Tullett is the Latest to Stir the Valuation Pot

Tullett Prebon to expand its sales and client services in the rapidly growing over-the-counter valuations market.

Wall Street Fed Credit Crisis

Brokers work on the trading desk at ICAP following the Federal Reserve rate announcement on Tuesday, March 18, 2008 in Jersey City, N.J. ICAP PLC, based in London, is the world’s largest inter-dealer broker. The Fed cut the rate 3/4 point. (AP Photo/Mark Lennihan)

Mark Lennihan/AP

Just over a month since Bloomberg raised the competitive stakes in the over-the-counter valuations business by expanding its BVAL service, Tullett Prebon has become the latest to make an aggressive bid for growth in that rapidly evolving market.

The interdealer brokerage, which has principal offices in London and other key financial centers, has opened offices for independent valuation sales and client services in London and New York. Tullett characterized the move as “an immediate expansion” of its Vancouver, Canada, subsidiary OTC Valuations, which it acquired in March for $600,000 plus up to $1.4 million based on future performance.

Tullett is now deploying top executives and previous owners of OTC Valuations – which is known as OTC Val – in three locations: Paul Bergbusch, head of technology, is based in Vancouver; Bob Sangha, head of the Americas, is in New York; and Miroslav Vanous, in London, heads Europe-Middle East-Africa.

Paul Humphrey, chief executive of electronic broking and Tullett Prebon Information, two technology-focused businesses of the interdealer firm that is active in various credit and derivatives asset classes, termed the office openings “an important expansion of OTC Val, enabling us to better service clients and enhance our global reach.” Tullett’s scale and scope were important factors in OTC Val’s desire to merge, said Vanous, who was the acquired firm’s CEO.

Humphrey added that the regional centers “not only provide local-time-zone sales and support capabilities, but also act as additional hubs for service delivery and technology integration.”

For those seeking valuations of OTC derivatives and structured products, Tullett offers auditable reports, a transparent look into its methods through supporting documentation, and the ability to challenge its conclusions. “These valuation capabilities are a natural extension to, and utilize, Tullett Prebon’s independent market data offering,” Humphrey said. Many OTC Val competitors make or aspire to similar statements.

These functions have been burgeoning both in terms of suppliers – OTC Val and Bloomberg compete against a host of others ranging from market-data giants and credit rating agencies to niche specialists like Markit Group, Pricing Partners and SuperDerivatives – and of buyers. The customers tend to be banks and other financial institutions, hedge funds and fund administrators that have a need to calculate or publish timely and accurate net asset values and portfolio profit-and-loss.

Another of those niche providers, Fincad, developed an OTC valuations service as an extension of the derivatives systems that it supplies to major institutions around the world. Also based in Vancouver, Fincad has allied with London-headquartered Icap, the biggest interdealer brokerage and a Tullett Prebon rival, in a joint valuations offering called Fair Value Insight.

“We continue to expand Fair Value Insight coverage based on customer feedback,” Fincad president and CEO Robert Park said in May when commodity options pricing and improved reporting were added to the package. The combination of Fincad’s analytics with Icap’s market data “provides end users with greater value, ease of use and transparency,” he added.

Among other recent moves reflecting intensifying competition and jockeying for position in OTC derivatives: Risk advisory and valuations firm Chatham Financial of Kennett Square, Pennsylvania, introduced a derivatives regulation advisory service; Markit of London and New York added a number of commodity and structured products to its Portfolio Valuations service; Paris-based Pricing Partners said one of the top two U.S.-based investment banks – it was not authorized to disclose which – became a customer of its Price-it Online equity and interest-rate derivatives revaluation service; and New York-based software house Principia Partners offered its valuation, portfolio analysis and risk assessment capability as a Web-based software-as-a-service.

London’s SuperDerivatives, which in June launched its Revaluation Investigation and Analysis System for trade and pricing analysis and stress testing of portfolios, announced two sizable partnerships in July: Hedge fund administrator HedgeServ is incorporating SuperDerivatives into its technology platform for real-time OTC and illiquid-instrument valuations; and investment management systems company Advent Software agreed to offer SuperDerivatves’ Web-based analytic and revaluation services to users of its Geneva portfolio management and fund accounting system.