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A-Team Insight Blogs

Mark to Market Launches Derivatives Valuations Service

A newly formed company, Mark to Market, is introducing an independent real-time valuation service for financial products from cash loans and deposits through to complex derivatives.

The m2m online service has been launched in response to the recent developments in accounting and reporting requirements, in particular the International Accounting Standard 39 (IAS39) and U.S. Financial Accounting Standard (FAS133). IAS39’s key principle states, “The objective of using a valuation technique is to establish what the transaction price would have been on the measurement date in an arm’s length exchange motivated by normal business considerations.”

The service offers an alternative to traditional sources of evaluations of derivative instruments such as counterparty banks, which are unlikely to meet the ‘arm’s length’ requirements of the IAS standard. It can also be useful for risk management operations.

As A-Team’s report Fixed Income Pricing: Are Evaluations Gaining Value? (available at www.a-teamgroup.com), the complex derivatives instruments are hard to price and there is a dearth of available pricing sources covering the market. As such this new service may be a welcome arrival as the use of derivatives instruments continues to grow and the regulatory environment continues to tighten.

m2m online takes a range of financial instruments and revalues them using active market data or accepted alternatives at a client specified point in time.

Fair value of the instruments is calculated using verified pricing engines and independent data.

Clients can provide their portfolio of financial instruments to Mark to Market and can then login to access the results in real time on a secure server. They can revalue at any time using the latest available data (covering 1,500 items and updated five times per day) and request a report online to be sent via email in a number of formats for compliance purposes. A back history of two years is also available.

Users of m2m online are able to produce multi-counterparty, multi-product valuation reports within minutes of creating a valuation request for internal trading, risk management or accountancy and audit purposes.

The service is being targeted at dealers, corporate treasurers, accountants, CFO’s and company directors, on a monthly subscription basis and with a one-off setup fee to cover the cost of entering data and establishing the secure revaluation service.

Mark to Market is a subsidiary of Resolution Financial Software Ltd., a New Zealand-based derivatives pricing software and consulting specialist. It is the ResolutionPro pricing engine software that underlies the Mark to Market valuations offering.

Although based in New Zealand, the company says it has clients subscribing in Europe.

Doug McLaren, chief executive at current triallists The New Zealand Association of Credit Unions, says, “m2m online … allows us to track our interest rate exposure and minimize the compliance cost of meeting IAS39.
IAS39 and FAS133 both require financial institutions and corporations to clearly demonstrate the effectiveness of hedging strategies. Without this proof of effectiveness, hedging institutions will not be able to align the hedging gains or losses with the declaration of interest income on the assets being hedged.

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