Taking Advantage of the Credit Boom

Uggla: A large part of the activity in the markets has come through the growth of structured products that have been actively traded by the growing number of credit hedge funds. This has helped expand the asset class quite dramatically, and that, coupled with the fairly lackluster equity markets, has brought the credit asset class to the forefront of the markets.

In terms of [the Markit RED product], it has really come into its own as a market standard with all the trade matching services, brokers and large technology platforms adopting Markit RED as a standard in terms of the naming convention of the entity for trading credit derivatives. That’s seen explosive growth this year. As any financial institution wants to position itself in the credit markets and actively trade credit derivatives, Markit RED is a must-have. We’ve more than doubled that client base over the course of the last 12 months.

On the valuations side, the type of valuations we do in the credit space was historically done through our Totem service, which was part of Totem Valuations, which we acquired in 2004. It does price testing of OTC derivatives in all asset classes: equities, interest rates, FX, commodities and credit. There’s a growing need for an independent process around OTC derivatives to produce accurate valuations for all OTC asset classes.

On the dividend side, Microsoft paying a dividend started off a fashion for companies to pay dividends again. The whole Markit Dividends product has seen increased uptake. It’s not just the amount of the dividend that is forecast accurately but also the timing. Financial institutions that are participating in equity derivatives markets need these services, and the Markit Dividends group has positioned itself well. All of the pieces of our company are firing on all cylinders.

Our London office is focused on our new initiative to provide buyside portfolio valuations—taking the securities, positions or structures that the client has and providing a present value or price on the structure or security rather than just providing them with our data for them to do that task. There is pressure on the fund administrators to try to manage the growth in the hedge fund market. A lot of that pressure is around the independent valuations piece, which is where we fit very well. We’re looking to work with fund administrators or provide direct valuations ourselves.

But where it has an even bigger impact is with cash asset managers in North America—and other parts of the world—who require a 4:30 price for the net asset values of their funds. Any asset manager that’s participated in the credit derivatives market needs to produce that asset value by close of business on the day. There’s no longer an opportunity to engage in an overnight process to provide valuations on the day after. These valuations need to be calculated accurately and reach newspapers by close of business. The present value service is providing for a need to meet this 4:30 demand for North America, and that’s where most demand is coming for that product.

The word independent has become important. Everyone would much rather have a consensus price rather than pricing their portfolio one-to-one. There are liability issues that exist and the Markit service helps create this accurate third-party, independent mark.

There are probably 10,000 accounts that we haven’t met yet. It’s a global need.