new opportunities. A few great examples for us I think is you now see many more data companies, trading platforms, tech providers that are servicing the space.

(37:06):

And I think that was not true 10 or so years ago. So those are entirely new types of businesses and new roles of people that are directly servicing the muni market. And it means that roles in research, quantitative modeling, pricing, have really proliferated in the last few years. And then finally, we talked about this earlier. I think Matt did a really nice job of summing this up. Parts of the market are heavily automating, but it does not mean that all trading goes a hundred percent electronic for some of the unique reasons and Munis that we talked about earlier. And we really feel, and we’re doing this internally at td, that technology can really aid individuals in their day-to-day decision-making process and make them much more effective, whether it’s a trader, whether it’s a pm, whether it’s a sales trader, that technology workflow enhancements can allow them to do their job much more efficiently. So on that part of the business, it’s less about we’re replacing people with technology, it’s more how do we deliver better tools that allow them to do their job at more scale in a much more efficient manner.

Lynne Funk (38:22):
Nice. Thank you for that. I think we’ve covered a lot here. Is there anything I didn’t ask you that I should have or that you want to leave the listeners with here?

Matthew Schrager (38:34):
Do you want to have a three podcast? We could talk about this stuff forever.

Lynne Funk (38:40):
I would. I think we’d probably lose some people

Matthew Schrager (38:46):
Maybe. But if you ever want to have the marathon version of the Bond Buyer podcast, we are down. Okay. Call us anytime.

Lynne Funk (38:53):
Excellent. Excellent. Well thank you both so much. I thought this was really fun. I think what the next 10 years will hold will be very interesting. I hope maybe we should just maybe make a date in 2034 to come back and see where this all is or see if we still have jobs.

Matthew Schrager (39:13):
We’ll be there. I like it. Thanks. Alright.

Lynne Funk (39:15):
Thank you both to Marty and Matt and thanks to our listeners. We’ll continue this conversation. For sure. Take care everyone.

Matthew Schrager (39:24):
Thank you. Thank you.

Mike Scarchilli (39:26):
We hope you enjoyed this episode. A big thank you to Marty and Matt for joining us and to our own wind funk for conducting the interview. Let’s review some key takeaways from this conversation.

One, automation has significantly lowered the entry barriers for smaller investors in the municipal bond market by reducing the minimum investment amounts and facilitating the management of SMAs or separately managed accounts. This shift has democratized access to municipal bonds, allowing a broader range of investors to participate in what has traditionally been considered a high net worth market.

Two, the transition from manual to electronic trading has been accelerating, mirroring the trends in other fixed income markets. This shift is driven by technological advancements that enable more efficient trading and better price discovery, which are essential for managing the high volume of smaller odd lot trades that characterize the muni market.

And three regulatory changes around 2012 have catalyzed significant transformations in the muni bond market leading to increased transparency, better execution quality, and more competitive spreads. These changes have supported the growth of electronic trading and are shaping a more efficient and accessible market benefiting all participants. Thanks again for listening to this Bond Buyer podcast.

This episode was produced by the Bond buyer. If you enjoyed this episode, please hit like and subscribe on your favorite podcast player and please rate us, review us and subscribe to our content at www.bondbuyer.com/subscribe. Until next time, I’m Mike Scarchilli signing off.