The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

High Levels of Market Volatility Have Driven Increased Requests for Valuations Services, Says Interactive Data

The unprecedented levels of volatility in the current market have resulted in an increase in the requirements for valuations services, according to Rob Haddad, director of Interactive Data’s Evaluated Services business. Speaking during the vendor’s recent webcast, “Impact of volatile markets on fair valuation of international funds”, Haddad indicated that funds are invoking fair value procedures more frequently than ever before as a result of the high volatility in the market.

The vendor highlighted the survey results of a study examining volatility and valuations between 2004 and 2008 as proof of this correlation. The movement of the US markets with regards to volatility was therefore in correlation with the predictability and model performance of equity prices, said Interactive Data.

“High market volatility results in a material impact in the way securities perform the next day,” added Haddad. He cited an example of the 29 September 2008, when the S&P 500Index declined 8.8% following the US House of Representatives’ initial rejection of the Emergency Economic Stabilisation Act. The vendor’s Fair Value Information Service adjustments reduced the distance from the local close to the next day’s open by over 89%, he said.

Interactive Data’s service provides subscribers with an input that can be used in their independent fair value determinations and an is evaluation based on an estimate of the price that would prevail in a liquid market for an international, exchange traded equity given information available at the time of evaluation.

The vendor also discussed the concept of trigger levels in the market, which pertain to the magnitude of movement in a market required to cause an automatic invocation of a fund’s fair value procedures. Interactive Data has conducted analysis on publicly available net asset value (NAV) data to explore the use of triggers in the market, said Haddad. “The vast majority of the funds involved in the study were employing a systematic fair value methodology. We estimate that around 94.5% are using this strategy currently.”

Those involved in the webinar, which the vendor estimated to be around 400 clients, participated in an interactive poll on the subject of triggers. The results indicate that the majority are using fair value measurements every day (at 34.5%), closely followed by a trigger level of 50 basis points (30.3%).

The vendor also identified a trend towards firms using fair value measurements beyond the traditional area of equities and into international equity futures and options. Interactive Data launched a new service to meet these requirements last year and is currently exploring the idea of adding services for international fixed income securities in the near future.

Related content

WEBINAR

Recorded Webinar: Brexit: Reviewing the regulatory landscape and the data management response

With Brexit behind us and the UK establishing its own regulatory regime having failed to reach equivalence with the EU, financial firms face challenges of double reporting, uncertainty about UK regulation, and a potential exodus of top talent. The data management response is not easy and could stretch some firms to the limit as they...

BLOG

DANIE Consortium Uses Game Changing Privacy Enhancing Technology to Improve Client Reference Data Quality

The DANIE consortium set up to help financial institutions improve the quality of their client reference data by benchmarking data with peers without revealing data sources and with encryption, is calling for banks to confirm places in its 2021 community by 18th December 2020. You can find out more and sign up by contacting community@danie.tech....

EVENT

TradingTech Summit Virtual

TradingTech Summit (TTS) Virtual will look at how trading technology operations can capitalise on recent disruption and leverage technology to find efficiencies in the new normal environment. The crisis has highlighted that the future is digital and cloud based, and the ability to innovate faster and at scale has become critical. As we move into recovery and ‘business as usual’, what changes and technology innovations should the industry adopt to simplify operations and to support speed, agility and flexibility in trading operations.

GUIDE

RegTech Suppliers Guide 2019

Welcome to our brand new RegTech Suppliers Guide. This unique guide provides detailed data profiles on close to 100 suppliers in the RegTech world, offering you an unrivalled selection of solutions for your most pressing financial regulatory challenges. The aim of the A-Team’s RegTech Suppliers Guide is to steer you through this complex marketplace, offering...