Buy-Side Technology Awards 2013: Winners' Circle—Markit

Given the regulatory and operational changes over the past few years in the markets you cover, when it comes to pricing and valuations, what have your areas of focus been?
Armins Rusis: Our pricing and valuations teams have been working with our customers through times of heightened regulatory scrutiny and unprecedented changes in the financial markets. On the pricing front, we have focused on helping our customers enhance transparency, providing them with wider coverage and more context on the cash and derivatives prices we provide. We have, for example, expanded our credit default swap (CDS) sensitivities data to give customers a greater understanding of how prices react to changes in interest rates and other factors. We have also expanded our structured finance pricing to include collateralized loan obligations (CLOs), added high-yield municipal bonds to our muni service in the US, and begun pricing credit index options, a market that previously had very little pricing transparency.

When it comes to portfolio valuations, we have focused on expanding our pricing library and data sources to service our customers’ entire portfolios. This has also enabled us to respond quickly to changing market conditions, such as the industry adoption of overnight index swap (OIS) discounting. We’ve also worked on helping our customers value more complex instruments, specifically within the foreign-exchange (FX) asset class, and we recently started a cleared price distribution and verification service.

What do you see as your future areas of focus, looking ahead into 2014?
Rusis: The regulatory emphasis is shifting to increased and timelier transparency, as well as more defined market risk measurement, particularly for specific segments of the buy side. Consequently, we will be further expanding our pricing coverage, adding mezzanine and equity tranches of CLOs, as well as very illiquid syndicated loans, for example. We will also continue to expand our risk offering to the buy side. We recently added scenario analysis and Value-at-Risk (VaR) calculation capabilities to our portfolio valuation service. These go well beyond the standard risk sensitivities provided alongside valuations and will help our customers comply with new regulatory requirements including Ucits IV, the Alternative Investment Fund Managers Directive (AIFMD), and Solvency II. In 2014, we will continue to expand our risk analysis offering with a new profit-and-loss (P&L) attribution service, which will give customers a full breakdown on the change in mark-to-market of a trade, according to various risk factors.

On the data management side, from your buy-side clients, to what extent have you seen a trend toward utilizing managed services for data management, rather than keeping it in house?
Daniel Simpson: We’re seeing high demand for our managed service offering as firms of all sizes seek to increase their operational efficiency and reduce costs. At the same time, some firms prefer to retain proprietary data and systems in-house. As a result, a hybrid approach to outsourcing is becoming the norm. As confidence in the cloud grows, so will outsourcing.

What are the ways you’re looking to enhance your offering next year?
Simpson: We are investing heavily in our managed service offering. We’ve also increased our solution’s scalability to help financial institutions handle increased data volumes. Additionally, many of our clients’ data management projects are risk-driven. These risk management projects are notoriously data-hungry. We’re using our cleansed data to feed VaR, and are tightly integrating with risk management systems to create a lighter technology footprint.

Given that there are such huge pressures from the regulatory side at the moment, how important is effective data management in ensuring compliance?
Simpson: Hefty reporting requirements are part and parcel of rules such as AIFMD, Dodd–Frank, and European Market Infrastructure Regulation (EMIR). Coming up with a sticking plaster solution isn’t the answer—firms must address the issue that underpins the regulations: data. As a result, data management is an integral part in any organization’s compliance strategy.