Streaming Quotes: Creating Value Through Evaluations

Evaluated prices aren't just a necessity for firms pricing hard-to-value and illiquid securities-something that has taken on new meaning since the credit crunch-they are also big business. To demonstrate just how big, let's look at a couple of recent initiatives from Thomson Reuters, which is building out its presence in this space.

Most recently, the vendor bought the Moody's Evaluations municipal bond pricing business for an undisclosed sum. The deal, which was completed on Sept. 3, "significantly enhances Thomson Reuters' pricing and content offering, enabling us to launch a proprietary US municipal bond pricing capability," and giving the vendor "full pricing coverage for every major asset class globally," according to a Thomson Reuters spokesperson.

Moody's, which is likely to close its remaining corporate bonds pricing service in Q4, is flipping the business only 18 months after buying Mergent's Pricing and Evaluation Services fixed-income pricing business in late 2007. Sources say the vendor struggled to compete with larger players like Interactive Data and SIX Telekurs, whereas the business would enable Thomson Reuters to expand its presence in this area.

"The ratings business in general has been very challenging lately, and Moody's may simply want to focus on its core business," says one source.

In contrast, Thomson Reuters officials say evaluated prices represent a huge opportunity, and plan to expand in this area. This includes a handful of recent hires from JPMorgan's Pricing Direct evaluated pricing business in New York, to lead its expanded Thomson Reuters Pricing Service.

Specifically, the vendor hired former Pricing Direct managing directors Bob Rose and Raj Gadkari; Jayme Fagas, a former executive director in JPMorgan's mortgage-backed securities business; Milton Miyashiro, a managing director of the bank's Financial Analytics and Structured Transactions division; and Lisa Marks, executive director in the same division, to lead the new initiative.

The vendor already has about 200 staff worldwide dedicated to the Pricing Service-which provides evaluated prices for more than 2 million government, corporate and convertible bonds, asset-backed and residential mortgage-backed securities, and derivative securities three times per day-including almost 75 in New York, 12 in London and six in Asia, and staff in offshore support centers. Tim Rice, global head of pricing and reference data, says the vendor is increasing its focus on evaluated pricing in response to greater scrutiny on the quality and source of auditable prices by market participants resulting from the credit crisis. "We want to take advantage of this huge opportunity now that everyone is looking for independent valuations," he says. "This is about becoming the strongest player in derivatives pricing globally. We want to be a one-stop-shop for evaluated pricing."

Aite Group senior analyst John Jay says rounding out its services allows the vendor to address "a big market opportunity that may not be easy for a new player to enter, but where big players like Thomson Reuters have huge intellectual capital and expertise to draw on."

For example, Interactive Data's evaluations team has more than 30 years of industry experience and evaluates around 2.8 million instruments every day, says Mark Hepsworth, president of Institutional Business at the vendor. "The volatile and continually changing market environment [and recent regulations] have prompted financial firms to utilize independent evaluations... to an even greater extent."

Max Bowie

Max Bowie is editor of Inside Market Data and can be reached at

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