Interactive Data has added credit default swaps (CDS) and two CDS indices to its independent OTC derivatives valuation service, increasing transparency around the evaluation of these asset classes and helping users to improve risk management and regulatory compliance through a better understanding of CDS valuations. The company is also working towards intra-day and ultimately near real-time delivery of fixed income evaluations.
The CDS service is up and running with clients in the US, Europe and Asia paying an additional asset class cost to receive CDS evaluations. The service covers a range of single name corporate, sovereign and US municipal entities, as well as CDX and iTraxx index trades.
Beginning at about 16.30 Eastern US time, the service provides evaluations, curves and analytics to support users’ portfolio valuations, financial reporting, risk management and trading. CDS data is live within Interactive Data’s Vantage portal, a web application for evaluated pricing transparency that in April was expanded to cover 2.8 million instruments and enhanced to improve compliance and risk management through greater transparency of the firm’s evaluated pricing in the fixed income market.
Commenting on the CDS evaluation service, Liz Duggan, managing director of global evaluations at Interactive Data, says: “The CDS trade and CDS valuation processes at financial institutions are subject to much more scrutiny than ever before. Our OTC derivatives valuation service was developed in response to persistent demand from our bond evaluation clients for independent CDS evaluations and increased transparency into how these evaluations are produced.”
While hedge funds in Europe are already required to provide independent evaluations of OTC derivatives, EMIR regulation in Europe and Dodd-Frank requirements in the US will create broad demand for independent and transparent evaluations of OTC derivatives including CDS instruments.
Anthony Belcher, Interactive Data’s director of EMEA valuations, suggests the company’s CDS service will be of interest to a large proportion of its clients, particularly those in the US that have CDS products in their portfolios and, to a lesser extent, to those in Europe that are more likely to use CDS contracts for hedging or speculative purposes.
“No-one in the market is offering the same approach to a CDS valuation services as Interactive Data,” says Belcher. “We are different in taking an evaluator-based approach with experienced evaluators in New York undertaking CDS valuations right to the end of the spectrum of the least liquid CDS instruments. We also have great understanding and experience of fixed-income valuations and can apply this on the CDS side.”
Looking forward, Belcher expects the OTC derivatives valuation service to cover more asset classes, in this respect the company is working on bank loans, while the company also plans to increase the transparency of valuations through Vantage.
On a move from end of day to intra-day delivery of valuations, he says: “Fixed income markets are becoming more time conscious. We can do intra-day evaluations and we are wrestling with how we could do near real time evaluations The difficulty here is that fixed income markets are less liquid than equity markets so more diverse types of information and an understanding of the information is need to arrive at valuations and this takes time.”
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