SIX Financial Information has passed the first milestone on its roadmap for the Evaluated Pricing Service (EPS) it introduced in August 2012 by partnering Numerix to produce valuations for OTC derivatives. The outcome of the first phase of the partnership, EPS services covering interest rate swaps, credit default swaps and foreign exchange derivatives, went into production this week after beta testing since June, and additional OTC derivatives are due to be added to the service over coming months.
For SIX Financial Information this is a departure from traditional partnerships covering data distribution agreements. Instead it embeds Numerix’s cross-asset analytics for derivatives valuations into the company’s EPS infrastructure.
Ian Blance, head of evaluated pricing business development at SIX Financial Information, says that while the fixed income products within EPS use a proprietary valuation model, the company decided not to develop it own analytics and methodology for OTC derivatives and considered a number of vendor options before settling on a non-exclusive partnership with Numerix.
“We chose Numerix because our prime goal was to use a best-of-breed solution from an industry perspective. The Numerix solution has great coverage, it can scale and it is seen in the industry as a leading provider of OTC derivatives evaluated pricing. It is also flexible and offers other options so we can and will expand into other asset classes where gaps are perceived by our clients,” he says.
While the Numerix pricing engine will provide the analytics piece of the OTC derivatives valuations service, SIX Financial Information will provide the rest of the infrastructure, including data, a user interface and product and delivery elements. With phase one of the partnership complete, the roadmap continues with plans to take in asset classes including equity derivatives, commodities and inflation.
SIX Financial Information is not new to OTC derivatives evaluated pricing as it has been providing an analyst-driven service for some time, but this was constrained by personnel resources. Blance describes the Numerix-based system as systematic and scalable, and expects migration from the analyst service to be completed by the end of this year with the analysts still very much in the picture but using the new service to evaluate more asset classes and assets.
Blance explains: “By adding capability for OTC derivative valuations to our strong fixed income product we are broadening the solution we can offer and increasing our ability to assist clients in meeting their commitment to independent and objective pricing.” He sees competition in OTC derivatives valuations coming from big players such as Bloomberg and Thomson Reuters, but also from more niche providers such as Pricing Partners.
In terms of the EPS, Blance says more vendor partners will be added to further increase asset class coverage before the end of the year, but suggests they will not be as extensive as the company’s relationship with Numerix.
Reflecting on the introduction of the service, which is dedicated to defensibility, he says: “EPS is going well and we will complete the migration of clients from our old pricing products to the new service at the beginning of December. We have held a number of client events in Europe to explain the service and will hold events on a more global basis early next year. EPS has had a good reception and we are attracting new clients. Our initial intent was to concentrate on fixed income products and then on OTC instruments, and that is what we have done.”