Global evaluated fixed income pricing is becoming increasingly accepted as an essential price source, according to a survey commissioned by Reuters.
Traditionally, institutions have relied on calls to brokers who make markets in an instrument to source fixed income prices. However, the survey, which was designed and conducted by A-Team, revealed that over 80 per cent 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.
"Fixed income is an ever-expanding market of increasingly complex instruments which are difficult to price," says Kevin Bradshaw, global head of Enterprise Information at Reuters. "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"
Key points from the survey include:
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.
Contributed pricing remains the most widely used data type, with almost 90 per cent of respondents saying they use it, but that evaluated pricing is catching it up with 84 per cent now adopting it. Other methods include actual trade prices (over 75 per cent) and exchange prices (over 70 per cent).
Quality and accuracy of pricing data is the most important consideration for respondents (almost 90 per cent), followed by breadth of coverage (almost 80 per cent) and timeliness (nearly 70 per cent). European firms in particular need intraday evaluated prices with which to value their portfolios.
Background notes: 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 US, UK/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 to provide as wide-ranging a response as possible.
For fund manager interviews, please click here