Interactive Data Corporation’s Pricing and Reference Data business has signed an exclusive agreement with Prism Valuation, under which Interactive Data will be able to provide valuations of complex OTC derivatives and structured products as part of its pricing and evaluation services. The agreement will enable the vendor to further expand and enhance the breadth and depth of coverage of instrument valuations, and support risk analysis transparency to help customers further adapt to an increasingly regulated global business environment, Magnus Cattan, manager, Fixed Income and Derivatives, Interactive Data (Europe), tells Reference Data Review.
Prism Valuation, which was founded in 2006 and maintains offices in London, Melbourne and Toronto, provides valuations of complex OTC derivatives and structured products based on a wide range of underlyings including interest rates, FX, inflation, equities, credit, commodities and hybrids. Interactive Data’s clients will be able to request valuations on a per instrument basis, which will be calculated by Prism Valuation’s quantitative analysis team and then delivered via FTS, Interactive Data’s securities administration tool.
“Prior to this exclusive agreement, we have known and worked informally with Prism Valuation for over a year. In addition to this relationship, we have now purchased a minority ownership stake in Prism Valuation,” says Cattan. “By outsourcing the valuation of very structured and complex instruments to an established specialist provider, we have been able to respond to our clients’ immediate requirements faster than if we were to develop these services organically.”
The Prism Valuation team emulates the valuation processes of a typical structured products dealer by synthesising the components required for valuation and analysis: up to date market data, appropriate valuation models and targeted calibration strategies, says Cattan. The service that Interactive Data will offer includes valuation transparency reports that provide a breakdown of the method to achieve a given valuation for each deal, including a detailed discussion of the models and calibration strategies selected. Interactive Data claims that this level of transparency can help clients comply with current regulatory and auditing demands.
Cattan elaborates on the values he sees within the partnership: “Prism Valuation has a core team with many years of direct front office and quantitative experience at structured products dealers. In addition, Prism Valuation’s strategic partnerships include Icap, the world’s premier interdealer broker, which provides underlying market data, and NumeriX, one of the foremost global providers of cross asset pricing and risk analytics for exotic derivatives and structured products. Prism Valuation’s market experience and important strategic relationships enable valuations of derivatives and structured products across multiple asset classes.”
He believes that the offering is appropriate to the current economic climate in which financial institutions continue to hold ever more complex financial instruments in order to help achieve portfolio diversification, hedge risk, optimise performance and drive growth. “Given the increasing scrutiny by clients and regulatory requirements as to how these often illiquid instruments are valued, specialised independent market data vendors like us can help institutions in their efforts to value these instruments,” he explains.
“Given the current credit and trading conditions, we believe our relationship with Prism Valuation will help customers meet their mark-to-market pricing obligations as well as the demands of credit and risk management, and portfolio management,” he adds.
Cattan believes that this value is evident given that it already has clients who are subscribing to this service, as well as a “pipeline of clients who are interested in subscribing”.