Thomson Eyes Automation of Pre-Trade Bond Market

Historically, the U.S. fixed-income market has been resistant to electronic change. But come this fall, AutEx, a division of Thomson Financial's Sales and Trading Group, hopes to automate the first component of the bond trading cycle-the pre-trade exchange of messages. Targeting broker-dealers and institutions that want an electronic mechanism for exchanging pre-trade data in the secondary bond market, AutEx plans to launch AutEx FI in October. The browser-based AutEx FI, a system that will allow traders to electronically route and receive indications to buy or sell a wide array of bond instruments, is currently being beta tested by a handful of users of AutEx's flagship indications of interest (IOI) system for equities.

AutEx FI-which will cover corporate bonds, municipal bonds and mortgage-backed and asset-backed securities-is essentially a customized version of the AutEx equities IOI, which is currently being used by 550 institutions and 350 broker-dealers. The new system is expected to increase price transparency for fixed-income buyers, by offering them a single screen through which they can view all of the pre-trade messages for a particular bond.

From a seller's perspective, on the other hand, AutEx FI is expected to provide clients with the ability to distribute their bond offerings to a wider audience and more quickly unload their inventory. But while buyers and sellers will be able to exchange pre-trade information over AutEx FI, they will not be able to transact trades. "The (bond offerings) eventually require a conversation between buyers and sellers. That conversation could happen electronically or could happen over the telephone," says AutEx vice president of business development Robert Moitoso.

Through AutEx FI, says Moitoso, AutEx is merely trying to automate the pre-trade relationship that now exists between broker-dealers and institutions. Today, he says, when a broker-dealer wants to transmit a subject offering to sell a bond to institutions, it does so through one of three vehicles: 1) via a Bloomberg-supplied e-mail system; 2) via its own internal Web site; or 3) via the telephone.

And because all of the selling data is coming through multiple channels, it is difficult for the buyer-usually an institution-to digest all of the pre-trade information and make a wise decision, says Moitoso.

On top of consolidation pre-trade information for buyers, Moitoso says, AutEx FI will offer sellers the chance to expeditiously unload bonds. That's a valuable service, he says, because brokers today want to find trading partners faster, in order to more quickly "turn over" their inventory.

But one source at a broker-dealer says that before AutEx FI catches on, it will need to offer more functionality-such as the ability to perform allocations. Moitoso says that AutEx is not yet sure whether it is going to provide allocations capability directly through AutEx FI. However, he says AutEx may provide allocations through an electronic link to either Omgeo (the post-trade virtual matching utility created by Thomson and DTCC) or Oneva FI (Thomson's new fixed-income order management system). "We're trying to figure out on which platform allocations belong .... It could be on Oneva or we could have pieces that hang off AutEx FI or this is something we could try to integrate with our friend over at Omgeo," says Moitoso.

The broker-dealer source would also like to tap into a system where he could view "all of the new bonds that are being traded, regardless of who the joint dealer or lead is." But to access such a system, the source will have to look elsewhere-AutEx FI does not cover new offerings.

The source says that there is only one other vendor that provides pre-trade messaging capabilities in the secondary bond market: Market Axess, an online bond consortium owned by a group of Wall Street broker-dealers.

AutEx is rolling out AutEx FI in phases. The first version of the system will feature only pre-trade messaging; Phase 2 will offer users the ability to link to multiple fixed-income order management systems, including Oneva FI.

A European rollout of AutEx FI is slated for 2002.

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Autex Technology

Database: Oracle

Middleware: Web Logic

Front End: HTML/Javascript

Client Requirements: Web Browser