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S&P’s Jones Talks up its Bond Pricing and Valuation Offering, First in a New Line of Offerings

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Following its recent (and long anticipated) official rebrand, S&P Capital IQ has released the first in a series of upgrades to its valuations biz in the form of a new bond pricing and valuation offering, which purports to provide an “independent and transparent view of multiple pricing and valuation approaches across a single issue.” Peter Jones, senior director of S&P Capital IQ, speaks to Reference Data Review about the new solution and how it fits into the vendor’s more joined up approach to the market overall across its various data, analytics and risk focused solutions.

Setting the new solution into context, Jones says: “Under the S&P Capital IQ brand, we have focused on pulling together our business assets and as a result are now beginning to unlock the value of those assets. We have been working across our businesses to develop new capabilities, content and products. The model valuation offering is one of the first outputs of that work.”

To this end, the solution combines trade prices, evaluated prices and its newly developed risk adjusted model valuation, as well as providing users with the relevant underlying valuation methodologies and inputs. “We are going live with the new risk adjusted model valuations and, in phase one, we will be covering in the region of 22,000 corporate and government bonds across 33 currencies in US, European and Asian issuers. We will be bundling the new model valuation capability with our existing evaluated pricing offering, as well as market and trade data,” explains Jones.

In the short term, the solution will be expanded to include additional Asian domestic bonds, illiquid securities and variable/floating rate bonds. The new model valuation content will be available alongside evaluated and trade price content on the web and through a customisable Excel-based API plug-in, according to the vendor.

The model valuation offering is therefore a new enhancement to the vendor’s existing valuation services capabilities. Jones indicates that bringing together the businesses within S&P Capital IQ has enabled this development, as the S&P Capital IQ team has leveraged a lot of its existing analytics, enterprise reference data, market data and cross referencing capabilities. “Our clients and the investment community are telling us that they are looking for greater insight and transparency into valuation and valuation risk. They want to understand the price or valuation that they are receiving and what has gone into that value. Clients are also looking for ways that help them mitigate pricing and valuation risk and are demanding more workflow tools, pricing sources and data content to help them do that,” he elaborates.

This push for greater transparency is reflective of the requirements of incoming regulation such as the Alternative Investment Fund Managers Directive (AIFMD) and accounting rule changes, as well as client demands for more data on pricing methodologies and risk. To this end, Jones says: “The model valuation approach itself looks at the market view of credit risk within the valuation by incorporating credit default swaps (CDS) and a risk neutral adjustment of the cashflow. We provide full transparency into the valuation by enabling drill down into the underlying market data such as, government or swap curves and any associated trade data, as well as the full methodology. Through this offering we are adding content, coverage and enhancing capabilities to address the requirement for valuation transparency.”

He adds that the new model valuation offering also gives the vendor a scalable way to deliver greater coverage on global corporate bonds and notes that over the coming months, as it builds up the data, it will be adding another 30,000 securities to the offering. “We are looking to grow coverage beyond 100,000 during 2012,” he says.

As for the appetite for investment in this data, Jones is confident that S&P is making a move at the right time: “We are seeing a number of RFIs in the marketplace and some big projects coming to a close. People have been working on the projects all year and they are now starting to look at choosing vendors and executing on those projects into 2012.”

As 2012 planning is underway, Jones indicates that the vendor is also aware of institutions in both middle and back office looking at securing secondary market sources for pricing and valuation. This is also happening while workflow tools that make the valuation and pricing process more efficient are being demanded. “This was why we chose to make our valuation offering available within our Excel API plug in. We felt the flexibility and breadth of data combined with customisable workflow templates would meet that need, in a cost effective solution,” he adds.

Jones feels that as a result of these developments, there is plenty of business for the vendor community as a whole: “Competition in the valuations market is still strong and firms are increasingly showing more willingness to move providers, find secondary sources and even take on projects to consolidate sources across their front to back offices globally.”

Part of the S&P Capital IQ strategy is to grow revenues in new markets (under the watchful eyes of its management team). On this note, Jones explains that the multi approach valuation offering incorporating model valuation is addressing a need outside the traditional back office, fund administration net asset value (NAV) market for the vendor’s valuation services. |We certainly see growth potential in the middle and front office driven by regulation and operational risk mitigation. The price verification, risk and financial reporting functions are being pushed by regulation such as Basel III and Solvency II and that will increase investment spend in the middle office on resources, analytics and data,” he says.

The combination of reference entity data and valuation and pricing data is also being demanded to meet counterparty risk requirements. “By launching our new model valuation offering on the API we will provide users the ability to slice and dice our data and move from entity to issue and pull up descriptive data, associated pricing, probably of default and ratings and enable them to analyse counterparty or holdings exposure,” he contends.

Jones reckons that combining multiple pricing and valuation approaches allows users to understand valuation risk and uncertainty from different perspectives and identify dislocated relationships between price, fair value or a long term credit adjusted view. “In providing the model valuation alongside trade and evaluated pricing, we are giving clients an alternative valuation perspective,” he says.

As for the future, Jones indicates that this release will be the first of many: “As part of our new multi approach valuation and pricing offering we will also be looking to adding more evaluation and market data coverage over the coming months.”

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