SS&C GlobeOp, SS&C’s global fund administration business, has for the seventh consecutive year conducted a comprehensive comparative analysis of several fixed-income and loan evaluation services.
This benchmark study helps firms to assess pricing sources in support of their vendor selection and due diligence processes. This year we are pleased to add the MarkitAxess pricing service to the set of fixed-income evaluations providers profiled. The other vendor services are ICE Data Services (formerly IDC), Bloomberg BVAL, S&P Global (formerly IHS Markit), Refinitiv, JPM PricingDirect, Cambridge Financial Information Services and Trumid.
We examined two of the most important characteristics for evaluation vendor selection—market coverage and market alignment. Market coverage was determined by calculating the ratio of available end-of-day evaluated prices by vendor service to the sample set of securities by instrument type. Market alignment was based on the measurement of differences between observed transaction prices and the corresponding same-day end-of-day vendor evaluations. We focused on these characteristics because they are indicative of relative “completeness and accuracy” of the vendors’ pricing services.
The analysis relied on a statistically comprehensive data set of approximately 197,000 trades/prices observed over a three-month period and more than 2.9 million end-of-day evaluated prices across the participating vendors. The trades included approximately 68,500 unique fixed-income securities categorized into 31 instrument types.
This year’s fixed income pricing evaluation departs from previous years. The early months of the COVID-19 crisis gave SS&C a unique opportunity to test vendor pricing during a time of significant market stress and volatility. Consequently, we shifted our usual testing period to include this time frame. Data collection and verification were made more challenging, and the variances observed were subject to rigorous verification. This caused some delay in releasing this report. We were rewarded with data that, when compared to previous years’ reports, provides important new information when evaluating
the pricing vendors and valuable context for asset managers and their investors who rely on them in their asset valuation processes. We hope readers find this useful in determining their needs and assessing the risks inherent in their valuation processes.
A few of the most notable observations include:
Coverage Analysis Results
Compared to previous years’ studies, the coverage analysis statistics remained materially unchanged. The services used primarily by our clients, which include IHS Markit, Refinitiv, Bloomberg BVAL, PricingDirect and ICE Data Services exhibited similar coverage for the universe of securities traded by clients during the period of February through April 2020 as they did for previous sample periods in the 4th quarters of 2018 and 2017.
- IHS Markit marginally lead in overall coverage ratios, followed closely by PricingDirect, Bloomberg BVAL and Refinitiv.
- In the corporate bond space, coverage ratios are more consistent among most of the vendors. IHS Markit, ICE Data, Bloomberg BVAL, Refinitiv and Pricing Direct all demonstrate coverage ratios of effectively 100%. MarketAxess, Trumid and Cambridge FIS demonstrate coverage results within 10% of the leading vendors.
- IHS Markit and PricingDirect continue to demonstrate statistically superior coverage ratios with respect to structured products, including Agency CMO Derivatives, RMBS, CMBS, CLO Debt/Equity, ABS (Credit Card, Auto), ABS (Other), CDOs and Credit Risk Transfer (CRT) securities. Refinitiv follows closely with coverage ratios within 10% of the vendors with the highest coverage ratios in four of the eight instrument types categories.
- IHS Markit continues to lead coverage for syndicated bank loans. However BVAL, Refinitiv and PricingDirect have closed the gap compared to previous years. All three vendors have coverage ratios within 5% of IHS Markit.
- MarketAxess participated in the study for the first time, providing pricing and coverage from their Composite+ service. MarketAxess focuses primarily on corporate bonds pricing, employing a predictive algorithmic model to reach a theoretical price. Inputs into their model include historical pricing, yield, past trading trends, maturity and sector information, as well as data from MarketAxess’ trading platform.
Market Alignment Analysis
This study covers the period between February 1, 2020 and April 30, 2020, which captures the height of the volatility experienced as a result of the market turmoil during the COVID-19 pandemic. During this period, as the virus started to spread around the globe, markets reacted to the initial uncertainty. As a result of this market volatility, the data exhibits a greater degree of fluctuation compared to previous studies across a broad spectrum of instrument types. The results indicate that high market volatility impairs the alignment between evaluated prices and observed traded prices.
- Comparisons of market alignment between this study and the prior studies show larger mean differences across multiple instrument types, most notably in structured credit.
- Bloomberg BVAL, Pricing Direct and ICE Data Services lead in alignment analysis for the largest number of instrument types. MarketAxess performed particularly well in both US and non-US corporate bond categories. Overall market alignment leadership continues to be dispersed among the services, with no one provider dominating overall. In almost all instrument categories, multiple services demonstrate similar capabilities to provide evaluations aligned with observed trade prices.
- ICE Data leads in the government bond investment categories, producing end-of-day evaluated mid prices which on average have the least mean differences for US government bonds (42 bps), US inflation-linked bonds (50 bps) and sovereign bond investment grade (38 bps) instrument types. However, this is an increase in excess of 18 bps across all three categories compared to the prior study, reflecting volatility in US government bond prices during the sampling period.
- BVAL produced robust results in the US corporate investment grade instrument category, producing evaluated prices which exhibited the least mean differences to traded prices.
- MarketAxess is the service with the least mean difference for the US convertible bond category.
- In the structured product categories, as expected due to the market volatility, mean differences increased significantly along with the confidence intervals. BVAL and PricingDirect led in four instrument types each. IHS Markit, ICE Data and Refinitiv all led in one instrument type.
For deeper insights into these findings and additional analysis, please download the full "Fixed Income Evaluations Vendor Benchmark Study 2022" study.
Written by Eric Reichenberg
Managing Director, OTC Valuations