Creating near real-time pricing for fixed income products is a key step in the electronification of the asset class, according to Bill Gartland, senior director of Interactive Data’s Continuous Evaluations Service.
Interactive Data recently teamed up with ICAP to provide pricing information for its new bond trading platform, which has become the most recent entrant in a highly competitive race to draw in fixed income liquidity.
The firm’s role in the platform will be to provide accurate pricing information to market participants in real-time, enabling them to turn post-trade data into the basis for making their next trading decisions in a market segment that is rapidly transforming.
“We’ve had to ramp up the speed that we can provide our data to customers,” said Gartland. “It used to be something done at the end-of-day, where evaluators would take old data to feed into the next day’s prices.”
To facilitate more rapid dissemination of fixed income pricing data, Interactive Data has moved to using a modern message bus, which feeds in various sources to a decision engine that can automate many of the routine pricing decisions made daily and push it out to customers. Where there are outliers, these can be sent out to human evaluators to be examined in more detail.
However, where other asset classes have become almost entirely automated from a data collection perspective, Gartland said that is still some way off for fixed income.
“This is not a fully automated process,” he said, “It’s a set of a tools to help speed up a human decision making process.”
The process is also highly reliant on what Gartland describes as a “feedback loop” with the firm’s customers. By not having any direct trading interests and with greater regulatory demands on asset managers to report accurate valuations, Interactive Data believes it is able to provide constant, robust information on bonds.
“It can be difficult as some bonds are traded so infrequently, but our asset managers are constantly thinking about how macro conditions can affect their investments and reporting that back to us, and this means we can provide fair valuations,” Gartland explained.
The deal with ICAP will help put Interactive Data “front-and-centre” in the trading process, he added, rather than being seen as an end-of-day activity as had traditionally been the role of data providers.
Continuous pricing is also seeing interest from many of the new fixed income platforms that are coming to market at present, looking to provide liquidity solutions for investors that have in the past relied upon bank balance sheets to provide them with liquidity in this notoriously hard to trade asset class.