Deal Pool: A New Way to Issue Bonds

Did you ever play the telephone game as a child? The first child in the line whispers a sentence into the ear of the second child, who in turn passes the sentence on to the third child, and so on. The last child in the line says the sentence that was whispered into his or her ear out loud. By then, “snacks” has become “snakes” and “play” has become “pray,” and much laughter ensues. It’s less amusing when misunderstandings arise in a financial transaction. Such mix-ups can get expensive. One person says “fifteen” and the other hears “fifty.” That can happen in bond issuance today. When banks inform their clients about new bond issues, take their orders, or allocate bonds, their employees reach for the telephone the way they did decades ago. One of the few alternatives is Bloomberg Chat. There is no risk of hearing incorrectly with that communication tool, but mistakes occur nonetheless. There are risks wherever data has to be entered into a system manually, and those risks don’t get smaller when the workload per employee is increasing due to cost cutting.

Banks and Investors Benefit

With Deal Pool, SIX automates the issuing of new bonds in Switzerland across a centralized electronic platform. Deal Pool makes misunderstandings a thing of the past and enables banks to benefit from greater efficiency and traceability. Banks can retrace the entire interaction with investors, and this way can more easily ensure compliance with regulations and internal guidelines. But Deal Pool also benefits investors because not even the fastest bank employee is capable of simultaneously informing all of his or her contacts of a new bond issue. Smaller-scale investors in particular are disadvantaged by this today because they don’t learn about new bond issues simultaneously with large investors. With Deal Pool, all potential investors receive the information at the same time and in the same format via e-mail or Bloomberg Message. This is because with Deal Pool, SIX has created a standardized source for all financial data (issuer, term to maturity, etc.). This not only reduces the load for banks of having to make multiple data entries, but also lays the groundwork for listings on the exchange.

Deal Pool is endorsed by all of the major syndicate banks in Switzerland. Institutional investors can now sign up for free to use this service from SIX.