FBI And Woodside Planning Arb Map For Broker Screens

Within the next two months selected clients of Fundamental Brokers Institutional associates may gain access to the broadcast version of a new fixed-income analytical tool known as The Arb Map.

Fundamental Information Systems, Inc, of New York and The Woodside Group, an economic research company in Woodside, CA, are exploring the feasibility of a relationship under which Woodside would supply a series of Arb Map pages via FBI's broker network connecting primary dealers in U.S. government securities.

When you think "map," you see graphics, but when you look at The Arb Map you see numbers--lots of them.

The Arb Map is Woodside's attempt to prepare the ultimate single screen reference display for fixed income arbitrageurs. It's designed for real-time "rich/cheap" swaps and arbitrage analysis, and will likely occupy a new page on FBI's interdealer screen network.

Issue 1.0 covers all major on-the-run U.S. Treasury securities. Later iterations will cover

U.S. agency securities, Ginnie Maes, and international money markets.

There's no wasted space on the Arb Map. Its main matrix is a table detailing the spreads among all 45 Treasuries. Directly beneath each spread value is a numeric indicator of the potential profitability of that particular spread for arbitrage purposes.

The indicator is calculated with a proprietary algorithm which takes into account the historical behavior of the two securities. The result of this "rich/cheap" analysis is usually a number falling between -2 and 2.

Spreads are calculated using real-time executed price information from FBI's interdealer trading system. Both spreads and arbitrage indicators are refreshed on a tick-by-tick basis.

A traders uses the numbers to identify attractive arbitrage opportunities. Having selected a target, he can call up a background screen providing more focused analysis of the two securities.

While the current generation of Arb Map is limited to analysis across Treasury securities, later versions will allow spread analysis across classes of fixed income securities -- between Ginnie Maes and Gilts, for instance.

Also shoehorned into Woodside's one-look analytical reference page are current bid and offer, current yield, standard deviation over the month, and duration calculation for all securities covered.

In the upper right-hand part of the screen, Arb Map includes pricing for the major currencies, and European and domestic futures, as well as overnight and weekly repo rates.

Arb Map is designed as an analytical complement to information currently carried on page 14 of FBI's screen network.

Fundamental is engaged in development work on an item-oriented -- rather than page-oriented--digital feed which should become available to FBI clients within the next six months, according to FIS president Ross Klinger.

Arb Map will be introduced as a single screen on FBI's page-based feed. But when FBI's logical record feed arrives, a more complex version of Arb Map will be made available as a software application for local installation.

An item-oriented digital feed combining real-time inside prices with a fresh array of fixed

income analytical tools will catapult Fundamental into direct competition with Bloomberg Inc. for the lucrative primary dealer market.

Sources say that both FBI and RMJ Securities Inc. have recently withheld permission for

Bloomberg to deliver their inside price feeds. An accommodation worked out earlier this year between interdealer brokers, Bloomberg Inc., and primary dealers may be in jeopardy (TST, July 6).

Meanwhile, Bloomberg is said to have won a contract to replace Merrill Lynch's First system. Merrill is pulling the plug on First, an analytical tool for its institutional fixed income clients.

A Bloomberg spokesperson acknowledges that "delicate negotiations are underway," but declines further comment.

The as-yet-unreleased GAO study evaluating expanded access to interdealer broker prices looms larger with each passing week, but none of the relevant players is lounging in the wings.