Developments in Evaluated Pricing

Peter Jones Dec 02, 2014

Pricing analyst workflow and timeliness of Evaluated Pricing to become key focus areas for the vendors

With the demand for evaluated prices for thinly-traded securities growing rapidly in recent years, the Valuation Risk Forum brought together a panel representing major providers of evaluated pricing services to give delegates the latest updates on what providers are doing to meet changing market requirements.

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One of the main topics of discussions in this space remains depth of information, with panelists saying the focus on the level of information available to clients is key. As it is not sufficient to simply send a price to clients, panelists explained how providers are leveraging relationships and technology to obtain more colour.

In the years following the financial crisis transparency has been a major focus and there's a continuous drive to enhance Evaluated pricing services especially around showing clients how the Valuation was arrived at, but in the future panelists also mentioned workflow and timing will be increasingly important.

Interactive Data brings in about 4 million price points a day, and have a lot of connectivity into buy-side and sell-side, inter dealer brokers and so on, which helps them provide clients with more information than the actual price. In other words, the aim is for the client to receive what the evaluator was looking at when pricing the bond.
Mark Hepsworth, president, Interactive Data EMEA

Hepsworth also pointed out that another focus area going forward is helping clients with workflow, as clients are having to implement a more robust process around price validation and more reporting.

Evaluated pricing won't be moving to nano-second type latency, but we're moving to continuous updating,”
Mark Hepsworth, president, Interactive Data EMEA

A lack of liquidity in the secondary bond market was a major theme at the forum. Evaluated pricing services rely on seeing market data to compare similar thinly or illiquid bonds to active traded issues, so an absence of trades can impact the Valuation vendors. S&P Capital IQ said it had invested in proprietary technology and trade reporting feeds. According to Gonggrijp the software captures pre trade market colour from the buy and sell side.

"There is less liquidity in the Fixed Income markets and that is impacting the availability of trade data. We are capturing market data through our proprietary software and we do see a lot of colour from the market but there is less actual transaction data available".
Roderik Gonggrijp, Director S&P Capital IQ