Asset Management

04:30 PM
Becca Lipman
Becca Lipman
Commentary
Connect Directly
Facebook
Google+
Twitter
RSS
E-Mail
50%
50%

Interactive Data Launches Continuous Fixed Income Pricing Service

Independent intra-day FI pricing is helping to shine light on the opaque fixed income market.

Interactive Data, a global provider of independent pricing and reference data, recently announced the launch of continuous fixed income evaluated pricing service.

Through the process of reengineering its internal data flows, Interactive Data now pushes information received from the market directly to their evaluators, who in turn use the data to update pricing though out the day.

Bill Gartland, senior director of evaluated service and head of the continous pricing effort, told us, "We're now in a position to be able to publish that information out in the market as we see trading activity reported through trade MSRB, and as we see information from other sources, be they dealer runs or postings though various ECNs we have relationships with, as well as other forms of information. We have opinions of where the prices are."

A team of over 200 evaluators, many of whom are former portfolio managers and traders, leverage their experiences with various algorithms to provide updated valuations as market events and trading activity dictates. "We are publishing a price where you would reasonably expect market to trade on a bond," explains Gartland. "We've done some testing with information given to us by other participants in the market, and we feel strongly confident our information meets that standard. We're right in the stack of prices that you see being posted out there."

Front office
End-of-day pricing products have been largely consumed by the back-office for purposes of update files for NAVs. But firms are finding increased value in intra-day pricing for front office applications.

One of the advantages for a portfolio manager, even on the days bonds in a portfolio don't trade, is knowing the current value to decide to continue holding it or not. Gartland says:

That end of day pricing is already a significant benchmark in the marketplace for where value exists, now we're able to bring that down to the inter-day level and help at the point of trade. If you're getting a bid back from a dealer or looking at a series of responses for a request for quote, we are an independent price that can let you validate it as being a not off-market type price, meet your own fiduciary responsibilities and measure your own quality of execution.

Since launching intra-day fixed income pricing, one of the eye-opening use cases, according to Gartland, come from asset managers feeling like they are getting white glove treatment from some of the biggest banks, and want to judge and measure just how white glove that treatment is:

They can tell if they are getting information at the same time that we are able to reflect it into our prices. And they can tell if they are getting it sooner than the general market, if so, then how much sooner? They need to know what everyone else knows and when they know it, and if they want to view us as a proxy for the market then we're in a good place to deliver that information.

There are also some "fruitful discussions" with the middle office, with risk managers and compliance teams who need to know current evaluations to meet with increasingly stringent regulatory requirements and internal risk management policies.

A regulatory push
Traditionally, fixed income is not an asset for which you could reliably see the current value. It's historically been a networking business, and prices are shared with the community on demand, and not equally distributed to all players in the space.

As highlighted by the London Whale incident, the unequal dissemination of information allows for information arbitrage. In recognition, comments in June by Mary Jo White called for a revisiting of price transparency in fixed income and a change in the way the market have behaved. Gartland said:

We see independent intra-day pricing as a necessary step going forward as the markets become more electronic. One of the initiatives that Dodd Frank brought to the interest rate swap market was to force trading to move on to a more organized exchange and execution facilities. In order to facilitate those moves across the broader spectrum of fixed income, some element of the pricing process has to become automated. You just can't keep live prices on a ECN without some kind of machine helping to keep those prices current and reflective of all information to the market.

Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio
Comment  | 
Print  | 
More Insights
Comments
Threaded  |  Newest First  |  Oldest First
IvySchmerken
50%
50%
IvySchmerken,
User Rank: Author
9/22/2014 | 11:03:20 AM
Intra-day pricing as way to verify 'whit glove' treatment
Continuous pricing is going to get  fixed income price updates to fixed income portfolio managers and traders on a streaming basis, and increase transparency into this opaque market. The point about validating 'white glove' treatment is ivery interesting. Brokers often tell buy side clients they are getting 'white glove' treatment by trading through them. Many buy sides that use the request for quote method are also relying on their sell-side relationship to get the best prices. With this new intra-day continuous pricing service, the buy side can evaluate how close their responses are to actual trades going off in the market.
Becca L
50%
50%
Becca L,
User Rank: Author
9/22/2014 | 5:43:57 PM
Re: Intra-day pricing as way to verify 'whit glove' treatment
It's really very interesting that while many any assets have been bound to technology that equally distributes informaiton to market participants, fixed income is still a networking who-knows-who game. The measuring of white glove treatment is a really interesting use case for this service, but apparently a very popular one. Clearly players are skeptical that all their hand shaking has actually worked to their benefit in a significant way. And it gives more credit to Mary Jo White's comments that this needs to be a more equal playing field for investors.
IvySchmerken
50%
50%
IvySchmerken,
User Rank: Author
9/23/2014 | 10:45:44 AM
Re: Intra-day pricing as way to verify 'whit glove' treatment
Fixed income is different from equities in that it's an OTC market as opposed to exchange-listed market. Dealer make prices based on the credit relationship they have with large institutional investors. So the concept of making prices available to everyone has not been the practice. Recent calls for transparency are helping to focus the spotlight on this area.  But there are structural issues to solve  like the fact that there are 40,000 corporpate bonds with different terms. One step would be to get corporate issuers to adopt standard terms so that bonds could trade on exchanges and electronic platforms.
More Commentary
A Wild Ride Comes to an End
Covering the financial services technology space for the past 15 years has been a thrilling ride with many ups as downs.
The End of an Era: Farewell to an Icon
After more than two decades of writing for Wall Street & Technology, I am leaving the media brand. It's time to reflect on our mutual history and the road ahead.
Beyond Bitcoin: Why Counterparty Has Won Support From Overstock's Chairman
The combined excitement over the currency and the Blockchain has kept the market capitalization above $4 billion for more than a year. This has attracted both imitators and innovators.
Asset Managers Set Sights on Defragmenting Back-Office Data
Defragmenting back-office data and technology will be a top focus for asset managers in 2015.
4 Mobile Security Predictions for 2015
As we look ahead, mobility is the perfect breeding ground for attacks in 2015.
Register for Wall Street & Technology Newsletters
White Papers
Current Issue
Wall Street & Technology - Elite 8
The in-depth profiles of this year's Elite 8 honorees focus on leadership, talent recruitment, big data, analytics, mobile, and more.
Video
Top Quotes of the Week
Top Quotes of the Week
It wasn't all bad luck for the capital markets this week: Hedge funds had a decent first quarter despite a slowdown in jobs numbers, BlackRock might be heading into new territory as hedge fund managers take a hard look at their counterparties, and the head of the IMF didn't pull any punches when assessing today's global economy. At least we can admire the nice weather and some of the best quotes of the week.