The Price is Right: “Straight Through Pricing” at its Finest
Author: Robert Martin Title: Assistant Vice President – Operations Manager
Managing pricing data and valuation of securities is a critical variable in successful investment accounting and performance measurement. Common practice is to outsource pricing related data to a respected vendor in the financial services industry such as Bloomberg, Reuters, and Interactive Data. Many operations choose to elect only one pricing data vendor, where the quality of the single price source is controlled using “best practice” criteria like day to day percentage price change. This will alert operations staff that they need to find a second or third source to confirm that their lone vendor’s price is accurate. This is a widespread and acceptable procedure for pricing; however, it is far from a robust, efficient and entirely accurate practice. For one client, STP utilizes price data from 3 different vendors, then uses business rules to determine the best possible price available, creating a “gold copy” price.
For example, one vendor, Bloomberg”s BVAL, delivers a confidence number with each price provided. The benefit to the end user is that they have a greater understanding of the quality of data that has been used to determine each security’s price. The business rule that STP uses is, if a Bloomberg BVAL price comes into the system with a confidence level lower than 7, our system will automatically defer to the next vendor’s price as determined by a client specific vendor hierarchy rule.
STP also uses a price comparison control across our multiple vendors, and if different vendor’s prices break a pre-determined tolerance, our system will alert the user that they will need to analyze and choose which vendor price to use as the “gold copy” price.
Another benefit to sourcing multiple vendors is the efficiency that comes with having 2 or more prices readily available within the accounting system. If an accounting operation is only sourcing prices from one vendor, they will need to provide a second pricing source for each variance exception. This will often require the accountant to log into a separate vendor terminal, input an identifier, and log the backup pricing data in some manual fashion. When 2 or more vendor prices are directly sourced in one accounting system, the user can easily toggle between vendors to analyze a backup price when a price’s accuracy is in question, and the there is no extra work to log the data, because it is already loaded directly into the accounting system.
At STP we believe the quality of our output is only as good as the quality of our data inputs, so we are pushing ahead of the industry curve, providing multi-sourced, best of breed, quality, shimmering “Gold Copy” Prices.
