Due-Diligence Survey Cites Growing Need for Transparency from Pricing Vendors

by CFO Innovation Asia Staff, 27 June 2012

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Thomson Reuters has announced the results of a global survey into the concerns, best practices and importance of proactive due diligence to buy-side firms, as they adjust to new regulatory reporting requirements. According to the survey, nearly half (45.8%) of respondents want more transparency into the underlying information about the pricing vendors' offerings.

Concern about pricing vendors' coverage of the securities held came in second at 20.8%.

A clear evaluation process was cited as the top pricing vendor attribute by 31.3% of survey respondents, which includes operations staff, pricing managers, treasurers and chief risk officers.

Another key take away from the survey is that clients want greater transparency to ensure that they have data of the highest quality.

When asked what the top three drivers are when assessing valuation and reference data providers, 75% of respondents named data quality, 47.9% pointed to risk management and 29.2% said cost cutting.

"Pricing vendors need to do a better job proactively by reaching out to their customers and pushing information to them rather than putting the onus on the client to pull down information," says Jayme Fagas, Head of Evaluated Pricing, at Thomson Reuters.

"To address transparency, we see a new information sharing dynamic developing as part of the operational processes at our clients. No longer will a one-size-fits-all approach work as firms today need to customize their processes for regulators and customers in order to remain competitive."

The survey also found that greater cooperation amongst pricing vendors could ease the due diligence burden especially as 20.8% of respondents have five or more pricing vendors; 12.5% have four suppliers; 10.4% have three vendors; 14.6% have two vendors and 12.5% have a single vendor.

"The importance of conducting solid due diligence programs has taken on new importance for buy-side firms given the call for more transparency into the data and process behind valuations," said Gerry Buggy, global head of Enterprise Content at Thomson Reuters. "As such, service providers should take an active role in ensuring firms extract the most value out of due diligence meetings and provide direction on how to most efficiently utilize the process."

Given the desire for more transparency, the typical participants in a due diligence visit with a vendor—chief compliance officers (CCOs), operations managers, pricing managers and treasurers—are likely to welcome more vendor visits that bring clarity to the due diligence dialogue. Some may even start to look more closely at checklists, as 33% of survey respondents say that they do not yet have them.

For the CCOs and pricing departments that do put together checklists, they might be open to getting relevant product information and guidance from their pricing vendors.

In addition to data quality, risk management and cost concerns, the survey shows clients are also looking for ways to meet documentation support requirements (25%).

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