Challenges in State & Local Government Finance
As of 2018, out of 90,056 local government entities in the United States, approximately 38,000 had active bond issuances representing $500 billion in annualized new paper. The majority of local municipalities have never financed any operations or infrastructure development.
Out of all offerings reported in 2018, 86% were $50 million or less. This represents 24% in overall par value – approximately $120 billion/year.
- Local citizens asked to pay taxes to finance public works while interest payments leave the community.
- Less than 1% of households directly own muni bonds in their own community.
- Muni bonds minimum purchases are not compatible with mass market ($5k minimum average).
- The average person is locked out of tax-free interest income.
- Lack of engagement in the community means political risks for elected officials.
Buy-side demand is very high for U.S. municipal debt. Sell-side Issuers have far more power than ordinary in the market due to the demand of their product.
However, lack of knowledge about the process and market often drives local elected officials to “call the bond counsel” to put the deals together.
Intermediary 3rd parties often have interests at odds with and/or don’t have fiscal responsibility to taxpayers.
Average Issuance Cost Breakdown
Buy-side demand is very high for U.S. municipal debt. Sell-side Issuers have far more power than ordinary in the market due to the demand of their product.
However, lack of knowledge about the process and market often drives local elected officials to “call the bond counsel” to put the deals together.
Intermediary 3rd parties often have interests at odds with and/or don’t have fiscal responsibility to taxpayers.
Average Issuance Cost Breakdown
Municipal securities are traded by municipal securities dealers in three different ways:
- Through Alternative Trading Systems (ATS)
- By using voice “broker’s brokers”
- Traditional direct transactions with a known counterparty
Secondary Market Trading
Tokenized Municipal Bond Offerings
By tokenizing municipal bond offerings via XDEX, local governments can solve these problems and bring a more cost-effective issuance and secondary market for the average investor.
Multiple Benefits for Every Party
- Automate workflow and documentation for bond issuance
- Launch direct-to-market issuance portal to sell bonds
- Engage local constituency in public works funding projects
- Access multiple funding sources without intermediaries
- Templated offerings for basic G.O. & Revenue Bonds
- Ensure compliance and ongoing reporting (connecting to MSRB / EMMA)
- Simplified, automatic incremental coupon distribution
- Better access to inventory & yield
- Access to direct issuances without paying intermediary spreads
- Achieve market liquidity for better access to full market
- Better price discovery for secondary market transactions
- Provide underwriting issuance services directly to local government at very low cost
- Provide custodial, transaction processing, KYC/AML and other back-office services
- Provide “Muni Bonds-as-a-Service” inside “Banking-as-a-Service” strategy
- Access captive small market principal underwriting deal flow
- Provide white label products & services to sell side and buy side
- “Productize” ancillary financial services:
- KYC/AML automation
- Payment processing
- Custodial trust
- Municipal bond insurance
- Treasury & Coupon Distribution
- Enable secondary market trading services suite
- Access all market data and transactions
- Integrate existing reporting data platforms
- Expand practice to service lower end, smaller issuances at a more cost-effective price point
- Standardize workflow for issuance across municipal clients
- Better access to secondary market, buy-sell, liquidity
- Improve regulatory compliance and visibility of market activities
- Inter-dealer Settlement System
- Increase transaction volume through best order execution/smart order routing
- Access liquidity pools outside existing network