Waters Forum: Euro Issues Remain In Final 6 Months

LONDON--Contributors and vendors alike still face significant challenges less than six months away from the euro, according to panelists at last week's Waters/CSK Euro market data forum.

In particular, the treatment of historical issues remains a headache for vendors. Datastream/ICV's Glenn Bedwin, director, planning and communication, says there are effectively five options in treating the data. These were identified as national currency, fixed rates (adjusted/restated), reference rates, proxies and synthetics.

While are none are ideal, he conceded, reference rates appear to be surfacing as the market preferred approach. This methodology combines the first two approaches allowing the user to get their data in euro terms while adjusting the data for market anomalies e.g. exchange rate movements.

The obvious difficulty here is that there are 11 reference rates, although market consensus is gradually tending towards the use of the Deutsche Mark as the main reference rate.

The last approach, synthetics, initially looked to the great hope of the markets--the one that would provide one single approach for all to follow. However, fund managers refused to accept this "solution", saying it was unreasonable to "create" a history. Furthermore, analysts also declined it as an approach, saying it was "theoretically inappropriate". As such, it is highly unlikely that one benchmark synthetic approach will surface.

The treatment of data can, however, bring some, perhaps unforeseen, benefits. John Bertand, director, Panache Global Resources, says, "The easiest data to treat is foreign exchange as there is no underlying instrument. However, by imposing a standard day count, i.e. a 360 day convention, we can bring a tremendous degree of transparency to a previously closed market." Of course, contention remains over what the agreed currency quote convention will be. London-based dealers still want the old one sterling equals whilst the rest of the market is pushing for one euro equals. Vendors remain on the sideline saying they will bow to market convention.

The lack of response from a fair number of exchanges, both those in and out of the member states, is also a very real problem. Geoff Sanderson, director, Reuters Euro Program, estimated that around 30 percent of exchanges have yet to provide a comprehensive response to the issue. One of the major changes, Bedwin pointed out, was the initiation of "coop-tition" between exchanges whereby they agree on the treatment of fundamentals, e.g. price dissemination, and then compete with each other on factors such as liquidity.

An audience question raised the issue of whether, given the lack of response from a number of exchanges, the vendors would be ready or willing to fill the gap met with a negative response. As Sanderson says, " It is not the vendors' job to create data. A failure by an exchange to provide its service is likely to be rectifiable over the Big Bang weekend." Failure to do so, the vendors agreed, would merely mean a loss of business. Or as Bedwin put it: "Their business is somebody else's lunch." Looks like a positive feast could be available for some exchanges.

While the vendors may have identified their own main concerns and the way forward, users are still champing at the bit. Janet Simpson, executive committee member, information providers users group (IPUG), says that from their perspective, pre-March very few vendors had communicated effectively with users over their progress. This said, Datastream/ICV and Reuters were both credited with having publicly provided information to users ahead of the rest. Bloomberg was slated for offering an extreme solution. As Simpson says, "They have a lot of information available but nothing is available on public access sites. They have to realize that lots of market data people do not have their own personal access to Bloombergs." She then went on to urge Bloomberg to make its Euro/Y2K program information publicly accessible.

Not all of IPUG's work is one way, however. Simpson says, "Concerns can also be on the other foot. We recently had Bridge coming to us, asking IPUG to push its members into action as the data vendor expressed serious concerns that contributors themselves were not going to be ready." After all, it is all very well crying out for euro pages, but without data the point becomes rather moot.

Test data is still being cried out for by users--admittedly, says Simpson, most data vendors have made some available for users' appetites are almost insatiable. Tools for rebasing historical information is also urgently needed. This, she says, means giving users the ability to set up their own synthetic history rather than users having to be dictated to by vendor set ups. Overall, though, IPUG is urging partnership--hand holding by both sides is needed so that each side can be forewarned about possible big traps.