Muni market continues to adopt electronic trading

The muni market continues to slowly but surely embrace electronic trading, with e-trading of munis through multidealer venues hitting a high in the first quarter of 2026, a boon as the market works toward greater efficiency, increased transparency and enhanced liquidity.

Nearly 21% of muni volume traded electronically in the first quarter, up from the 20% in the previous quarter and surpassing the previous record (20.2%) set in the fourth quarter of 2023, according to a Coalition Greenwich report by Kevin McPartland and Neha Jain.

Usually, the fourth quarter sees greater electronic trading than the first quarter of the following year, "as separately managed accounts harvest tax losses and institutional investors adjust their portfolios before yearend." However, Q1 2026 reversed this trend, a sign that adoption may be on the upswing.

Once any asset class starts to electronify, there tends to be a continual increase in the adoption of electronic trading capabilities, said Marty Mannion, managing director and co-head of TD Securities Automated Trading.

Although electronic trading in the muni market may never reach the levels seen in the corporate or equity markets ? at over 50% and nearly 90%, respectively ? a 2025 study found 27% of muni volume is expected to trade electronically in the next two to three years.

"After years of muni e-trading sitting flat in the low-double-digits, the share has roughly doubled in the last few years and just hit a new high in Q1," said Josh Rosenblum, head of municipal trading strategies at Brownstone.

"The drivers are reinforcing each other: dealers are auto-quoting far more CUSIPs, algo liquidity has raised the floor on small-lot pricing, and last year's tariff-driven volatility was a real-world stress test that left a lot of previously hesitant clients more comfortable with electronic execution," he said.

Additionally, workflow tools have gotten "good enough that the productivity gain from going electronic is obvious, not theoretical," Rosenblum said.

Both the buyside and sellside have moved toward greater adoption, market participants said.

Based on Coalition Greenwich's 2025 municipal bond investor Voice of Client research, only 14% of buyside muni traders reported not trading electronically, down from 35% five years earlier.

"A handful of forward-leaning dealers built the auto-quoting infrastructure that made electronic muni trading viable at scale and the buyside is now catching up at full speed," Rosenblum said.

This is not just adoption but a shift in how the buyside participates, he noted.

"The traditional playbook of selling via bid-wanted and buying by lifting dealer inventory is getting shaken up, with SMA firms in particular now bidding as liquidity providers themselves rather than just taking liquidity," Rosenblum said. "The upshot is that execution has to be protocol-agnostic more than ever. The firms that win are the ones whose workflows can flex across all of them."

As for the sellside, the adoption of electronic trading may be even faster than the buyside, Mannion said.

"If you're a sellside dealer, you're kind of required, or you have a real need to adapt some of those electronic trading capabilities," he said.

Because "if you're running a market-making-style business, you need to be able to compete and tap into that type of liquidity," along with wanting to meet client demand where it resides, Mannion said.

Concerns about electronic trading remain. Reduced market liquidity is viewed as the chief concern, according to Coalition Greenwich, ranking above inflation and geopolitical conflict.

"With roughly one million active municipal bonds at any point in time, expecting most or even the majority of those bonds to be liquid is unrealistic," the report said.

Small muni bond issues from local issuers rarely trade; if they do, it must be "by appointment," Coalition Greenwich's McPartland and Jain said.

"Technology can and has solved the problem of electronifying illiquid instruments, but that doesn't guarantee that buyers and sellers in these situations want to cast a wide net to find the other side," they said.

However, e-trading solutions for munis, along with helping execute bonds from liquid issuers, continue to offer "creative methods of executing those more local trades as well," McPartland and Jain said.

Corporate bonds and UST markets have shown relationships still matter in an increasingly electronified world and munis are heading in that same direction, they said.