Electronic Bidding for Municipal Bonds: Technology Innovations for Competitive Bond Sales
Morgenstern, Renata, Government Finance Review
This article highlights the history of electronic bidding for bonds and the options available for municipal issuers today.
The use of technology to automate transaction-processing activities has led to dramatic changes in the financial marketplace. Over the past 20 years, the municipal bond market has undergone many changes. This article will review a new trend in municipal market automation--the use of the Internet and other electronic communications networks for the submission of bids on competitive sales of new bond issues.
Technology for Municipal Debt
Historically, the municipal marketplace has been slower than other financial sectors to accept technology aimed at automating transactions. In many institutions, the municipal department has been the last to be wired with computer and telecommunications capabilities. But as issuers begin to automate more of their non-debt functions (i.e., human resources and payroll), technology providers have followed with products that automate traditional debt functions.
Already, there are Web sites that offer comprehensive data on municipal bond sales. Some sites provide sale calendars and other information, including:
* municipal news stories;
* comprehensive real time sales results;
* complete syndicate lists of winning and bidding accounts;
* all maturity level information including: coupons, rates, yields, concessions, CUSIPs, insurance, and ratings; and,
* access to historical post sale worksheets, including "last sale" link from pre-sale worksheet for upcoming deal.
Much of this information can be found for free via the Internet, but for minimal fees, issuers and market participants can expand their services to include more advanced electronic options. For example, both preliminary and final official statements now can be delivered directly to investors via e-mail. By providing essential documents in electronic format, investors are guaranteed the timeliest access to critical information and the utility of on-line access. Electronic delivery also results in substantial savings on printing and mailing costs for issuers.
Electronic links with the Committee on Uniform Securities Identification Procedures (CUSIP) bureau now enables electronic application and receipt of new issue CUSIP numbers. Technology also allows for the comprehensive automation of all aspects of the syndication process. The bookrunning manager and account or selling group members can use automation to define deals (terms, pricing, account list), collect and verify orders, create allocations, account for designations and group sales, process trades, and handle accounting, close outs, and the disbursement of monies. Syndicate members also can enter orders electronically using Web-based technology to the bookrunning manager. Syndicate members input their orders into pre-formatted screens populated with the most recent scale and pricing information from the manager. Orders are then confirmed or rejected online.
Benefits of Automation
Monetary savings are a primary objective when implementing technology in financial processes. Automation decreases costs associated with the processing of transactions. Savings can result in several ways. The electronic transmission of information is generally cheaper than the costs associated with traditional delivery, particularly when this delivery has high-level requirements (i.e., guaranteed receipt and immediacy). Automation also can result in less need for staff to process a transaction, which can either free staff for other functions or reduce new hiring. In addition, the implementation of technology within one area of a firm or for one aspect of a transaction frequently facilitates additional automation. This leveraging also can reduce the impact of the initial financial investment in technology (i.e., purchase of basic computer or communications hardware and software). …