The America Recovery and Reinvestment Act’s introduction of taxable Build America Bonds has required many market participants to make changes to their usual ways of business.
Issuers are accepting corporate-style debt techniques. Public finance investment bankers are working more closely with their corporate counterparts. And electronic service providers are adding new features to adapt to the new security.
“The big news with BABs is it’s a new security type,” said Thomas Vales, chief executive officer of TheMuniCenter LLC, which has an electronic fixed-income trading platform. “Typically, the difficulty the industry has in adjusting to new security types is that there are really no types of applications to support that.”
Companies like TheMuniCenter, though, are quickly adapting to the changes. Before its data providers had even modified their own systems to distinguish BABs, it developed a proprietary technique for identifying the bonds as they entered the market and highlighted the bonds through the firm’s own application, Vales said.
The bonds can now easily be accessed and identified from TheMuniCenter’s own screen, just like municipals, Treasuries, and agencies, Vales said. In addition, the firm has offered the modifications to the more than 80 firms to which it offers its service through private-label workstations, making it easy for financial advisers and brokers to identify and access BABs as they sell the product to the public.
The Muni Center wanted to give BABs their own space, because as taxable bonds from municipal issuers, both municipal and corporate parts of firms are interested in them.
“If you’re a corporate trader and you’re used to going to your corporate application, it really doesn’t make sense” to go to a municipal application, according to Vales. “And if you’re a muni guy going to a corporate application, that doesn’t make sense. So we separated that security out and gave it its own application so you can identify the bonds.”
Rival BondDesk Group LLC is also making changes so that users can more easily identify and trade the bonds. It highlighted in red and attached a “Build America Bond” notation to the bonds on an on-request basis, while it waited for its data providers to begin consistently tagging the BABs in the master reference file, which they are now doing.
That process will be automated by the time BondDesk introduces its new software build in June. Users will also have options to flag and search for BABs by the firm’s next software build, which is scheduled to be released partially in June with a full rollout by July.
“Typically when we look at new products in general being added to our platform or any different flavors or colors of existing products, we work in concert with our clients,” said Dave Waluk, a senior managing director at BondDesk Group. “We’re constantly monitoring the market and having discussions with them.”
Ipreo is also making changes to both its new issuance and data services. Its new-issue services include features such as competitive bidding and book-running applications, while its data applications include Muni Calender, MuniWatch, and MuniAnalytics.
On the new issuance side, Ipreo plans to release in June features that will allow users to more easily structure BAB deals, such as allowing for BABs on only certain maturities. It will also consider linking its municipal and other fixed-income platforms if it determines that will increase efficiency for clients.
On the data side, the firm has gathered BAB information as part of its normal municipal data collection. It is providing the information to clients on an on-demand basis and plans to include it in its Municipal Information Center later this month through its MuniAnalytics platform.
“We’re tracking all this information, and we plan to make it available clearly and concisely to the market,” said Allen Williams, Ipreo’s head of global capital markets.