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The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

Valuations Vendor Consolidation is on the Cards as a Result of Introduction CDS CCP, Say RDR Readers

Most Reference Data Review readers believe the introduction of a clearing counterparty (CCP) in the credit default swap (CDS) market will result in a period of consolidation within the valuations vendor community. According to the results of our recent poll, 56% of readers believe consolidation is on the cards, whereas an optimistic 11% think there will be an increase in vendors over the next couple of years.

The introduction of CCPs in the credit derivatives market has certainly garnered its fair share of headlines over the last few months, as debates amongst regulators, market participants and CCP contenders rumble on. Last week, the interdealer-broker community debated the impact of the CCPs on its business model and called for a regulatory guarantee that competition would be mandated.

There is also a wider regulatory discussion ongoing about which regulatory body should be charged with oversight of the CCPs. A merger between the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) has already been proposed by SEC chairman Christopher Cox, but it is as yet uncertain whether this will be taken forward.

The SEC has, however, eased the registration requirements for the contenders to the CCP throne to expedite the establishment of their platforms. These contenders include the Chicago Mercantile Exchange (CME) Group partnered with hedge fund Citadel Investment Group, IntercontinentalExchange (ICE), NYSE Euronext and Eurex. In Europe, European Commissioner for Internal Market and Services Charlie McCreevy has also voiced his support for the creation of CCPs to increase transparency in the market, but he has cautioned that the largest players should not all be US based.

It is assumed that most of these platforms will select Markit as their primary pricing source and it has been well reported that all contenders have been in discussions with the valuations supplier over the last few months. This includes CME, which owns Markit rival Credit Market Analysis (CMA), indicating that the platform provider may opt for pricing from both sources to support its CCP.

This all seems to indicate that the competition in the market is heating up on all fronts, thus supporting the assumption of the large proportion of Reference Data Review readers that believe consolidation is on the way. However, 33% of readers indicated that they believe the CCPs will not impact the vendor community at all. Perhaps at this stage it is still far too early to tell.

Don’t forget to vote on our new poll (look to the right hand side of the page), which is aimed at discovering the current market environment’s impact on data management budgets for next year.

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