An Interview with Gregg Bienstock,
Lumesis Co-Founder and CEO

1) In a nutshell, what is Lumesis?

We are a data and software company serving the municipal market. We started with our DIVER Analytics product to assist credit analysts and portfolio managers with muni credit analysis. We recently expanded our platform to offer DIVER Advisor, a time-of-trade compliance and information delivery platform for those interfacing with retail and, of course, compliance teams. Our services have expanded to include data delivery, custom data services and the introduction of our Geo Score. Our mission is to improve all facets of the municipal bond market through the application of powerful technology that will enable meaningful insights and transparency.

2) When was Lumesis started and what were the driving forces to create the company?

In July 2010, Tim Stevens and I started Lumesis. With the onset of the financial crisis, we heard municipal market participants voice concerns around severely stressed economies, stale and inconsistent financial information reported from issuers and the fact that the rating agencies did not rate all bonds and could not, realistically, revisit ratings as frequently as the market would like. These facts, coupled with the precipitous decline in the use of bond insurance, led to our introduction of a platform that emphasized the importance of economic and demographic data. The idea was to provide data and tools that would allow market participants to get a more timely assessment of the drivers of tax rolls, tax receipts and spending by municipalities.

3) Who uses DIVER Analytics and how do they benefit from it?

Today we have over 70 institutional clients using Analytics, including asset managers, insurance companies, banks and broker dealers. Our users have traditionally been credit analysts, risk and portfolio managers, but traders and sell side analysts are now seeing value.

The first benefit we bring our clients is efficiency. We do the work of collecting and quality checking a vast amount of data and then link it directly to individual municipal bonds. Our clients can spend their time performing value added analysis and less time on data collection.

Our software then provides our users with insights and metrics never before available to muni market professionals, whether performing individual bond analysis or portfolio surveillance functions. These include the visualization of relevant data and portfolio positions on maps, side by side comparison of local data, new portfolio credit metrics and the identification of locations and portfolio positions with either favorable or unfavorable conditions that will ultimately translate into a municipality's fiscal well-being. Our clients can answer questions like "What is the overall economic health of the locations in which we are invested? What positions should I be monitoring more closely due to a decline in economic conditions?" In addition, our new dashboard displays live updates of rating changes, MSRB filings and trade activity and provides access to bond reports which are available for every muni bond.

4) Describe the evolution of Lumesis and the introduction of the DIVER Advisor platform?

The idea for our second offering, Advisor, was in response to the request of a client and to a need prompted by regulation around time of trade disclosure. This was shortly after the release of FIRNA's "checklist" (Reg. Notice 10-41). As we researched the subject, we found many firms struggling with the reality of aggregating a fair amount of information - estimated to take 30-40 minutes per trade - and ensuring the same was communicated to their retail client. As we were finishing development, the MSRB issued its proposed G-47. This solidified, in the minds of many, the need for something more than what they had been doing.

The Advisor platform combines required information for time of trade disclosure - material information reasonably available - for all 1.4 million bonds along with advisor focused-account monitoring tools. We wanted to provide the end-user with additional value beyond the reputational protection afforded by the compliance aspects of Advisor. We also added a module that allows for the dissemination of credit notes to the Financial Advisor by CUSIP. This was added in response to feedback we received around the inability to effectively deliver notes from a firm's credit experts in real time.

We are very pleased with the market's reception. First, throughout development we provided the regulator access to the platform and welcomed their feedback. Most recently, we were invited to present the Advisor platform to a group of FINRA's Field Examiners and others. We introduced the Advisor platform in April and have 4 institutions on board with a combined subscriber total north of 17,000.

5) How would municipal market participants benefit from utilizing DIVER Advisor?

With increasing emphasis on protecting retail investors and the MSRB's codification of their time of trade disclosure requirements, those firms with advisors interfacing with retail as well as traders need a solution that can efficiently gather material information reasonably accessible and deliver the same to the retail client in seconds. During our development and with our initial group of clients we have had validation of the benefits:

• Firms and advisors can protect themselves and their reputations through the delivery of our bond reports to investors
• The user interface and our highly customizable reporting dashboard
• Efficiency - what once took 30+ minutes now takes seconds
• Compliance professionals and supervisors can ensure that time of trade disclosure obligations are being met and that proof of compliance can be readily provided during a FINRA examination or internal review
• Credit experts, already taxed by significant demands, can better coordinate and communicate their credit views to their Financial Advisor network

6) Data is powerful for a market with over 50,000 municipal bond issuers. How is Lumesis managing this data and how can clients of Lumesis benefit?

Our database encompasses data from over 50 distinct sources. We have over 250 data sets and that number grows with our user requests. We have data for all 54,000 issuers and all 1.4 million municipal bonds. The DIVER platform - Analytics and Advisor - leverage that data base.

Leveraging a common theme of responding to what our users want, we recently launched a "Data Services" offering. This was in response to the request of "can we buy your pension data" and can you perform certain analysis for us. For us, this is another way to provide value to the market while leveraging the outstanding work of our data team that has devised methods and approaches for data aggregation and, of critical importance, quality assurance. In addition to delivering data, some of our data service work has included special analyses including default and bankruptcy analysis by sector and portfolio.

7) What's the future of disclosure in the municipal market?

I believe we have come an incredibly long way and will continue to make progress. The MSRB has done an excellent job with its EMMA platform and they, along with the SEC, have and continue to do what they can to promote transparency in the market. From our vantage point, we see additional ways to help municipal market participants and plan to play a critical role in advancing market transparency as we pursue our mission. To that end, one of our next projects is on the issuer side of the ledger. We see an opportunity to work with issuers to support their efforts at transparency and educating the markets as well as helping them better understand and respond to the needs of investors. As with our efforts and output to date, we very much see ourselves continuing to complement the work of the MSRB.

8) What is the DIVER Geo Score and what has been the response?

Clients routinely ask us if we can boil it all down to something simple. In response, we created the Geo Score. It is a proprietary measure of the economic well-being of a selected geography, namely States, Counties and the 300+ largest cities. Its focus is certainly broader than the municipal market given its geographic focus but is highly relevant to understanding the economic drivers of fiscal health.

The Geo Score itself is a relative score of key data points from the Housing, Employment and Income data categories and is updated monthly.

The response by our clients has been very favorable with many of them using it as part of their analytical work. We are discussing its broader dissemination with several publications and will be making it available for free on our website.

For more information, please contact
Mike Nicholas at (202) 204-7901 or at
[email protected]