The Bond Market Association Gears Up for Emergency Trading

As the United States military heads into conflict with Iraq, The Bond Market Association (BMA) is preparing to keep the fixed-income markets open for trading in the event that an emergency arises."What we have put in place is procedures making sure that people can talk to each other if there's an emergency that threatens the financial markets," says a TBMA spokesman.

Meanwhile, the Treasury Department outlined steps it has taken to protect critical financial insfrastructure. Without detailing the precise measures it has taken for operational security reasons, Treasury has "identified the payments, custodial, clearing, exchange, banking, trading and other financial institutions that are most critical to our financial infrastructure," according to a statement dubbed Liberty Shield.

On Tuesday, Micah E. Green, president of the Association, issued a statement, praising the Treasury Department for undertaking measures to protect the financial markets during hostilities with Iraq. "The Association believes that, in times of stress or damage to critical infrastructure, bond market participants should be permitted to trade, if they can, to provide liquidity to investors and to each other that is critical to our nation's economy and banking system," Green states.

In preparing for any emergency, the Association has established communications procedures that would be implemented following any event that raises questions about the functioning of the bond markets. Specifically, TBMA has set up "an automatic call" that would be initiated at 5:00 p.m. on the day of such an event, with each of the market divisions, including treasuries, municipals, corporate, mortgages and asset backs. "There would be ten to a dozen or so market participants with the executive committee of each market, with regulators on the call so that a decision will be made on what impact there has been and what capacity remains and what can be done," says the spokesman.

All of the member firms-fixed income broker/dealers-have each other's phone numbers and how to contact the association's staff so they can all be in touch if there's a problem, he says. TBMA played a similar role during 9/11, when the bond industry was impacted perhaps more than any other industry, because of the devastation suffered by Cantor Fitzgerald/eSpeed and the fact that Bank Of New York, one of two major clearing mechanisms-the other being JP Morgan Chase-was not operating.

The BMA became a central communications point for market participants and regulators, notes the spokesman. TBMA organized a call on Sept. 12, 2001 with 200 participants on the line, including member firms, which are dealers, regulators, Treasury and the White House. As a result, the bond markets were ready to open in 48 hours, while the equity markets took until the following Monday, Sept. 17, he notes.

However, as in the case of 9/11, the Association will rely on regular telephony. TBMA has not made any special arrangements to use wireless infrastructure, though the spokesman notes that everyone has cell phones. "Member firms have made other arrangements and enhanced their back-up capabilities," he notes.

According to the Treasury's statement, arrangements have been made for critical financial institutions to have access to priority telecommunications services - both land-based and wireless - to help their communications get through during times of crisis, the Treasury states.

Asked if electronic-trading platforms, such as TradeWeb, for instance, are invited to participate in these calls, the spokesman says he is not aware of any arrangements, but they are eligible to participate if they are members of the Association. Because the bond market is different from the New York Stock Exchange, in that it is over-the-counter and trading doesn't take place on one trading floor, people in New York can trade with people in San Francisco, who can trade with people in Denver, London or Tokyo, he says. "If one group is impacted, the other groups will certainly do something," he says, adding: "The method of trade, whether they do it over the phone or they do it over an electronic trading platform," doesn't matter. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio