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Subject:  A Proposal for Bond Liquidity Date:  3/1/2012  8:32 PM
Author:  persistentone Number:  33777 of 36733

Any retail buyer who has actually worked with a bond desk understands the system is set up - with intention - to deny you information. Specifically:

- There is no formal market mechanism and therefore you don't have a formal bid and ask. The bid and ask you see on E*Trade is an illusion created by E*Trade's use of a specific subset of the total market to price just the most liquid bonds. For example, E*Trade uses bid and asks from its internal customers and also from BondDesk, but it doesn't capture most institutional desk activity, and it cannot see any interested customers with smaller orders because their brokers have no place to enter those for all to see.

- There is no market-wide exposed book, so you don't get to see the liquidity as you would with Nasdaq level 2

- There is no mechanism for a small retail buyer or seller shouting out an order to all the players, because there is no profit for your broker taking the time to manually call up 30 different bond desks and talk through your order.

All of these intentionally created obstacles create enormous bid ask spreads that rob liquidity for small bond players (which I define as accounts with less than maybe $10M of liquidity). Bonds are mainly an institutional game, catering to the $100M+ accounts of institutions.

So, if we were to engage in the fantasy that any of our elected officials actually work for us (hahahaha, just had to laugh at that thought), what about the following proposal: pass a law *requiring* all tradeable bonds to immediately start trading on the pink sheets. Specifically forbid the over the counter bond market. Specifically forbid FINRA from regulating bond trading. Allow bonds to trade like OTC and pink sheet stocks.

In one fell swoop you get a bid and an ask. For OTC issues, you get a visible market queue. Instantly, the retail buyer is connected to the institutional buyers. No longer can your order to buy 20 bonds be hidden from the institution that wants to sell 1000. Moreoever, your order for buying four bonds at E*Trade sees my order to sell 10 at IB and the next guy's order to buy five at Schwab. We all get connected to each other and see each other, without any middleman hiding us from each other.

On the downside, about 20 institutions on Wall Street won't take home $5M bonuses per employee the year this law goes into effect. All together now...awwwwwwww toooooo baaaaaaad.

Just one frustrated person's point of view.
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