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As Derivative Use Grows, Independent Pricing Services Consolidate

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NEW YORK (–As funds expand their use of hard-to-price securities and as investors press for independent verification of portfolio pricing, suppliers of valuation services are joining forces. An integrated database for all derivatives information may not be far in the future.

While banks and brokerages are the main customers of these services, hedge funds are a growing presence. Funds tend to use brokers and administrators as sources for prices, but independent providers offer data that may not be otherwise available.

“As hedge funds continue to enter more and more complex transactions, they require valuation services,” said Lance Uggla, chief executive of London-based Mark-it Partners Ltd., which typically collects over-the-counter price data from market makers and cleans and processes the information.

Mark-it recently acquired Totem Market Valuations, thereby adding new types of derivatives to its line-up. This acquisition follows several others.

Data Streams

Mark-it, formed by a group of large banks in 2001, started with credit derivatives and cash securities. Along the way it bought a loan data business. Last year it took over the Reference Entity Database, which matches credit derivatives trades on electronic platforms, to ensure that the entity name and referenced obligations are correct.

Totem further adds to the firm’s coverage of OTC derivatives markets. “Totem takes us into a few new data streams: equity, interest rate, foreign exchange and commodity derivatives,” said Mr. Uggla.

“Our partner banks will be keen to see us clean and process data in each of the data streams.” In addition to valuing derivatives, the new acquisition also forecasts dividends.

About 50% of Mark-It customers are in North America and the firm is expanding its New York operation. It has offices in Chicago and Toronto, as well.

Some hedge funds have started to use its integrated daily pricing for credit derivatives and cash credit instruments (see ).

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