CME Group owned data business CMA has recently launched a new OTC derivatives workflow solution that is aimed at streamlining the mark to market process and granting access to all valuation inputs for reporting purposes. Reference Data Review speaks to Gareth Moody, vice president of sales for the Americas, who joined the vendor as a start up back in 2002, about the development process for the new offering and how it ranks against services from main rivals Markit and SuperDerivatives.
Moody, who in the early days was initially responsible for introducing CMA’s products, services and brand to the market and, in 2005, moved to New York to initiate a sales and product presence for CMA in North America, explains that the vendor began development of CMA NAVigate last year. “We began developing CMA NAVigate in response to what we perceive as the growing awareness that clients have for demonstrating ‘best practice’ around the process of valuing their OTC derivative books. We believe that funds are responding to regulatory changes and demands from investors as well as the desire to set themselves apart from some of their peers,” he says.
The evaluated pricing space has certainly come under the regulatory microscope of late as a result of a perceived lack of transparency in the OTC derivatives markets. Regulations and accounting standards changes have therefore been aimed at compelling firms to provide much more data around these prices and transparency into underlying inputs – just look at the Alternative Investment Fund Managers Directive (AIFMD) for one such example. In light of these developments, it is no surprise then that the vendor community is aiming to better serve the needs of the valuations teams that have been placed under the spotlight.
To this end, CMA has its own analytics library and it focused on what Moody calls “practical and transparent” approaches to delivering sound valuations. “We were lucky to have signed up a couple of early takers who were familiar with and had explored CMA’s data products in the past. We began to develop the work-low pieces functionality in the form of a website in early 2011. We are very focused on the idea that the valuation and the price verification” process can be centralised and much improved from its current condition,” he explains.
In terms of the challenges CMA faced during the development process, Moody says: “I have to say developing software is always a challenge! In the valuations space a major battle is the continual need to source more data to improve coverage of asset classes but we have been fortunate enough to source very high quality data for the asset classes we currently cover based on our relationships with interdealer brokers and CMA. We look forward to supporting additional asset classes in response to client demand. We are also delighted to get version 1.6 out to the market, as it is the first version of any valuations tool to allow true transparency into the valuations created, which presented its own development challenges but was in keeping with the CMA company ethos.”
Moody indicates that the vendor sees continuing demand for true independence in the valuation of OTC derivative books growing. He notes that it is a complicated process to gather the large amounts of data required to value instruments such as credit default swaps (CDS) and thus there will continue to be challenges in this endeavour. “It is even difficult for some fund administrators to manage the terms of each and every contract, since they are unaccustomed to markets like these. Additionally, the need for independence in this process is coming from regulators, investors and general industry maturity (which is always helped by volatility!). CMA NAVigate builds on CMA’s excellent data and our completely independent position in the market. We hope demand goes up once customers start to see and talk about the service,” he continues.
The valuations space is fairly large overall, but Moody indicates that for derivatives it is much smaller in terms of direct vendor competition. He notes that CMA competes with Markit and SuperDerivatives, but also large fund administrators and internal processes using platforms like Calypso and Sophis. There may only be a couple of direct rival vendors in the running, but internally developed solutions continue to dominate the scene within certain firms.
On keeping its competitive edge, Moody says: “We differentiate ourselves with our unique data, our transparent approach and our independent positioning.” CMA is also adding new functionality in order to up its chances of success; earlier this year, it launched a bond pricing service for corporate and emerging market government bonds, for example.