Clarity Bidrate Alternative Trading System, a division of Arbor Research & Trading LLC that aims to rejuvenate the variable rate municipal market, has won its first new bond issue.
The deal came to market on Oct. 25 when the State of Ohio sold $32.3 million of variable rate bonds, series 2016C. After the initial underwriting by Key Bank, the bonds will go up on Clarity after the reset on Nov. 1.
Clarity's goals include expanding and centralizing the market, bringing more transparency, and use competitive pricing to rejuvenate the variable rate municipal issues, though there will be other structures available on the system. The variable rate market collapsed in 2008, as the fall of Lehman Brothers triggered a run on the securities.
Clarity's chief executive officer and president, Robert Novembre, said that orders for the Ohio bond ranged from the whole deal to as small as the minimum denomination of $100,000.
"It was great, the sale went really well," Novembre said. "It was oversubscribed multiple times and we saw strong support from various sectors of the market, including money funds, asset managers and muni bond funds (not a fund family complex). We saw lots of variety in both order size and size and types of accounts that bought the bonds."
Novembre said the deal did better than anticipated and Clarity will be adding more investor clients in coming weeks.
"The State of Ohio was the catalyst to spark the modernization of the marketplace, which is long overdue," he said. "Now that we have the first one done, we want to get the ball rolling more aggressively. We are confident in growth of the pipeline, stronger odds of getting deals, and we are not just reliant on new money issues either."
Seth Metcalf, deputy treasurer of the Ohio Treasurer's office, said he was more than pleased with the outcome.
"The treasurer's office is excited about the opportunity to lower interest costs for Ohio taxpayers by leveraging Clarity's innovative technology to increase market competition through better price transparency and democratized access to Ohio paper," Metcalf said.
Novembre said that one of the Clarity's objectives it to create opportunities for investors to buy bonds more easily an ongoing basis.
"You can take the time to do credit research and you can come in at any time and buy the bonds with a winning bid," he said. "Every reset, they have an opportunity to come in and pick up the bonds."
Clarity is in the document phase with a second issuer, with the hope that the transactions will go through by the year end. While the total amount of the deal may not on the larger side, the importance of the deal far surpasses the amount.
"This was a historic moment for us and for the market," he said. "It's something new and is designed to help all parties."
