Global evaluated fixed income pricing is becoming increasingly accepted as an essential price source, according to a survey commissioned by Reuters and designed and conducted by A-Team, a research and analysis company focusing on the use of information technology in financial markets.
Traditionally, institutions have relied on calls to brokers who make markets in an instrument to source fixed income prices. However, the survey revealed that over 80% of respondents believe evaluated fixed income pricing is becoming increasingly accepted. The most dramatic increase in the use of evaluated pricing is in Europe – where it has not been widely used in the past–as the need for transparency grows.
Kevin Bradshaw, global head of Enterprise Information at Reuters said, “Fixed income is an ever-expanding market of increasingly complex instruments which are difficult to price. With the dramatic growth of the hedge fund market and regulators taking a closer look at transparency in fixed income, financial institutions need increasingly reliable, independent and unbiased evaluated pricing. The findings of this survey validate Reuters DataScope’s efforts in the fixed income area – creating the highest quality, most timely and accurate fixed income evaluations globally”
The survey also found that regulation, in particular Sarbanes-Oxley, is the driving force behind the increased acceptance of evaluated prices, as well as the increased frequency of pricing. Firms surveyed said that regulatory issues are pushing them to find more global coverage, price their holdings more often and to use multiple unbiased, independent sources of pricing. Another major driver is the explosive growth in complex structured instruments and derivatives along with an increase in holdings of fixed income, aided by dramatic growth in the number of hedge funds. In many cases, evaluated pricing is the only option for consistent valuation.
Findings also indicated that contributed pricing remains the most widely used data type, with almost 90% of respondents saying they use it, but that evaluated pricing is catching it up with 84% now adopting it. Other methods include actual trade prices (over 75%) and exchange prices (over 70%).
Quality and accuracy of pricing data is the most important consideration for respondents (almost 90%), followed by breadth of coverage (almost 80%) and timeliness (nearly 70%). European firms in particular need intraday evaluated prices with which to value their portfolios.
*Reuters DataScope, a total solution for evaluations, historical and reference data needs, asked A-Team to design and conduct the study, which was conducted to better understand the fixed income pricing needs of financial services firms.
A-Team interviewed 50 firms in the U.S., U.K./Ireland and Europe – primarily on the buy-side (institutional managers, hedge funds, fund managers and administrators) – as well as custodians and a sample of broker/dealers. They spoke with portfolio managers, traders, risk management professionals, operations staff, securities administrators and data managers.