LIFFE (Holdings), a subsidiary of NYSE Euronext, has acquired Independent Valuation and Risk Services (IVRS) for some £700,000, plus a deferred consideration element. Hard on the heels of this acquisition, NYSE Euronext has also launched Prime Source, a new independent valuation service.
IVRS is a wholly-owned subsidiary of Lombard Risk Management, provider of software and independent valuation services to banks, investment firms, asset managers, hedge funds and fund administrators. It has created an automated service for handling portfolios containing a range of OTC derivatives, including interest rate swaps, interest rate options, total return swaps, credit default swaps, FX options, variant swaps on equities and equity options. IVRS also provides web-based reporting and analytics frameworks to enable its clients to assess and analyse valuation results and accompanying risk measures.
Commenting on the origins of the IVRS service, John Wisbey, chairman and CEO of Lombard Risk Management, says: “We have always been strong at derivative valuation through our Oberon and more recently Firmament software. When we owned the ValuSpread service (now owned by Fitch) some customers asked us to use our derivative valuation software and our data to give them independent valuations. IVRS grew out of that.”
Having first launched the service in response to that demand in 2004 (and in 2005 as a separate company) it became clear that the level of investment required to make the business a real success was greater than Lombard wanted to fund out of its own resources, and it chose instead to refocus on its software business. Wisbey reckons that if Lombard had raised the money externally to fund it, the company would increasingly have veered away from its software roots and that was not what it wanted, so the service was put up for offer either as a sale or a joint venture.
On LIFFE’s decision to acquire the valuations company Marie-Hélène Crétu, director of fixed income, NYSE Euronext, and CEO of IVRS, says: “The acquisition of IVRS allows us to build an independent comprehensive valuation service that will be a key component of our positioning in the securities value chain.”
Having sold the unit Wisbey believes that Lombard will be able to focus more resources and time on building up its existing software business. “Valuation of derivatives including hosting our software as an ASP and consulting around derivatives will remain one of our core competences using our Oberon and Firmament software, but we are unlikely to want to re-enter the independent valuation space, which if done properly means taking responsibility for the QA of market data and also building up operational skills similar to a hedge fund administrator – we just don’t see that as our future.”
So while Lombard is now more able to focus on its core competencies, Crétu reckons that IVRS will flourish under the umbrella of Euronext. “IVRS developed the technology and processes and conquered a number of clients, mainly in the US and the UK. Combining this expertise with NYSE Euronext’s technical and commercial means will allow IVRS to enlarge its services range, to strongly develop its client portfolio and to establish its leadership in the valuation market.”
Developing further in the valuations space NYSE Euronext has also launched Prime Source, a new independent valuation service.
This solution is designed to meet professional buy side market participants’ needs for valuation of large, global portfolios of complex structured products and illiquid securities. Customers’ valuation needs will be facilitated by processes supported by Prime Source’s web-based technical infrastructure.
Prime Source allows users to access prices and valuations from different sources, including markets, dealer contributions and valuation models. Offering both automated and tailor-made valuation services, Prime Source is billed as assisting users in solving on a daily basis valuation issues in compliance with regulations and accounting standards.
“Bringing added value through neutral and independent valuation is a key component of the securities value chain at a time when the market is focused on transparency,” adds Crétu. “Prime Source is the first neutral, independent valuation service allowing users to access prices and valuation from different sources, including markets, dealer contributions and valuation models through web access.”
Prime Source’s valuation service works with the EuronextValue platform, which provides buy side participants with bond and debt instrument market information and allows for the computation of asset valuations in compliance with applicable regulatory requirements. It will be used within Prime Source as a source of contributed prices. Customers will be allowed to access prices and valuation from various sources, including EuronextValue, through a single web-based infrastructure.
Prime Source also integrates the technology and processes developed by IVRS that allow for the automated daily valuation of products in fixed income, credit and equity, supported by IVRS’ web-based technical infrastructure. CrediNext, another of Euronext’s existing offerings, will be used for developing new mathematical models in order to extend the valuation possibilities.
NYSE Euronext’s goals for its valuation services for 2008 are firstly to finalise the merging of the two platforms, IVRS and EuronextValue, and also to add new data sources and new valuation models to the service, as well as to extend the offer to a number of additional financial assets.