Following 12 months of development, Markit has finally launched its new multi-bank, cross-asset client valuations platform with much fanfare. The new platform has been developed in partnership with six banks and a couple of buy side firms and purports to provide a secure, standardised view of OTC derivative positions and valuations across counterparties.
The platform, which has been dubbed Markit Valuations Manager, was developed with the help of a user group that includes Bank of America Merrill Lynch, Citi, Credit Suisse, Goldman Sachs, JPMorgan and UBS, as well as asset management firms BlueMountain Capital and BlueCrest Capital. The platform is available to subscribers to Markit’s Portfolio Valuations service, who can now compare bank counterparty valuations with the vendor’s own valuations.
David Lefferts, managing director of Markit Valuations Manager, explains that the vendor decided to launch the new platform as a result of client demand. “Financial market participants and their regulators are acutely aware of the need for reliable, independent counterparty position and valuation information for OTC derivatives and cash securities,” he explains.
The new platform incorporates a dispute mechanism and workflow tools with full audit trail aimed at enhancing the price challenge process, says the vendor. It is also integrated with Markit’s Trade Processing PortRec service to enable full lifecycle support for OTC derivative positions including counterparty position data delivery, normalisation, reconciliation and valuation.
Peter Barsoom, deputy chief operating officer of BlueMountain Capital Management in New York, one of the members of the platform’s initial user group, is in favour of the link between Markit’s PortRec service and the new platform. He believes it will be of “significant benefit” to use the two services in conjunction with each other and he hopes that as more firms join the platform, further operational gains and cost efficiencies can be realised.
Patrick Finn, head of operations at BlueCrest Capital Management in London, which was also part of the user group, thinks the platform represents a significant step forward for the industry. “As an active member of several buy side working groups in Europe, we welcome the ability to access normalised position and valuation data from the banks in a standardised way. Markit has not only delivered the normalisation, but it is it is consolidating the information in a single electronic portal across banks,” he says.
It was not all smooth sailing however, Lefferts explains there were a number of challenges to be faced when developing the platform as a result of the current state of the data in the valuations space. “Dealing with the varying delivery times banks make the data available today was a challenge as we wanted to bring some normalisation and standards while recognising that individual banks’ infrastructure creates some constraints,” he says.
“We ultimately agreed to accept validated positions and valuations at daily ‘open of business’ with the ability to receive updates as data becomes available during the day. Delivery of the information in this way is often more timely than via the less efficient mechanisms (for example, email) in place today,” Lefferts continues.
Markit is hopeful that despite the downturn in the markets, there is still an appetite for valuations services such as these due to reducing headcounts and pressure to automate. “We are seeing strong interest from buy side firms and fund administrators looking to achieve operational savings and improve their ability to perform more timely net asset value computations,” adds Lefferts.
According to recent research by Markit, the buy side is particularly keen for more transparency and less manual processing around valuations. Respondents to its survey of 50 asset managers, indicate that 17% were in favour of a single file delivery of counterparty statements because it would save them between 50 and 1,000 hours of work a month.
The firms also ranked the provision of complete position information and a standard statement format across all counterparties as the most important improvement needed for their valuations business. This was closely followed by the requirement for an efficient price challenge mechanism. Moreover, 66% of respondents said they received their counterparty statements by email, which the vendor says highlights the potential security risk of misplaced or incorrectly forwarded emails.
Due to the financial crisis and resulting pressures for increased transparency, timeliness has become a key issue for valuations, according to survey respondents. Markit indicates that 65% of respondents said they were under pressure to conduct more frequent reconciliation with counterparties and provide more frequent net asset value (NAV) calculations to investors.
Although the platform is launching with six banks as users, the vendor hopes to add more participating banks over the coming months, as well as buy side firms. Lefferts is convinced that the proposition is of significant interest to the market and that there are no comparable offerings out there. He therefore expects take up to be fairly robust as the year progresses. “We aim to strike a balance between absolute numbers of firms on board and a share of the overall market activity,” he explains. “Larger funds stand to achieve the biggest gains, so they are likely to be the earliest adopters. We currently have several hundred clients in the pipeline as well are established relationships with over 1,500 clients today.”