June 6 (Bloomberg) -- If you are concerned about how securities in the municipal market are priced when you buy and sell bonds, you aren't alone.

So is the Securities and Exchange Commission. So is the National Association of Securities Dealers. And so is the Municipal Securities Rulemaking Board, the self-regulatory organization that oversees the municipal bond market.

Later this month, the MSRB is going to do something about it when it sends two notices to bond dealers.

One will be an interpretation of its rules on what constitutes fair pricing. The other will ``solicit industry comment on additional guidance for complying with these rules in certain circumstances where the prevailing market price is not readily ascertainable,'' according to Christopher Taylor, executive director of the MSRB.

This is big. There is no more important matter to bond buyers than the pricing of bonds, whether it be an institutional investor with billions in the market, or an individual investor with $10,000.

Big and Bigger

There is no standard for how bonds should be priced in the municipal bond market. Rule G-30 states that a price should be ``fair and reasonable, taking into consideration all relevant factors.''

That gives dealers a considerable amount of latitude, especially when it comes to older bonds that seldom trade, and high-yield bonds, where nobody really knows what they are worth.

There are two things going on here. One is big, the other is bigger.

The big thing is the request for comment on how to comply with the rules, how to be ``fair and reasonable'' when it comes to putting a price on bonds that rarely trade. That, you understand, is most of the market. The older a municipal bond is, the less likely it is to trade.

This is why, when you go through the MSRB's transaction reports, most of the bonds you see trading were sold in the 2000s. You do come across the occasional relic -- earlier this week, those who troll the reports were rewarded with a little collection of California bonds dating from 1963 to 1968, 1972, 1974, 1978 and 1979 -- but this is unusual.

Is That Fair?

So that's big.

Even bigger is the new guidance on fair pricing because that will affect most of the ``actively traded'' market.

Here's where it gets sticky. Municipal bonds aren't traded on an exchange. They are sold in an over-the-counter market. Yet you can go through the transaction reports, and most of the time prices for the same bonds will be about the same.

You can also find bonds that seem to have 10 different prices.

Consider some Atlanta airport bonds that traded earlier this week. The bonds carry a 5 3/4 percent coupon and mature in 2009. They are insured, and rated triple-A by all the rating companies. This is not a risky, or particularly unusual bond.

On June 2, $35,000 of the bonds were purchased from a customer at a price of 102.453. A little while later, $35,000 of the bonds were sold to a customer at a price of 104.453. Is that fair and reasonable? Some traders I know would have a real problem with that notion.

Why Now?

Some wouldn't. The municipal market, judging from my mail, is still full of angry people, who say that the market has been over- regulated, and that the focus on bond prices is misplaced and inappropriate.

These are the people who can be expected to resist to the death any more attempts to make this murky market more transparent. They don't want any more guidance on prices and they don't want trading information to be posted in real time. They prefer the old days, when the only ones who could figure out what a bond might be worth were dealers themselves.

Why is all this happening now? Because only relatively recently have we been able to see how the market trades. The MSRB started collecting and releasing trading information in 1995, when it covered just the dealer market. Since August 1998, the MSRB has reported all transactions taking place the previous day. Before this, the market was a complete mystery.

The regulators have been studying the transaction reports as eagerly as the municipal market's own participants. And they've noticed the wide price disparities, and not just those outlined above, of 2 and 3 points. No, they've seen the 8, 9, 10, 20, 30- point differences in price. They want to do something about it.