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A-Team Webinar Debates the Data Management Challenges of Pricing and Valuations

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Portfolio pricing and instrument valuations are under the spotlight as an increasing number of regulations require pricing and valuations data, the need for data quality and accuracy tops the agenda, and transparency of pricing methodologies becomes central to price challenges.

These issues and more were discussed this week during an A-Team Group webinar moderated by A-Team Group editor Sarah Underwood and including panel members Anthony Belcher, director of EMEA Pricing and Reference Data at Interactive Data; Greg Carlin, Vice President of Securities Evaluations at S&P Capital IQ; and Jayme Fagas, Global Head of Valuations and Transparency Services in the Pricing and Reference Services division of Thomson Reuters.

If you missed the webinar, you can hear the full recording and also download the accompanying Special Report here.

Liquidity, Transparency and Regulation

The panel outlined the challenges of portfolio pricing and valuations, noting that they largely reflect ongoing financial industry themes such as liquidity, transparency, regulation, the search for yield and immediacy. Other challenges include providing client access to enough supporting market and trade data to defend a price and the need for controls to monitor and support validation procedures.

Concomitant data management challenges include managing the large volumes of data required for evaluations, including price supporting data such as direct observables, comparable transactions, assumptions and other available market colour. Storing, mapping and making all relevant market data available to clients was also mentioned as a major task.

To meet these challenges, Belcher suggested firms may need to increase investment in data management and data, not only to upskill pricing teams, but also to have timely and relevant valuation data and transparency into the data.

Drilling down into pricing accuracy and quality of data, all agreed that these elements are essential to valuations. Fagas explained: “Accuracy is highly dependent on good data quality; having access to high quality and robust content and terms and conditions is critical. Having proper staff in place and proper oversight of content and data is imperative. Access to market colour, market events and news is also important for accuracy. Consistency is supported by robust quality controls. We find that our current SOC I Type II report helps here.”

Regulations putting pressure on pricing teams and processes were noted as AIFMD, Basel II and III, Solvency II, Dodd-Frank, ASC Topic 820, IFRS 13, Form PF, MiFID and EMIR, although more are expected to be added to the list as time passes. On regulation, Carlin said: “A number of implemented and pending regulations and standards are significant drivers of transparency needs. Most prominent are ASC Topic 820 and IFRS13. The evolution of these and other regulations is prompting clients to develop more sophisticated price validation controls. Changing best practices may include an upgrade of staff domain knowledge, a tighter integration of observable markets and the price validation process, and a better understanding of how providers evaluate securities where direct observables are not available.”

Demands from clients for more frequent, and occasionally near real time, portfolio pricing were also noted, along with the need to improve evaluations of complex and illiquid instruments, and the requirement to handle increasing numbers of price challenges. On this, Fagas commented: “Efficient response to price challenges is very

closely related to offering increased transparency into a price and increased data exposure. User friendly challenge tools are also helpful. So, too, is interaction with the evaluator.”

Turning to the question of how data vendors are improving their pricing and valuations services, Carlin said: “Vendors continue to invest in technologies and data that provide for timely, accurate and defensible pricing. In a market where direct observable inputs are limited or not available, the vendor needs to focus on providing transparency on securities. Granular sectoring and grouping of bonds is required so that observables used to make price decisions across similar groupings can be linked to the securities where no observables exist.”

Finally, looking at technologies that could be beneficial to both data vendors and pricing consumers, Belcher concluded: “The three main developments coming to market that could help improve portfolio pricing are new portfolio pricing and validation tools, improved fair value information services, and the continuous evaluated pricing of non-exchange traded instruments. Independent, high quality, intraday evaluations will become a mission critical tool for pre-trade analysis, idea generation, risk management and trading automation.”

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