MUFG Fund Services Taps Markit for Bond Pricing

MUFG Fund Services currently uses a range of market data vendors for fixed income pricing, including Bloomberg, Thomson Reuters, Interactive Data and PricingDirect. However, the firm decided to add Markit as an additional source to provide more transparency and context behind prices used to calculate net asset values (NAVs) for its customer base of more than 1,100 alternative funds.

"We are not switching out any of our other vendors, but rather we are bringing on another source to compete with our existing sources for price verification and validation purposes, so we can identify and remove outliers," says Yang Cheng, global head of middle office and valuation at MUFG Fund Services. "It depends on the bond, and obviously each vendor has its own focus area, but for most products you are looking at two or three vendors to verify a price."

Markit's fixed income pricing services covers 2.4 million municipal, corporate and sovereign bonds, securitized products, bank loans and credit default swaps. Cheng says MUFG Fund Services will be consuming prices for credit, treasury, and high-yield bonds, as well as most of the vendor's securitized products. For each instrument, the firm pre-defines which vendor will provide the primary price, but to avoid any errors, will have multiple sources, to validate each price and remove outliers, to make NAV calculations more accurate.

"There is increased demand from regulators about NAV transparency and pricing independence so more and more sources need to be used to make sure prices fairly reflect the market conditions," Cheng adds.

MUFG will deliver prices to customers on a daily, monthly or weekly basis, depending on the requirements of each fund, but in general MUFG Fund Services will receive intraday snapshots from Markit via file transfer protocol (FTP) download at 4pm London time, 4pm Singapore time, and 3pm and 4pm New York time. Though the fund administrator currently uses FTP, it will move to an API delivery next year, to facilitate ad-hoc price updates.

"Today's fund administrators need solutions that offer more than a price to provide NAV calculation for their customers. Our pricing, transparency and liquidity data metrics provide MUFG Fund Services' clients with deeper context by leveraging millions of daily observable prices sourced directly from leading industry participants and our real-time parsing technology," says Kiet Tran, managing director and head of fixed income pricing at Markit, in a statement.

Markit already provides a range of data services to MUFG Investor Services, including loans and CDS pricing data. The fund administrator carried out a proof of concept with the vendor in the first quarter of this year, and went live with the fixed income data in the past two weeks.

"We have a long-term relationship with Markit, and we think they are a good source going forward. We were in discussions for eight months, and we did a lot of testing, sample pricing, collection and comparison," Cheng says.