Evaluated Pricing Services: The Booming Business of Synthetic Security Pricing

Published by: TowerGroup

Published: Feb. 5, 2007 - 11 Pages

Table of Contents

TowerGroup Take-Aways

Report Coverage

Vision

What Is an Evaluated Price and How Is One Calculated?

Exhibit 1 Hierarchy of Security Price Types (2007)

Market Drivers Fueling the Demand for Evaluated Pricing

Exhibit 2 The Role of Evaluated Pricing in Hedge Funds (2005)

The Growth in Derivatives

Global Regulation

Exhibit 3 Total Notional Value Outstanding of Major Derivative Security Types (2002-1H 2006)

Globalization

The Need for Information Transparency

Regional Variations in Demand

North America

Regional Variations in Demand

Exhibit 4 Composition and Growth of the US Bond Market (Q3 2006)

Europe

Asia-Pacific

Exhibit 5 Foreign Ownership of US Debt (2006)

Critical Attributes of an Evaluated Pricing Vendor

Quality/Accuracy

Timeliness

Coverage

Replacing an Incumbent Vendor

Summary

Abstract

Evaluated securities pricing services provide critical valuation information for over-the-counter (OTC) or illiquid securities, including fixed income and derivatives. Although the market has been led by a single vendor since the early 2000s, multiple vendors made large investments in their evaluated pricing services in 2006 because of the massive global growth in fixed-income and derivative securities, regulatory changes, and increased customer demand. This TowerGroup Research Note analyzes the demand for evaluated securities pricing and discusses the types of data available on the market today.

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