Bond Market Protocol Project Waits for RFP Responses

The deadline looms for submitting responses to the Bond Market Associations' Voluntary Protocols Initiative on April 18. By Wednesday, it will become clear how many technology firms are willing to dedicate full-time resources without compensation to an industry-wide project that has enormous implications for the future of e-commerce in fixed income markets.

Early indications are that many firms are interested in the high-profile assignment. Twenty-one firms attended the Bond Market Association's meeting March 29, expressing interest in creating common messaging standards or protocols for fixed income securities. Among those attending were providers of electronic bond trading platforms, software firms that develop for those platforms and some Big Five accounting firms also showed up, even though the Association is looking for a volunteer and there will be no remuneration, says Joseph Sack, senior vice president of the BMA. "We feel very confident that when the deadline rolls around that we will have a number of proposals in front of us," says Sack.

The meeting followed the publication of the BMA's Request for Proposals (RFPs) on March 22, relating to its Voluntary Protocols Initiative. The document, available on the association's Web site, www.bondmarkets.com defines the project, outlines the qualifications and invites technology firms to submit detailed, 10-page, single spaced responses. The deadline for submissions is April 18. The winning bidder will be selected by the BMA's Online Bond Steering Committee on April 25, and their decision will be announced at the BMA's annual meeting held April 26 through April 28 at the Greenbrier Hotel in West Virginia.

However, two industry sources said they thought the lack of remuneration could be an obstacle to attracting a contractor.

Sack explains that the industry committee decided there were firms in the e-commerce bond business with technology professionals that need a protocols infrastructure in order to make progress on behalf of their firms.

"If they're waiting around for the infrastructure and the infrastructure needs to be developed, why have them wait around?" asks Sack. "Why not ask them to work on the infrastructure so that they can actually ...move ahead with these products, with online trading and really be about the business of making money and creating liquidity. So once we crossed that bridge, it became a very natural process to suggest in the RFP that the winning bidders would not receive remuneration. It's not as if we're trying to get something for nothing. It's really a natural fit with regard to the status of the industry," he said.

According to the RFP, the BMA is looking for "a strategic alliance contractor" that must demonstrate significant, direct involvement in online bond trading activities (including any that were in a developmental stage) during the course of the past 12 months.

For the past year, the BMA has been closely observing various efforts to develop common message standards in the bond markets, citing the FIX for Fixed Income Committee and bilateral efforts between individual firms. While the BMA says it "applauds" such efforts and will draw upon them as resources, it believes that "open standard" protocols are needed in the bond markets in 2001. Sack notes that many of the same investment banks spearheading the FIX for Fixed Income committee are also members of the Online Bond Steering Committee. "We are totally in sync," he says, adding that the new effort is going to work with "what they have created." But if during the RFP process, someone proposes something totally new, then both FIX and the BMA will take a look at it, he says.

Sack says the BMA will draw on the "good work" that has been accomplished by the FIX for Fixed Income Committee. Putnam and Merrill Lynch have been working on a standard for fixed income trading based on the FIX Financial Information Exchange standard that has captured critical mass for equities trading.

"FIX is not particularly well suited for fixed income products," says Larry Tabb, vice president, securities and investments practice, Tower Group. "That's why Merrill and Putnam have been working to enhance the protocol," he says. The Bond Market Association is trying to open that up to more firms and try to come up with more of an industry standard than just a bilateral standard," he says.

In the RFP, the BMA makes clear that the protocol needs to be based upon fixed-income marketplace trading activity as opposed to data from a few individual firms. The BMA emphasized that no one will own the protocol; instead it will reside in the public domain where everyone in the industry will have access to it. A second objective of the project is to employ the resources of the Association and The Asset Managers Forum, an affiliate, comprised of buyside firms, to share the results of the protocol-development process with all interested dealers, customers and vendors in advance of recommending the final form of the fixed income protocols.

The association said it plans to issue draft protocols by the fall of 2001.