Feedback On Pricing Irregularities Wanted

Tyler Durden's picture

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.

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Dark Space's picture

They're all horrible and they have no interest in getting to the right answer. I literally had a position that was marked anywhere from 30% to 50% of where it should be trading by the three services - I reached out and offered to submit our trades to help their accuracy, they declined. FTI had the audacity to challenge my value. I immediately put it on a bid list, sold it within 24 hours at 2 times the mark they had and submitted the trade - they still didn't change their price.

To make matters worse, these are the prices that the auditor is going to look at and assign either level 1 or level 2, depending on their understanding of where the prices come from. So, we went to our auditor and showed the evidence that the pricing services all sucked. We initially got pricing runs from a broker, but the auditor felt like these did not represent actual clearing levels and preferred we use some other source or combination of sources (i.e. ABX, CMBX, similar bond trades, FTI, etc.) - what do you use when they all suck at representing your relatively simple cash bond holding?