Not sure just what those derivatives positions are worth? Not happy about the time it takes to figure it out? A new Web-based product that provides valuations on interest rate, foreign exchange and commodity positions from financial analytics provider FINCAD and interdealer broker ICAP, aims to help.
Bob Park, the president and CEO of FINCAD, says FairValue Insight lets treasurers and finance departments avoid the possible conflicts of interest of getting prices on their derivative positions from their counterparties. It also provides a more transparent and auditable process than doing valuations on a spreadsheet, Park says. “Spreadsheet solutions works but they don't provide a controlled environment.”
After the company's positions are loaded, the system provides valuations, at whatever frequency the company requires, in an auditable format whose calculations and methodologies are disclosed.
The ICAP prices that FairValue Insight uses reflect the $2.3 trillion worth of financial transactions that ICAP manages each day. Lawrence Leuzzi, managing director of ICAP Information Services, notes that companies that use a pricing service can also feed those prices into FairValue Insight, so that they have two sets of prices.
Park says the cost of employing FairValue Insight involves “a usage-based model with a relatively modest minimum,” adding that he expects the platform to appeal to companies with as few as five or 10 hedge transactions as well as those with hundreds or thousands of positions. He envisions the platform as the primary source of valuations for some customers and as a check on counterparty pricing for others.
FairValue Insight can also help deal with the increasing regulatory focus on derivatives positions, Leuzzi says. “Not only do the regulators want to see the price that is carried on the books but how that price was derived–the exact calculation process,” he says. “An entity then is going to have to do more by way of maintaining an audit trail. Not only regulators but auditors will want to see that type of detail.”
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