In today’s evolving and highly regulated financial ecosystem, many financial firms continue to face challenges with achieving high-quality, timely, and transparent independent price verification (IPV).
Traditional consensus tools lack the necessary insights into their methodologies, policies, and procedures. They continue to be resource-intensive, with a challenge process that is manual, inefficient, and untimely. Lastly, without external authoritative sources, the final consensus price lacks richness and accuracy.
These independent price verification challenges result in increased risk, misallocated capital, and an overall lack of confidence in the consensus results.
There are six critical challenges when it comes to current independent price verification solutions.
Lack of Rich, Comparative Insights and Analytics
Traditional consensus tools lack adequate insights, analytics, and reports. Market participants must effectively assess how they are approaching their pricing methodologies in comparison to others. They are unable to effectively demonstrate or align their strategies and controls to business goals.
Lack of Authoritative External Source, The Evidential Price (EvP)
Currently, the final consensus price only incorporates observable data points submitted by market participants. Without an authoritative external source, such as the Evidential Price (EvP), institutions have little insight into whether their consensus price is accurate.
Inefficient and Opaque Challenge Process and Resolution
A challenge process may ensure if certain outlier points are detected. This process is currently resource-intensive, insufficient, and time-consuming due to opaque methodologies and procedures. Additionally, many market participants utilize solutions that require manual analysis, calculations, and processing.
If the challenges process is completed after close of books, participants must implement additional resources to remediate and resolve outstanding issues. This means that they oftentimes must buy secondary sources to back up and justify their positions (which regulators do not consider reliable), thus increasing risk.
Low-Quality Data and Infrequent Consensus Runs
Current consensus solutions lack detailed and sufficient data quality checks. As a result, firms struggle with identifying and correcting low-quality data points across the thousands of templates used at each institution.
Today’s consensus on independent price verification occurs monthly, however, financial institutions need more frequent consensus runs to keep up with the shifting market. In order to predict and evaluate the month’s end risk, participants must be able to perform more frequent runs. Both low data quality and infrequency of consensus runs will result in a low-fidelity final consensus price.
Difficulty to Manage Risk and Capital Optimization
Every month, IPV teams provide a reference point on the value of their positions. This ensures their firm is allocating the correct capital reserve to cover risk. When there is a lack of clarity, accuracy, and transparency in the valuation of assets, additional (and often unnecessary) capital must be reserved.
Lack of Trust and Transparency
Financial institutions rely on trusting their data, and thus, their assets. A lack of transparency erodes a firm’s confidence when it comes to the overall consensus process and final result.
Currently, there is little insight or context into why certain participant data points are outliers or excluded from consensus runs. Dealers are unaware of their position in both the market and amongst peers, preventing them from identifying trends in risk, market value, etc.
Anonymous counterpart comparisons are also unavailable, preventing participants from making a determination on how they may compare with other participants.
Parameta Solutions and PeerNova created ClearConsensus™ a transparent, high-fidelity consensus network that powers today’s data-driven financial firms. The solution solves financial institutions’ most critical challenges when it comes to successful and accurate independent price verification.
For more information, please visit ClearConsensus to contact us, or request a no-commitment demo with a member of Parameta Solutions and PeerNova today.
