Wednesday, March 18, 2009

Feedback On Pricing Irregularities Wanted

Zero Hedge has received some troubling info (like there isn't enough) regarding major pricing discrepancies between certain securities pricing services. The services include companies such as IDC, Advantage Data, Markit and others. While I will not disclose which one may be a culprit, the allegation is that one (or more) are providing substantially above market pricing levels, specifically as pertains to distressed securities.

It is immediately obvious why that is a huge issue - while congress and Najaf the hot dog vendor scream about Mark To Market treatment, pricing databases already take matters into their hands. Since it is mostly broker dealers who use these services (as opposed to hedge funds who use trader runs and end of month quotes from B/Ds and prime brokers), taking a BBB RMBS tranche, pricing it 10% above prevailing mid levels and having a Goldman Sachs (for example) use this as their mark on several hundred billion of toxic assets would inflate asset levels immediately, with no need for any MTM resolution at all, and making all the clamoring about MTM yet another straw man for public consumption.

Zero Hedge welcomes the feedback from any of our readers who are knowledgeable in this matter. Sphere: Related Content
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Anonymous said...

Could you post any info that you discover about this?

Anonymous said...

Once a month I get a statement of a fixed income portfolio. I saw the statement and was relieved to see something trading at what I considered a reasonable price considering the doubts I had about the company as a going concern. When I talked to the broker and told him to sell it, he tells me the market for the security is in fact much lower than the prices on my statement.

You raise a good and ominous point.

Anonymous said...

I am posting anonymously but I can tell you directly that the runs I get and the service I use (which aggregates intraday runs and rhymes with BoatMission) has been almost perfect throughout this last few months but in my position i get a number of press requests which have asked my view of pricing from a service that rhymes with Barkit. I have on a few occasions found quite major discrepancies in both off the run IG indices, ABX and CMBX tranches, as well as some more XO single-names. In most cases I have double-checked with dealers who sent me runs and the service that ryhmes with Barkit has been away from market.

Anonymous said...

As far as markit they have 2 problems with their pricing. 1) for most part dealers send their end of day pricing to markit based on where they see things trading on the bookie screens. If prod not trade much guys throw up levels on the screens at really wide bid/offers, wide enough to not get hit or lifted and for small size. Then all the dealers will take mid of this range to send to markit for their end close price but there is no way you could ever get a trade done at that level. 2) End of day pricing also gets submitted before end of day trading in fixed income prods so any large late moves don't get captured.

Not sure how much these issues applies to off the run distressed type bonds or to the other pricing services mentioned.