The dealer community is always trying to do more with less. Their primary goal is to manage assets and service their clients with products and liquidity to match customer’s needs. As part of this service, they are expected to provide a market and liquidity to clients looking to offload bonds. This is very often done through a BWIC (Bid Wanted In Competition) process where dealers provide bids on bonds being auctioned by their clients. BWIC volumes vary per desk, but the Mortgage desk, for example, can see over 100 BWICs on Specified Mortgage Pools alone on a typical trading day. These are comprised of over 1,000 line-items and represent almost $20 Billion in total volume. In this fast-paced, high-volume environment where instantaneous access to information and analytics is a necessity – automation is a key driver to success and survival.
Quick Walkthrough of BWIC Workflow
Customers including mortgage originators and investors, typically blast an email to multiple dealers with the BWIC details in their own proprietary format. These details include the list of bonds on offer and their specifications as well as other BWIC process details like the deadline. Salespeople at dealers immediately forward these BWICs to the appropriate trading desk for analysis and pricing. Dealers often republish these BWICs to other buyside clients and solicit their bids. Once all these bids are received and aggregated by the dealer, the trader determines the final bid for the firm and the information is relayed back to the BWIC originator via the salesperson. The salesperson keeps track of the bids and color on each bid which may be relayed back to client bidders and helps confirm the trade if the bid wins.
Typically, sellers give dealers only an hour or two to present their bids because of the cumbersome traditional processes of bid aggregation, notification of the winners and booking the trades. Often, 70 percent of the BWICs come in the first half of the trading day. During these busy morning hours, dealers only get a few minutes to process each BWIC, which translates to less than a minute for each bond. The communication traffic between the sellers, the sales team and the trading desk can get chaotic and sometimes bid deadlines are missed, critical color falls through the cracks and buying opportunities are lost – a loss for all parties involved.
The Old Way: Print & Share
For the longest time, the “print and share” model was the most common process for dealers fielding bid inquiry. The salesperson receiving the BWIC would print the BWIC list and walk the printed copy over to the trading desk. The desk would communicate their bids to the salesperson in writing. The sales desk would then communicate the bid to the seller. By the end of the day, one could see a stack of printed BWICs sitting on the desk.
Surprisingly, about 50% of dealers still depend on this archaic method for processing their BWICs. In recent months of remote working, this method has been challenging and opportunities have been lost.
The Status Quo: An Excel System
Many dealers have created an Excel based system to capture incoming BWICs, track their client bids, the desk’s final bid, and most importantly, the cover they receive from the sellers. The Excel spreadsheets often use Bloomberg add-in functions to automatically fetch bond indicatives. Some spreadsheets are integrated with analytics that can help dealers price these bonds and more sophisticated dealers have attempted to integrate TRACE data into their spreadsheets.
The main advantage of the Excel approach is easy access to bidding and cover history. But this approach is not without its disadvantages. Firstly, this method is dependent on manual data entry. Since each seller publishes BWIC data in their own proprietary format, the task of merging the incoming information into a standard format becomes a bottleneck, especially during the busy parts of the day. Secondly, Excel files cannot be easily shared and edited in collaboration across multiple users. This makes the system less flexible and becomes fairly unusable very soon. With thousands of lines in the spreadsheet, the historic information, although available, is not easily accessible.
The Future: Automated Systems
Financial institutions have always depended on technological innovations to streamline their workflow, reduce costs and improve profitability. The first version of BWIC management systems is being used to replace Excel files. These systems allow traders and salespeople to use a single system where they can co-manage the BWIC process. The sales desk creates BWICs and the traders provide bids. As they evolve, these systems have integrated Bloomberg indicative lookups, TRACE data and internal analytics. In recent months, when traders and salespeople have had to work remotely, investments in these systems have paid handsome dividends.
The next generation of systems is adding automation to the workflow. BWIC emails received from sellers are scraped and automatically added to the system – with minimal manual intervention required. Furthermore, using integrated analytics and historical pricing, these systems accurately bid the BWICs and communicate the results back to the seller. All information is captured, integrated and communicated in a streamlined and efficient manner. As confidence in these auto-bidders increases, more BWIC items will receive automated bids. Consequently, traders will be allowed to focus on pricing more esoteric bonds while salespeople will be allowed to focus on relationships.