For all the post-recession financial market reforms, few ultimately made their way to the municipal bond market. For the most part, the muni market remains a low-tech place by Wall Street standards, and one that’s still largely controlled by the same group of big investors.
“The muni market has a lot to do with relationships, power and influence,” said Rob Novembre, a former trader who has spearheaded a new alternative bond trading system. “The bigger you are as an account, the more attention you get from sellers. If you buy bigger blocks [of bonds], that gets you more power.”
Thanks to Novembre’s new startup and another in San Francisco, though, that’s starting to change. The two companies are not only set to give the market a tech update but also to bring it more buyers. The idea is that more buyers will increase demand for municipal bonds and, in turn, will net governments lower interest rates on their debt.
The startup in San Francisco, Neighborly, goes about finding new buyers by marketing muni bonds to investors with a personal or social interest in the project those bonds are funding. A key component of Neighborly’s tactic is that it uses technology to cut down on the costs associated with brokering bonds. This allows it to sell the bonds directly to individuals and in smaller denominations — such as $1,000 blocks — than is typical.
“Like any financial product, it’s supply and demand,” said spokesman James McIntyre. “What we’re trying to do is increase the demand side … by helping individuals and institutions find the bonds that…