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Does the World of Valuations Need Common Data Formats?

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The need for data standardisation is well understood in many areas of reference data (albeit poorly implemented or non-existent in actuality – concept rather than reality being the operative word), but the world of valuations data has largely remained untouched by standardisation initiatives to harmonise vendor formats. Guy Sears, director of Wholesale at the Investment Management Association (IMA), raised this very subject at the recent SIX Telekurs roadshow on pricing in London, indicating that the introduction of standardised formats might make the lives of valuations teams much easier and bring down costs to some extent.

The topic came up as a result of discussions about the amount of non-numerical data that must now be provided along with a price, especially evaluated prices for illiquid securities. Vendors are providing this data (in varying quantity and quality, according to practitioners) to those that request it, but it is being provided in non-standard and often proprietary formats. This makes the task of comparing and contrasting this data from different vendors in a dual sourcing model much harder, agreed panellists. Hence the idea of standardisation reared its familiar head.

Surprisingly, SIX Telekurs’ own market development manager Richard Newbury indicated that the vendor would not be averse to such a move. “We have already adopted common formats such as ISO standards for the corporate actions world, so we would be willing to do the same for other areas,” he told attendees. “However, as we are not just talking about numbers, it would be a huge project to take on to standardise the whole area of reference data.”

Given the trials and tribulations involved in deciding on a legal entity identifier for the market, Newbury raises a good point. There’s no doubt that such standardisation would be beneficial – it would allow for greater flexibility of switching vendors, provide greater transparency across vendors etc – but who would lead the charge? Regulators and some industry participants are keen on the one utility model for this data – should one such utility (the Office of Financial Research, for example) aim to be all things to all reference data practitioners? We shall see.

Another bone of contention during the panel discussion was the level of service being provided by some vendors, although names were not named. Marcel Guibout, executive director of the fund accounting product in EMEA for JPMorgan Worldwide Securities Services, noted that the attitude of some valuations vendors regarding sharing underlying calculations and models for pricing data was less than desirable. “Some see this data as proprietary and therefore don’t provide us with pricing transparency. This will have an impact on whether we choose to work with them in the future,” he cautioned.

The IMA’s Sears suggested that perhaps valuations vendors and brokers providing pricing services should be subject to the same level of scrutiny as credit ratings agencies by the regulatory community. He noted the similarity between the potential conflicts of interest involved in the pricing process and in determining a rating. Guibout agreed that this could be warranted. Vendors be warned.

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