How to evaluate an evaluated pricing vendor

Selecting a pricing vendor is one of the most important decisions a firm will make. Having a due diligence process and framework in place that articulates the demands of all stakeholders and includes the information gathering, processing and decision making system is key to the success of any policy framework.

The consolidation of pricing and index data sources has created an extra level of complexity and the growing conversation about data quality and coverage mean pricing committees want to be sure that the criteria they use to evaluate pricing vendors are comprehensive.

Bloomberg supports a firm’s due diligence process by providing a road map that considers the relevant attributes of pricing quality, coverage and extends to the expertise and size of evaluator teams and the process of challenging valuations and assessing vendor risk.

Here are some suggested questions that clients may find useful when they assess a vendors valuation offering.

Pricing coverage

1. What percentage of your portfolio does the vendor cover?
2. Does this vendor price new issues in a timely manner?
3. Does the vendor account for refundings and other corporate actions in a timely manner?
4. Can the vendor price new bonds in the portfolio that are not already covered?
5. Do they have a roadmap of new coverage areas?

Pricing quality

1. Assess the quality of pricing inputs (including contributed sources)
2. How accurate is this vendor? Measure closeness to next day’s trades ($1mm+)
3. How fast does the vendor incorporate new information? Measure closeness to same day trades ($1mm)
4. Front Office methodology review
5. Front Office review of vendor prices
6. How do prices compare to my current vendor?
7. Does the vendor have a roadmap for future quality enhancements?

Team: Evaluators

1. How many evaluators does the vendor have per asset class?
2. What is the average number of years of markets experience on the team?
3. What is the average number of years of pricing experience on the team?
4. What does the evaluator workflow look like and how do their efficiency tools work?
5. What internal controls does the vendor have around evaluator actions?
6. How many quants and software engineers support the product?
7. Does this team have a global presence for different markets?

Price challenges

1. How easy is it to challenge bonds?
2. How quickly does the vendor respond?
3. How thorough is the evaluator review?
4. How quickly are prices corrected?
5. Does this vendor summarize firm level price challenge stats?

Delivery

1. How quickly are files delivered?
2. What is the success rate of timely delivery?
3. Does the vendor have safeguards in place for protection of client data?

Vendor risks

1. Does the pricing vendor rely on other vendors for data or other services?
2. Does the vendor account for redundancies of people (natural disaster and people displaced)?
3. Does the vendor account for redundancies of technology (natural disaster and servers out of use)?
4. What investments are being made to continually improve the product?

Workflow solutions

1. Does the vendor’s data assist in workflows outside of valuation? For example, liquidity, accounting, risk and data validation.
2. Does the vendor provide additional data sets along with prices to assist with these workflows?

As your firm selects an evaluated pricing vendor, it is important to continuously review and update your internal due diligence processes by honing a series of questions like the ones above.

How to evaluate an evaluated pricing vendor: Download the pdf.