Asset managers that enter into over-the-counter (OTC) derivatives contracts and structured products with sell-side trading desks are demanding independent valuation services from their custodians, according to several sources. In response to scrutiny from institutional investors, compliance officers and risk managers, as well as internal boards of directors, investment managers are taking a keen interest in how these complex instruments are priced.
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Published date: Feb 13, 2007
Monday, February 26, 2007
Northern Trust selects Markit for OTC derivatives valuations
Markit Group (Markit), the leading industry source of independent data, portfolio valuations and OTC derivative trade processing for the global financial and commodities markets, today announced that Northern Trust, a leading provider of investment management, fiduciary and banking solutions, has selected Markit as the preferred provider of OTC derivative valuations.
Markit's portfolio valuations service is aimed at mutual funds, hedge funds, traditional asset managers, fund administrators, custodians and banks.The service was launched in response to strong client demand and it addresses growing concerns among investors and regulators over the lack of accurate, independent valuations for complex, illiquid instruments.
This is a bespoke service that provides critical, independent post-trade calculation of the gross asset value of a portfolio of OTC derivative trades. Valuations are provided for both vanilla and exotic instruments, and the service is calibrated with Markit's proprietary data, received from over 75 leading market makers. The ability to refer to these prices, which span over one million data points collected daily, sets Markit apart from alternative services.
Michael Muller, Senior Business Process Analyst at Northern Trust in Chicago, said: "Markit has been valuing our swaps for over a year now. Because of Markit's extensive global support and market coverage across many currencies, we have decided to make them our primary valuations provider for OTC derivatives, and will roll out their valuations across asset classes over the coming months."
Tim Barker, Executive Vice President and Head of Valuations at Markit, added: "We are pleased to have been chosen by Northern Trust to provide independent valuations for OTC derivatives and other complex instruments. As the focus of regulators and investors sharpens on fund valuations, we are seeing increasing demand for our service and we look forward to working with Northern Trust to meet their clients' needs."
Source URL:http://www.finextra.com/fullpr.asp?id=13311
Published date:Feb 06,2007
The Buy Side Jumps on Board the Push to Automate OTC Derivatives
Why It's Important: As traditional asset managers make the transition from cash instruments to derivatives, many conduct the trades over the phone with a dealer and then manually rekey the deals into order management systems because of the lack of automation in the industry for processing derivatives trades. With regulators pressuring the sell side to clean up the backlog of unconfirmed trades, the onus to eliminate inefficiencies and adopt best practices also is shared by the buy side.
Where the Industry Is Now: Buy-side firms are being urged to confirm derivatives trades electronically through DTCC DerivSERV, the industry's electronic confirmation matching service. For traditionally more-standardized credit default swap (CDS) contracts, the market now is processing about 80 percent of the trades electronically via DerivSERV, up from 15 percent in 2004. At least 600 buy-side firms had connected to DerivSERV as of Q4 2006 - the service is being offered free of charge to the buy side. Buy-side firms are relying on their OMSs to tie in analytics and pricing services, or connect into DerivSERV, though they also can use a Web portal.
In addition to trading CDS indices, the two leading fixed-income ECNs, TradeWeb and MarketAxess, both offer different straight-through processing solutions for derivatives processing. TradeWeb's TradeXpress connects to DerivSERV on the back end, and TradeWeb recently integrated prime brokerage trades into the TradeXpress offering.
Focus in 2007: The DTCC launched the Trade Information Warehouse in November 2006 to serve as a central electronic trade repository for all confirmed CDS trades, and the industry will stress the adoption of DTCC's Trade Information Warehouse for credit derivatives. All eligible CDS trades that are confirmed through DerivSERV will be fed into the Warehouse, while dealers are backloading past trades. At the same time, the industry is shifting its focus to the automation of equity derivatives. The next step for equity derivatives is to develop a standardized confirmations template; once that is done, equity derivatives can be included in the Warehouse.
Industry Leaders: Buy-side firms such as Loomis Sayles, PIMCO and Fischer Francis Watts & Trees are major players in credit derivatives. They are expressing their operations perspective through the Asset Manager's Forum (AMF), which is the buy-side operations committee within the Securities Industry Financial Markets Association (SIFMA). SIFMA brings both the buy- and sell-side point of view to the table and has worked with the International Securities Association for Institutional Trade Communication (ISITC) on bringing custodians into the fold, and with the International Swaps and Derivatives Association (ISDA) to create standard documentation.
Technology Providers: Buy-side OMSs - including Charles River, INDATA and Latent Zero - are trying to add functionality for CDSs by connecting to third parties. Alliances are taking place between different OTC derivatives specialists, such as the deal between T-Zero, an agnostic trade messaging and trade affirmation service, and Bloomberg. Markit, a leading source of data valuations for credit derivatives, has teamed with several OMSs and T-Zero. Vendors, such as Thunderhead and Scritura, supply workflow and alerts for processing OTC derivatives.
Price Tag: Aite Group estimates that buy-side institutions in North America and Europe will spend approximately $200 million on technology to automate credit derivatives. Most of the spending is on OMSs and connectivity to the various tools for post-trade processing.
Source URL: http://www.financetech.com/showArticle.jhtml?articleID=197003381
BoNY expands valuations service for OTC derivatives and asset classes
The Bank of New York, a global leader in securities servicing, has expanded its independent valuation service for a broad spectrum of over-the-counter (OTC) derivative products and asset classes to include European swaptions, foreign exchange options and OTC equity options.
The Bank already provides valuation services for interest rate swaps and credit default swaps.
The Bank's clients have access to daily valuations of their global OTC derivative portfolios as part of the comprehensive account information available to them through INFORM, the Bank's Internet-based information delivery and transaction platform.
"As greater numbers of institutional investors include the use of derivatives in their investment strategies, the demand for independent pricing has never been greater," said Richard P. Stanley, executive vice president and head of Global Investor Services Product Management and Accounting Services at The Bank of New York. "This expansion of our service greatly enhances our ability to report on OTC derivatives valuations, which improves our clients' capacity to monitor and assess their holdings as well as understand and manage their risks."
As one of the world's leading custodians and administrators to fund companies and plan sponsors, Stanley stressed that the Bank's derivatives- related offerings represent a core competency that will grow in sophistication as such clients increasingly utilize derivatives globally.
In addition to independent valuations of derivatives, the Bank recently established a derivatives product team led by Ahmad Sharif, managing director within Global Investor Services, which is focused on creating a comprehensive end-to-end process for servicing derivatives used by hedge funds and institutional investors.
Source: http://www.finextra.com/fullpr.asp?id=13293
Publish Date:05/02/2007
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