SIFMA made public a letter sent to Thomson Reuters Global Markets, Inc. ("Thomson") in which SIFMA inquired about Thomson's adherence to the IOSCO Principles for Financial Benchmarks (the "IOSCO Principles"), specifically as to the Thomson MMD scales ("MMD"), which are widely used as pricing benchmarks in the municipal market.
In the letter, SIFMA emphasized the importance of MMD following the transparency elements of the IOSCO Principles in light of the fact that, on some days, there is no institutional secondary market trading of some maturities. As a result, SIFMA recognized, benchmark publishers must "fill in the blanks" on the missing points of the curve. However, SIFMA asserted that its members believe "that not infrequently, points on the MMD scale do not appear to track observed market activity."
With respect to the control framework described in the IOSCO Principles as applicable to administrators, SIFMA stated, the framework requires administrators to implement procedures to help mitigate conflicts of interest, which may occur when Thomson uses information or data provided by parties who elect to trade bonds priced relatively to MMD. Additionally, the administrator should disclose how the scale was derived with each benchmark publication, which is particularly relevant because Thomson's use of information is supplied by third-party submitters. In this regard, SIFMA observed, there was a lack of understanding among market participants of how data points on the MMD scale are calculated.
SIFMA acknowledged that Thomson had reaffirmed "its alignment" with the IOSCO Principles. Nonetheless, the SIFMA letter went on to request "greater specificity" and that Thomson be "as transparent as possible."
SIFMA noted it will follow up with Thomson "soon to discuss these issues further." SIFMA also stated that it plans to use any information it receives from Thomson when responding to MSRB's recent request for comments on the use of benchmarks in the municipal market.
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