Opening Cross: Bringing Data to the ‘90 Percent’
Did you know that 90 percent of people just make up random statistics to support their arguments and make themselves seem better-informed (sometimes grossly exaggerating figures to seem more credible—for example, using figures such as 90 percent)? And would it surprise you to learn that 90 percent of people believe them? I certainly hope so, because I just made that up.
Sometimes we accept things as fact that should be questioned and scrutinized more closely. For example, the way pricing assumptions were made prior to the credit crunch and financial crisis. When the crunch hit, the value of some securities dropped instantly and without warning, suddenly rendering assets almost worthless. But looking back, no-one is surprised: many of these were priced using the last trade price, no matter how long ago that last trade took place. Had more accurate and timely evaluation models been used, investors would have seen a more gradual decline, and would have had more of an early warning about where the market was headed.
So here’s a 90 percent statistic that should interest you: 90 percent of corporate bonds don’t trade every day. So if you’re still relying on last trade prices to value your bonds, you’re way out of date, at a great deal of risk, and not complying with rules governing how you should value securities. I’d be surprised if any readers fall into this category, since plenty of services now exist to provide more accurate and timely valuations, with many using new models and technologies to compete in this space (alas, not always successfully: RIP, Benchmark Solutions). For example, proposed bond ATS DelphX has created a sophisticated mechanism for its Mav=n pricing tool that not only correlates like-performing securities, but also links them to Treasury price movements, and incorporates rolling trade data updates, to provide fair value prices for bonds that don’t necessarily trade every day.
Here’s another 90 percent statistic: 90 percent of trades in municipal securities take place in odd-lot sizes—i.e. trades under $1 million. Yet most pricing and valuation benchmarks utilize institutional price inputs, creating a disparity between the reported value and the price an investor would pay or receive, should they buy or sell the bond. Hence, a key component of S&P Capital IQ’s new Odd-Lot Valuation pricing service is data from odd-lot fixed income trading platform BondDesk.
Hungry for more 90 percent statistics? While I don’t have any hard evidence to support this assertion, it wouldn’t surprise me to learn that in today’s technology-enabled age, 90 percent of people who would benefit from market data have the means to receive it, but that 90 percent of those aren’t getting it—either because they are restricted from accessing it, because the source they want isn’t available, or because they simply don’t know it’s there.
This is one of the reasons why Direct Edge is making a fresh push to enlist data vendors to redistribute its datafeeds—to get its market data as widely-known as that of rival exchanges, and to enable as broad an audience as possible to receive its data—especially considering that the exchange is often the top destination for retail order flow from discount brokerages—since with around 11 percent of market share in US equities trading, vendors that don’t carry its data are arguably only displaying 90 percent of the market.
And finally, dear readers, please don’t be alarmed when you don’t receive your paper copy of IMD for the next two weeks. We’re taking a very short break from printing—though we’ll still be issuing print editions for about 90 percent of the year—while I’m on vacation. But fear not, you’ll be able to keep up-to-date with your essential market data news online: our website will be ably updated by Faye Kilburn in my absence—and I’m 90 percent certain she’ll treat you to a column of her own while I’m away.
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