Electronic Bidding for Municipal Bonds: Technology Innovations for Competitive Bond Sales.

• Author: Morgenstern, Renata

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...