Wall Street & Technology: Blog
subscribe April 08, 2008

More Remedial Derivatives Technology Emerges

You know markets are suffering when the latest new features vendors tout for their products have to do with liquidation pricing. This morning, SuperDerivatives announced it will provide the liquidation price (or ’exit price’) of all derivatives held within clients’ portfolios. Under the terms of FAS 157, firms are required to define the exit price of all instruments to calculate fair market value or "…the price that would be received to sell an asset or paid to transfer a liability."

Bank analyst Dick Bove at Punk Ziegel believes this requirement unfairly depresses portfolio values. "The fact of the matter is you have buyers and sellers in the market reflecting their opinion, and their opinion is that losses in the commercial real estate market will be 8% of the value of the securities outstanding, their opinion is reflected in price they're willing to pay for those securities," he said in a recent interview. "The net-net is, that's how they get priced, based on what people want to buy those securities for. What makes it rotten is that the actual losses are nowhere near 8%. If you're a bank, you're not pricing what you have based on the actual losses, you're pricing them based on what people think."

Unfair or not, firms do have to mark to market and will increasingly turn to providers like SuperDerivatives and Markit Partners for such valuations.

Posted by Penny Crosman at 10:06 AM



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