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."
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