The document discusses the benefits of consolidating municipal bond bids from multiple sources onto a single integrated platform. This could improve pre-trade price transparency and discovery. It would allow traders to more efficiently view all available bids, instead of logging into separate systems. An integrated platform could increase market access and trading capabilities for firms, while also injecting new funds. However, integrating diverse sources also poses technical challenges around architecture, data unification, and user interface design.

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Cognizant 20-20 Insights
Municipal Bonds: Consolidating and
Integrating Bids to Improve Transparency
and Discovery
An integrated, consolidated “bids wanted” platform can make all
market bids available, regardless of a bid’s source. This can significantly
increase pre-trade price transparency, strengthen a firm’s capabilities,
inject new funds into the business and drive profitable growth.
Executive Summary
The Case for Consolidation
Municipal securities are relatively illiquid, and
pre-trade price transparency is not a given.
In contrast to other asset classes traded in the
secondary markets, quotation information is not
prevalent, and to the extent that it does exist, is
not widely disseminated. Although alternative
trading systems (ATSs) organizations have made
offerings easier to obtain by making bids more
available, they are not as transparent and centralized when compared to the coverage and breadth
of municipal markets.
For many firms managing the municipal securities business, the trading process can be very
cumbersome, since traders must log into separate
“bids wanted” applications to track the market
and decide where investments should be directed.
This takes up valuable time, and can impact a
trader’s ability to make productive decisions.
Furthermore, traders may need to bid on the
same CUSIP1 from different sources – resulting in
more keystrokes and less productivity.
This paper focuses on the significance of integrating “bids wanted” sources to improve pre-trade
price discovery; the benefits of an integrated
platform that consolidates different vendors;
and the resulting value to brokerage/asset and
wealth management firms. We will highlight the
capabilities of such a platform, the challenges of
implementation, and discuss how technology can
help institutions achieve a transformation that
otherwise can be complex to attain.
cognizant 20-20 insights | december 2013
A unique feature of the municipal bond market
is its dispersion. There are several issuers, millions of individual CUSIPs and mostly small issues.
The creation of an integrated, consolidated bidswanted platform can make all market bids (retail,
institutional and street) available, irrespective of
where the bid is sourced. Consolidation implies
that all market inventories will be accessible to
traders wanting to evaluate options for arbitrage,
understand the breadth and depth of the market,
and consider the liquidation options that the

2. market holds at any point in time. This capability
can significantly increase a firm’s client offerings –
potentially injecting net new money into the
company, fueling growth and enhancing the institution’s trading capabilities in municipal bonds.
Pre-trade Pricing Information
There are over a million different municipal bonds
outstanding at any given time, totaling approximately US$3.7 trillion in principal. The average
daily trading volume in 2011 was US$11.3 billion,
with US$3.3 trillion by par amount traded the
entire year.
However, despite the size of the municipal securities market, municipal securities are relatively
illiquid. About 99% of outstanding municipal
securities do not trade on any given day. Trading
is most active in newly issued bonds, and declines
significantly as time passes; only 15% of municipal securities trade in the second month after
issuance, for example.2
“Bids wanted” are displayed electronically through
Bloomberg, proprietary online trading platforms,
proprietary Web sites, electronic-mail dissemination applications, fax dissemination applications
and vendors, for instance. Institutional investors
looking to sell municipal securities generally rely
on multiple avenues to obtain pre-trade price
information in the form of bids. Their access to
large networks of broker-dealers and tools for
obtaining bids from more than one dealer allows
them to contact potential buyers and independently assess the bids they receive for their securities. Alternative trading systems (ATSs) are generally available to participating municipal bond
dealers and to institutional investors. Established
and reputable brokers maintain a complete trading history on all items – bid-wanted items, the bid
history of all firms that bid for the item, the levels
at which they bid, and the history of all firms that
passed on bidding for the item.
Currently, institutions with large municipal
securities portfolios access pre-trade information through several sources, such as BondDesk, Tradeweb, MuniCenter and Bloomberg.3
Brokerage institutions, as well as asset and wealth
management firms, require solutions that integrate and consolidate their various bid-wanted
systems. This helps them provide optimum value
to their retail and high-net-worth clients, as
well as to prominent institutional players in the
markets where they operate.
cognizant 20-20 insights
No single bid-wanted source accounts for
more than 50% of the bids-wanted “universe” –
making the unification of multiple sources highly
desirable.
Features of an Integrated Bids-Wanted
Platform
Bids Management
An integrated bids-wanted platform should allow
all bids to be ranked, and have the capability to
sort, slice and dice on variAn integrated
ous metrics – not only from
current sources, but also bids-wanted
from new sources that may platform should
be added over time. This
allow all bids to be
can enable the development
of an automated bidding ranked, and have
application
that
allows the capability to
municipal bond traders to
sort, slice and
execute multiple transacdice on various
tions simultaneously.
Aggregation Capability
metrics – not
only from current
sources, but also
from new sources
that may be added
over time.
The platform should aggregate all “bid wanted” by par
at the time the user views
the aggregated bids dashboard. This will indicate
the depth of the market.
The aggregated bids may be sub-categorized as
Retail, Institutional and Street. The platform will
aggregate all outstanding bids wanted to give the
trader an idea of what possible exposure to the
market would look like in real time.
Dashboard Data – Display Capability
The system should allow aggregated bids to
be grouped by state; source; maturity; ratings;
tax exempt/taxable; security type (general
obligation versus revenue bonds); security
class and sub-class (utility, transportation, etc.).
A global search capability should permit filtering by bid source, bid time, states, maturity, par,
taxable and rating, for example.
Trader Customization and Configuration
Through the configuration function, traders can
turn vendors on or off as required (for example,
if they do not want to consider or bid on certain
vendors at a certain time). The configuration will
be based on the trading levels applicable for the
desk and the region. Access to each level should
be controlled via user setup permissions.
2

3. Traders can also use this screen to set defaults,
take certain actions to affect all ”bids wanted”
in their area, and estimate their exposure. Some
of the characteristics that traders can specify
include:
should display all matching bids and offerings to
the trader, as well as the historical bids and the
MSRB history. The system should also provide for
compliance alerts.
Challenges
•
Default grouping.
•
Default columns sorting.
•
Re-offer price.
Developing a Flexible Architecture
• Away
from desk/Send all “bids wanted”
to partner.
•
View partners’ “bids wanted.”
•
“Bids wanted” count by type.
• Bid live count/par/market value and execution
count/par/market value.
Intelligent Processing and Fair Pricing
The platform can be designed to evolve into an
integrated part of a future order management
system that checks all external and internal
sources for matching bid-wanted offerings, and
trades in the marketplace before a trader bids.
It will check current MSRB prices for matching
CUSIPS to help ascertain fair and reasonable
price levels before a bid is reflected to a customer.
It will scan all available offerings in the same state
to assess possible demand.
The bids-wanted
platform should
allow users
to compare a
potential bid versus
the market, view
bid histories, relate
any indicative or
material event
associated with
a particular bid
wanted, and
evaluate possible
re-offerings.
Better Decision Making
The bids-wanted platform
should allow users to compare a potential bid versus
the market, view bid histories, relate any indicative
or material event associated with a particular bid
wanted, and evaluate possible re-offerings. The system
should check – at a trader’s
request – other available
offerings in inventory that
might compete with a particular product.
The platform’s capabilities should be applicable
to
retail,
institutional
and street-side bids, and have the ability to
highlight duplicate bids and their sources. It
cognizant 20-20 insights
Achieving the above and utilizing a best-of-breed
bids-wanted platform requires a flexible, technically sound and robust
architecture that is scal- A bids-wanted
able and high-performing.
The platform’s connectiv- platform must offer
ity services must enable a state-of-thecommunication with other art, customized
bid-wanted sources, as well
as with the internal com- user interface
munications server and with integrated
Web services. Business features that allow
services must provide for
routing rules, trader-based traders to bid
workflow and other inte- simultaneously on
grated services through the same CUSIP
the business rules server.
Data services should retain through multiple
the bids-wanted data, and sources, identify
enable users to look up all duplicate bids, and
bids and offer histories in
real time. This is not easy, provide alerts for
given that the bid and offer cut-off times, for
histories for a given CUSIP example.
produce large volumes
of data – from several hundred to thousands
of records that can span three to five years of
historical bid and offer prices.
Technology Integration
Bids-wanted applications from different sources
can have fundamentally different technology
stacks and design principles. No single application can provide all the capabilities needed
to enable universal integration with other
bids-wanted source systems – a task that necessitates reengineering/greenfield design (designing
from scratch) to create a platform that integrates
and consolidates other sources while maintaining
and enhancing existing capabilities to enable a
higher level of integration.
Data Unification and Front-end Capability
Consolidation can be a significant challenge –
not only because of the immense volumes of data
that must be culled from various sources, but
also due to the IT skills needed to develop a front
3

4. end, or interface, that allows traders to have a
real-time window into the entire bids-wanted
landscape – with the benefits of speed and
performance. This is critically important, given
that traders look up a lot of information, including bids and offerings history, in order to analyze
a given CUSIP before bidding on it. Consequently,
a bids-wanted platform must offer a state-of-theart, customized user interface with integrated
features that allow traders to bid simultaneously
on the same CUSIP through multiple sources,
identify duplicate bids, and provide alerts for
cut-off times, for example.
Currently, there is
no single platform
that can provide
more than 50% of
all “bids wanted.”
However, there
are a few vendor
systems that come
with extensive
muni-product
bid-wanted
features. These
can be a good buy,
and can be baselined for further
integration.
Build or Buy?
Large financial institutions
with substantial municipal bond inventory need
to evaluate the build versus buy option. Currently,
there is no single platform
that can provide more than
50% of all “bids wanted.”
However, there are a few
vendor systems that come
with extensive muni-product bid-wanted features.
These can be a good buy,
and can be base-lined for
further integration.
Nonetheless, incurring the
cost of a bids-wanted platform is a significant investment proposition that can
have an ROI spread up to
10 years. The cost may need to be distributed
over a one- to three-year system implementation phase, based on the extent of integration and
the number of bids-wanted sources to be
integrated. From a cost perspective, we advise
firms to start with an experienced bids-wanted
service provider with offerings that can be
integrated in-house with like applications to
achieve the scope and performance needed, and
provide the range of features mentioned above.
Conclusion
Limited pre-trade price transparency is a significant challenge for individual investors and the
brokers/dealers who manage client and proprietary muni portfolios. It can inhibit competition
among market participants who seek to provide
the best prices. Also, it is more expensive for
investors to trade municipal securities than to
trade corporate bonds or equity securities, since
transaction costs are higher due to low price
transparency. There are opportunities for market
trading platforms to make use of sophisticated
technology to increase their access to inventory,
and for price providers to improve the dissemination of information on all available inventories
and prices.
While challenges that have to do with the
structure of the market may not immediately
allow dealer entities to efficiently aggregate
and disseminate trading information, the
technology platform that they use can be reengineered to aggregate bids-wanted data and
disseminate post-trade data. This helps assure
fair pricing and the best execution for the
client, based on the most accurate pre- and posttrade municipal security information.
In the long run, the benefits of an integrated
platform outweigh the efforts and investments it
requires, and can help firms build a stronger muni
capability, increase profitability and drive growth.
Footnotes
1
CUSIP (Committee on Uniform Securities Identification Procedures) refers to a 9-digit alphanumeric
code assigned to all security issues approved for trading in the United States and Canada.
“Bringing Municipal Bond Trading Into the Light.” Speech by Commissioner Elisse B. Walter, U.S. Securities
and Exchange Commission. October, 2012.
http:/www.sec.gov/news/speech/2012/spch100112ebw.htm.
2
Comprehensive Fixed Income Trading Technologies.
http://www.bonddeskgroup.com/main/products/ats/bonddesk-direct.
3
cognizant 20-20 insights
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5. References
1. Tradeweb Platform.
http://www.tradeweb.com/Retail/Functionality/.
2. Fixed Income Marketplace.
https://www2.themunicenter.com/.
3. Municipal Securities – Overview of the market structure, pricing and regulation.
http://www.gao.gov/assets/590/587714.pdf.
4. Municipal Securities Rule Making Board – Factbook.
http://msrb.org/msrb1/pdfs/MSRB-FactBook-2012_WEB.pdf.
5. Electronic Municipal Market Access – Municipal disclosures and market data.
http://emma.msrb.org/.
About the Author
Sameer Hiray is a Consulting Manager in Cognizant’s Business Consulting Group with more than
12 years of consulting experience in the areas of business management, financial services and capital
markets. He has worked with leading global firms in the banking industry in domains such as investment banking, investment management, risk management, private banking, and asset and wealth
management. In his current role, he is engaged in delivering business solutions, including business IT
transformation, business process consulting, operating model definition, business IT assessment and
implementation strategy. He can be reached at Sameer.Hiray@cognizant.com.
Acknowledgment
The author would like to thank Cognizant Business Consulting, Capital Markets Practice lead
Ed Elgerzawy (Ed.Elgerzawy@cognizant.com) for reviewing the paper and providing valuable feedback.
About Cognizant
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