Bond Market Data Competition Warms Up As Merrill Untethers Bloomberg, Newco Moves Ahead

Fixed-income traders are bracing for escalated competition among market data services in the wake of Merrill Lynch's decision to allow Bloomberg Financial Markets to provide its service to 13 large but previously embargoed firms. Also stoking the competitive fires will be Newco, a consortium of government securities brokers, which is moving forward with a proposal to provide a last sale ticker of Treasury prices (MTR, January 1988).

Sources report that Newco, jointly owned by Fundamental Brokers Institutional Associates, Garban, Ltd., and RMJ Securities Corp., has selected S&P Trading Systems to process its proposed ticker and distribute the price feed to other vendors. S&P officials won't comment and consultant Ron Smith, point man on the Newco project, didn't return calls.

Settling technology issues and settling political issues are two different things, however, so the Newco plan is moving slowly. Of particular concern is Newco's pricing structure, sources say.

Some primary dealers are reluctant to pay a premium to receive information about trades to which they were a party. Nonetheless, the Newco plan is eventually expected to provide better price data on Treasuries to Reuters, Knight-Ridder, Quotron, and other vendors anxious to compete with market leader Telerate.

One vendor anxious to compete but not especially excited about the prospect of a Treasury ticker is Bloomberg. In a market where spreads are typically 1/32d, "there just isn't any reason to have better government prices than what I've got," says Mike Bloomberg, the firm's president. Bloomberg's 5,000 screens currently offer Treasury and other bond prices from primary dealer Merrill Lynch, which owns 30 percent of the company.

Merrill Lynch has now agreed to let Bloomberg make the crucial transition from a quasi-captive data supplier and institutional soft- dollar sales tool to a full-blown market data competitor. But the transition is risky. While Bloomberg was under Merrill Lynch's wing, Merrill's bond salesmen were in effect Bloomberg salesmen. With the relationship becoming more arm's length, Bloomberg must now make its own way.

Until the new agreement was reached, Bloomberg was forbidden to provide its service to most of Merrill's direct competitors or to display dealer prices from anyone but Merrill. The list of taboo firms reads like a who's who of the Wall Street bond market: Bankers Trust, Bear Stearns, Citibank, Daiwa, Drexel Burnham Lambert, First Boston (and CSFB), Goldman Sachs, J.P. Morgan, Kidder Peabody, Morgan Stanley, Nomura, Salomon, and Shearson Lehman Hutton.

Now all can have The Bloomberg. "The only two plausible scenarios are they take a few and it grows or they take a lot and it grows," says Bloomberg.

More significant than having the 13 as potential customers is having them as potential contributors. "It gets you better pricing and gives you more alternatives and makes people more interested in your product," says Bloomberg, who hopes at minimum to achieve information parity with his chief rivals. "At the very worst, it's hard to see why anybody who distributes on Telerate and Reuters wouldn't give it to you as well," he says. "To the extent that they don't already put them on Reuters and Telerate, it's an unknown."

Bloomberg is cagey about his contributor strategy, but does note that "in the less-efficient markets, that's where electronic distribution really does make some sense, and hopefully we'll be able to do that." That arrow points away from the governments market and toward corporate bonds and perhaps overseas fixed-income arenas.