Preparing for the anticipated wave in Web services, Morgan Stanley is developing an electronic-client-management and issuance system for euro-medium-term notes with Marketpipe and Sun Microsystems, which is due to be operational in a month.
Dubbed i-MTN, the system is based on Web-services technology, but initially Morgan Stanley's MTN desks will use the system internally. Marketpipe will be demonstrating its Web-services technology in Sun's booth (#4100).
"It's a way of tracking all the activities and the workflow for the medium-term-note desk both in London, Tokyo, and, if needed, New York," explains Jonathan Gittos, chief executive officer of Marketpipe, a developer of online-financial markets headquartered in London.
Morgan Stanley was not available for comment.
Morgan Stanley is one of the top two or three issuers of euro-MTNs. In contrast to bond-syndicated deals, MTNs are placed directly with a small group of investors and typically won't be shared by a group of banks in a syndicate. In Europe they are used for structured notes and may have an equity derivative or an option embedded in the note to give the investor a different type of cash return or risk profile, explains Gittos. Because of that, the whole process involves a lot of conversations with the investors, a lot of intermediation within the investment bank dealing with the equity group and the equity derivatives group, and an enormous amount of information flow.
"i-MTN is designed to centralize all of that information and the flow of information in one particular place," says Gittos.
Although i-MTN will be used internally, both Sun and Marketpipe contend that it is a Web service, because the application is built to allow information to be shared with other applications in the investment bank. "That's where we see Web services taking off (and later) taking information out to be shared externally," says Gittos.
For instance, the application can share information with sister applications that handle the corporate-bond market or commercial paper.
Adds David Littlewood, director of worldwide financial services at Sun: "We think of it as a Web service automating manually processes that were traditionally done using telephones and faxes."
Meanwhile, as the battle between Web-services vendors heats up, score this one for Sun. The system's architecture is based around J2EE, Extensible Markup Language (XML) and Simple Object Access Protocol (SOAP) -- standards associated with Web services. Marketpipe is also using the Sun One Web-services stack. "They also use SOAP to pass XML messages between the i-MTN server and the front-end trading application, says Eric Mathre, Sun's industry technology manager, financial services.
One major difference is that a public Web service would publish to UDDI but in this case, "It's designed to be a Web service within the corporation," says Tony Cleverley, Marketpipe's chief technology officer, who adds, "We have the facility to extend it."
According to Sun, there are as many as 120 financial-services organizations trading euro-medium-term notes who could potentially use the system. "It could rapidly become a wide marketplace," says Littlewood, who believes the concept is applicable to different instruments and issues. Instinet tried to build an MTN marketplace with Sun equipment several years ago but "unfortunately, didn't get the traffic or volume they expected," notes Littlewood.
While the system is being built for Morgan Stanley, Marketpipe retains the intellectual property rights and can resell it. "The next iteration of it will probably be in the commercial-paper market," says Gittos. 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