Interactive Data Corporation’s Pricing and Reference Data business has introduced a service that will automate the delivery of independent valuations of interest rate swaps based on benchmark curves from ICAP, and trade details input by customers.
Ian Blance, vice president, capital markets, Interactive Data (Europe), says this development has been driven by client demand. “Since we launched our credit default swaps valuation service to our client base in March last year, we found that interest rate swaps were an equally large presence in their holdings and decided to round out our coverage,” he says. “It was a logical progression for the offering as we are continually looking to round out our coverage of other OTC asset types and explore ways to expand our valuation services,” Blance adds.
Interactive Data took a similar approach to the development of this service as it did with the introduction of credit default swaps valuations, according to the vendor, in that there was already an interface in place with its clients; but whereas last time the valuations were outsourced to Markit, this time they are being done internally. Bearing that it mind, it took the vendor around six months to build the data connections, such as swap curves, and develop the valuations engine.
Blance believes that there are two main benefits of this service for Interactive Data’s clients. “At the moment there are relatively few sources for independent interest rate swaps valuations so this rounds out the coverage of their un-priced or difficult to price holdings, and also the availability through FTS means that they receive their valuations in a consistent fashion with their other prices, helping them to operate more efficiently without having to source data manually or from a variety of sources,” he says.
The valuation process leverages Interactive Data’s technical infrastructure and is supported by the company’s business continuity processes and redundant systems. “We have global evaluation teams which administer the models. The specific terms of a trade are uploaded to us via FTS and the teams then run these through a set of pricing models developed using FINCAD libraries. These models are driven by market data (primarily swap curves) and value the trade on a daily basis,” adds Blance.
The new service will generate two valuations each day: based on curves at the end of the day in London (16:30 GMT) and at the end of the day in New York (16:30 ET). Customers can choose which valuation they would like to receive, or both, depending on their needs. “The valuations are available via our FTS service and although the majority are delivered via the web, we work with our clients to help ensure that the data is available in the format they choose to receive it,” Blance says.
For a detailed analysis of the data vendors’ approach to valuations for OTC derivatives, see the first issue of A-Team’s new quarterly magazine, A-Team IQ (email email@example.com for details).