Thomson Reuters experienced a four-fold increase in due diligence meetings examining its role as an evaluated pricing provider in 2012, signalling growing pressure on financial firms to check the viability of their content providers and underlining extended expectations of transparency.
Jayme Fagas, head of evaluated pricing, enterprise content, at Thomson Reuters and a speaker at the company’s Analytics and Pricing Forum in Paris this week, explains: “Transparency continues to be the number one concern among evaluated pricing clients. A year ago, a pricing recipe was adequate, now much more transparency is required. The need is to show everything used in creating a price, such as benchmarks, derived analytics, market analytics, news and more. Transparency is required across clients’ back, middle and front offices. It is important for regulation and reporting, risk analysis and compliance, and portfolio assessment. Transparency is no longer just about pricing, it is about our processes and procedures.”
As demand for transparency has extended beyond data flow to processes and procedures, Thomson Reuters also notes a rise in the number of due diligence meetings it has been called on to host or attend. While the performance of due diligence around pricing vendors is not driven by regulation, as is the requirement for transparency, it is mandated for any company using a pricing vendor by US regulatory bodies the Public Company Accounting Oversight Board and the Securities and Exchange Commission.
Fagas says: “These authorities are putting the onus on firms’ boards to better understand pricing vendors. Last year, we were involved in over 200 due diligence meetings with clients, this is up from just 50 in 2011.”
Clients mandated to make on-site visits and conduct due diligence meetings typically look at issues such as what a company offers in evaluated pricing, its revenue, employees, how many evaluators it has and where they are located. Fagas adds: “What has changed since last year is the addition of questions on what investments and changes a vendor has made. Then the meeting might dive deep into a particular group of securities, bringing in evaluators and other employees as necessary.”
Meetings last several hours and include an examination of price challenge processes and control. From a client point of view meetings are usually attended by the evaluation committee, staff from pricing, compliance and risk operations, and sometimes the firm’s auditor. Vendors must field pricing services specialists, product specialists, evaluators and sales people as needed. Fagas cautions: “It is not just US clients visiting US locations. US clients are going to other locations, such as the London office of a data vendor, to do due diligence. If a company works with a custodian, the custodian will send the client to do due diligence.”
While the time commitment and workload of data transparency and due diligence are already large, Fagas sees no let up in ongoing demand, saying: “There is room for more requirements. Due diligence meetings could, for example, be required to provide detailed reports and attendees could be required, rather than asked, to take part in meetings.” Looking forward at how to tackle the issues, Fagas says Thomson Reuters will continue to work with large companies on due diligence meetings, perhaps helping them write questionnaires for the meetings, and will increasingly offer transparency in an efficient and accessible way.