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THOMSON REUTERS PRICING SERVICE FIXED INCOME AND DERIVATIVE EVALUATED PRICING Issued August 2015 METHODOLOGY GUIDE VERSION 5.4
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THOMSON REUTERS
PRICING SERVICE FIXED INCOME AND DERIVATIVE EVALUATED PRICING
Issued August 2015
METHODOLOGY GUIDE
VERSION 5.4
Pricing Service Fixed Income and Derivative Evaluated Pricing Methodology Guide / Version 5.4 Page 2 of 122
© Thomson Reuters 2015. All Rights Reserved. Thomson Reuters disclaims any and all liability arising from the use of this document and does not guarantee that any information contained herein is accurate or complete. This document contains information proprietary to Thomson Reuters and may not be reproduced, transmitted, or distributed in whole or part without the express written permission of Thomson Reuters.
Contents
Pricing Service Fixed Income and Derivative Evaluated Pricing Methodology Guide / Version 5.4 Page 3 of 122
Contents
About This Document ............................................................................... 13
Feedback .................................................................................................... 13
Getting Help ................................................................................................ 13
Summary of Changes ................................................................................ 14
Part I: Overview ........................................................................ 15
1 Thomson Reuters Evaluated Pricing ............................................. 16
What is Evaluated Pricing? ......................................................................... 16
The Thomson Reuters Advantage .............................................................. 16
Price Challenges ........................................................................................ 17
Service and Quality .................................................................................... 17
Price Updates ............................................................................................. 17
Asset Coverage and Methodology Overview ............................................. 18
Part II: Fixed Income Methodologies ..................................... 22
2 United States Treasuries ................................................................. 23
Terms and Conditions ................................................................................ 23
Thomson Reuters Evaluation Staff ............................................................. 23
Dealer Contribution Network ...................................................................... 23
Treasury Pricing Model ............................................................................... 23
Market News............................................................................................... 24
Quality Control Checks ............................................................................... 24
Customer Service ....................................................................................... 25
3 United States Agency Debentures ................................................. 26
Terms and Conditions ................................................................................ 26
Thomson Reuters Evaluation Staff ............................................................. 26
Market Data Inputs ..................................................................................... 26
Thomson Reuters OAS Pricing Analytics ................................................... 27
Market News............................................................................................... 27
Quality Control Checks ............................................................................... 28
Contents
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Customer Service ....................................................................................... 28
4 Global Investment Grade Bonds .................................................... 29
Terms and Conditions ................................................................................ 29
Thomson Reuters Evaluation Staff ............................................................. 29
Market Data Inputs ..................................................................................... 29
Market News............................................................................................... 30
Quality Control Checks ............................................................................... 31
Price Challenge Process as a Quality Control ............................................ 31
Customer Service ....................................................................................... 31
5 Canadian Bonds ............................................................................... 32
Terms and Conditions ................................................................................ 32
Thomson Reuters Evaluation Staff ............................................................. 32
Spreads Derived from Market Data Inputs ................................................. 32
Market News............................................................................................... 33
Quality Control Checks ............................................................................... 33
Customer Service ....................................................................................... 34
6 Global High Yield Bonds ................................................................. 35
Terms and Conditions ................................................................................ 35
Thomson Reuters Evaluation Staff ............................................................. 35
Market Data ................................................................................................ 35
Market News............................................................................................... 36
Quality Control Checks ............................................................................... 36
Customer Service ....................................................................................... 37
7 Convertible Bonds & Convertible Preferred Stocks ..................... 38
Terms and Conditions ................................................................................ 38
Market Data Inputs ..................................................................................... 38
Thomson Reuters Pricing Model ................................................................ 39
Real Time Market News & Activity ............................................................. 39
Quality Control Checks ............................................................................... 40
Customer Service ....................................................................................... 40
8 Emerging Markets ............................................................................ 42
Contents
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Terms and Conditions ................................................................................ 42
Thomson Reuters Evaluation Staff ............................................................. 43
Market Sources and Contributed Pricing .................................................... 43
Thomson Reuters Proprietary Bond Model ................................................ 43
Market News............................................................................................... 44
Quality Control ............................................................................................ 44
Customer Service ....................................................................................... 44
9 Syndicated Bank Loans................................................................... 45
Terms and Conditions ................................................................................ 45
Thomson Reuters Evaluation Staff ............................................................. 45
Market Data ................................................................................................ 45
Proprietary Loan Analytics .......................................................................... 46
Strategic Partnership with the LSTA ........................................................... 46
Market News............................................................................................... 46
Quality Control Checks ............................................................................... 46
Customer Service ....................................................................................... 47
10 Municipal Bonds .............................................................................. 48
Terms and Conditions ................................................................................ 48
Thomson Reuters Evaluation Staff ............................................................. 48
Market Data Inputs ..................................................................................... 48
Proprietary Credit Curves and Attributes .................................................... 50
Market News............................................................................................... 50
Quality Control Checks ............................................................................... 51
Customer Service ....................................................................................... 51
11 Mortgage-Backed Securities TBA Pricing Methodology ............. 52
Terms and Conditions ................................................................................ 52
Thomson Reuters Evaluation Staff ............................................................. 52
TBA Pricing Model ...................................................................................... 52
Market Data Inputs ..................................................................................... 53
Quality Control Checks ............................................................................... 53
Customer Service ....................................................................................... 53
Contents
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12 Fixed Rate US Mortgage-Backed Securities ................................. 54
Terms and Conditions ................................................................................ 54
Thomson Reuters Evaluation Staff ............................................................. 54
TRPS Aggregate Pricing Model .................................................................. 54
Market Data Inputs ..................................................................................... 55
Individual Pool Pricing ................................................................................ 55
Quality Control Checks ............................................................................... 56
Customer Service ....................................................................................... 56
13 Adjustable Rate and Hybrid US Mortgage-Backed Securities .... 57
Terms and Conditions ................................................................................ 57
Thomson Reuters Evaluation Staff ............................................................. 57
ARM Pricing Model ..................................................................................... 57
Long Reset ARMs ........................................................................................ 57
Short Reset ARMs ....................................................................................... 58
Market Data Inputs ..................................................................................... 58
Quality Control Checks ............................................................................... 59
Customer Service ....................................................................................... 59
14 United States Agency Collateralized Mortgage Obligations ....... 60
Terms and Conditions ................................................................................ 60
Cash Flows ................................................................................................. 60
Thomson Reuters Evaluation Staff ............................................................. 60
Thomson Reuters Proprietary CMO Model ................................................ 60
Market Data Inputs ..................................................................................... 61
Market News............................................................................................... 61
Quality Control Checks ............................................................................... 61
Customer Service ....................................................................................... 62
15 United States Consumer Asset-Backed Securities ...................... 63
Terms and Conditions ................................................................................ 63
Cash Flows Generated from Moody’s Analytics ......................................... 63
Thomson Reuters Evaluation Staff ............................................................. 63
Prepayment Speeds and Spreads .............................................................. 64
Contents
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Loss Analytics............................................................................................. 64
Market News............................................................................................... 64
Quality Control Checks ............................................................................... 64
Customer Service ....................................................................................... 65
16 United States Residential Mortgage-Backed Securities .............. 66
Terms and Conditions ................................................................................ 66
Cash Flows Generated from Moody’s Analytics ......................................... 66
Thomson Reuters Evaluation Staff ............................................................. 66
Prepayment, Default, and Loss Severity Assumptions ............................... 66
Market Data Inputs ..................................................................................... 67
Market News............................................................................................... 67
Quality Control Checks ............................................................................... 67
Price Challenge Process as a Quality Control ............................................ 68
Customer Service ....................................................................................... 68
17 United States Commercial Mortgage-Backed Securities ............. 69
Terms and Conditions ................................................................................ 69
Cash Flows – Trepp CMBSAnalytics Model ............................................... 69
Thomson Reuters Evaluation Staff ............................................................. 69
Market Data Inputs ..................................................................................... 69
Market News............................................................................................... 70
Quality Control Checks ............................................................................... 70
Customer Service ....................................................................................... 71
18 European Asset-Backed Securities ............................................... 72
Terms and Conditions ................................................................................ 72
Thomson Reuters Evaluation Staff ............................................................. 72
Cash Flows from ABSNet ........................................................................... 72
Performance Data from ABSNet ................................................................ 73
Spreads ...................................................................................................... 73
Prepayment Speeds ................................................................................... 73
Loss Rates.................................................................................................. 73
Market News............................................................................................... 73
Contents
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Quality Control Checks ............................................................................... 73
Customer Service ....................................................................................... 74
19 Collateralized Loan Obligations ..................................................... 75
Granular Loan-Level Data .......................................................................... 75
Thorough Structural Analysis ..................................................................... 75
Moody’s Analytics CDOnet ......................................................................... 75
Scenario Assumptions: Prepayments, Defaults and Recoveries ............... 75
Pricing Assumptions/Discount Margins ...................................................... 76
Thomson Reuters Evaluation Staff and Quality Control ............................. 76
Market News............................................................................................... 76
Customer Service ....................................................................................... 76
20 Collateralized Debt Obligation ........................................................ 77
Cashflow Analysis through Granular Loan-Level Data ............................... 77
Net Asset Value (NAV) Analysis ................................................................. 78
Thorough Structural Analysis ..................................................................... 78
Market Color ............................................................................................... 78
Key Metrics for Yield Assignment ............................................................... 78
Deal Metrics ................................................................................................. 78
Tranche Metrics ........................................................................................... 79
Moody’s Analytics CDOnet ......................................................................... 79
Thomson Reuters Evaluation Staff and Quality Control ............................. 79
Market News............................................................................................... 80
Customer Service ....................................................................................... 80
21 Credit Linked Notes ......................................................................... 81
Terms and Conditions ................................................................................ 81
Thomson Reuters Evaluation Staff ............................................................. 81
Broker Quoted and Evaluated Reference Security Prices .......................... 81
Yields Derived from Broker Quotes and Trade Prices ................................ 82
Market News............................................................................................... 82
Quality Control Checks ............................................................................... 82
Customer Service ....................................................................................... 82
Contents
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22 Global Money Market ....................................................................... 83
Terms and Conditions ................................................................................ 83
Thomson Reuters Evaluation Staff ............................................................. 83
Contributed Yield Curves ............................................................................ 84
Spreads and Rates ..................................................................................... 84
Money Market Pricing Model ...................................................................... 84
Market News............................................................................................... 85
Quality Control Checks ............................................................................... 85
Customer Service ....................................................................................... 85
23 European Government Bonds ........................................................ 86
Terms and Conditions ................................................................................ 86
Thomson Reuters Evaluation Staff ............................................................. 86
Dealer Contribution Network ...................................................................... 86
European Government Pricing Model ........................................................ 86
Market News............................................................................................... 87
Quality Control Checks ............................................................................... 87
Customer Service ....................................................................................... 87
Part III: Derivative Methodologies .......................................... 88
24 Interest Rate Swaps ......................................................................... 89
Terms and Conditions ................................................................................ 89
Proprietary Swap Pricing Model ................................................................. 90
Zero Coupon Swap Curves ........................................................................ 90
Quality Control Checks ............................................................................... 91
Customer Service ....................................................................................... 91
25 Credit Default Swaps ....................................................................... 92
Terms and Conditions ................................................................................ 92
Credit Curves and Recovery Rates ............................................................ 93
Street Standard CDS Calculation ............................................................... 93
Quality Control Checks ............................................................................... 94
Customer Service ....................................................................................... 94
26 Over-the-Counter Equity Options ................................................... 95
Contents
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Terms and Conditions ................................................................................ 95
Zero Coupon Swap Curves ........................................................................ 95
Implied and Historical Volatilities ................................................................ 95
Equity Price and Dividend Yield ................................................................. 96
Proprietary Option Pricing Model ................................................................ 96
Quality Control Checks ............................................................................... 96
Customer Service ....................................................................................... 97
27 Currency Options ............................................................................. 98
Coverage .................................................................................................... 98
Terms and Conditions ................................................................................ 98
Thomson Reuters Pricing Model ................................................................ 98
Foreign Exchange (FX) Rates .................................................................... 98
Swap Zero Rates ........................................................................................ 99
Volatility ...................................................................................................... 99
Delivery....................................................................................................... 99
Quality Control Checks ............................................................................... 99
Customer Service ....................................................................................... 99
28 Interest Rate Swaptions ................................................................ 100
Coverage .................................................................................................. 100
Pricing....................................................................................................... 100
Terms and Conditions .............................................................................. 100
Calculation ................................................................................................ 101
Zero Coupon Swap Curves ...................................................................... 101
Quality Control check ............................................................................... 101
Customer Service ..................................................................................... 101
29 Loan Total Return Swaps .............................................................. 102
Terms and Conditions .............................................................................. 102
Currency Based LTRS Zero Curve ........................................................... 102
Daily Loan Prices Sourced From Thomson Reuters LPC ........................ 103
Loan Based Total Return SWAP Analytics ............................................... 103
Quality Control Checks ............................................................................. 103
Contents
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Customer Service ..................................................................................... 104
30 Structured Notes ............................................................................ 105
Terms and Conditions .............................................................................. 105
Volatility .................................................................................................... 105
Thomson Reuters Evaluation Staff ........................................................... 105
Bond and Option Analytics ....................................................................... 106
Quality Control Checks ............................................................................. 106
Customer Service ..................................................................................... 107
31 Equity/Index Based Total Return Swaps ..................................... 108
Coverage .................................................................................................. 108
Terms and Conditions .............................................................................. 108
Intrinsic Valuation Method ........................................................................ 108
Market Data .............................................................................................. 109
Quality Control Checks ............................................................................. 109
Customer Service ..................................................................................... 109
Part IV: General Methodologies ............................................ 110
32 Indicative Optimized Portfolio Valuation ..................................... 111
Security Terms and Conditions ................................................................ 111
Real Time Equity Pricing from All Major Exchanges ................................ 111
Intraday Price / Spread Updates from TRPS ............................................ 111
Benchmark Curves from Thomson Reuters Real Time Data Network ..... 111
IOPV Prices Available on Thomson Reuters Real Time Network ............ 111
Delivery via Elektron Hosting Capability ................................................... 112
Customer Service ..................................................................................... 112
33 Fixed Income Global Snapshot (FIGS) ......................................... 113
Latest Prices / Spreads from Asian and European Pricing Desk ............. 113
Benchmark Curve Updates ...................................................................... 113
Spread Updates........................................................................................ 113
Quality Control .......................................................................................... 113
Days of Coverage or Holiday Coverage ................................................... 114
Sample Bond ............................................................................................ 114
Contents
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Customer Service ..................................................................................... 114
Appendix A Topic 820 ........................................................................... 115
What Is Topic 820? ................................................................................... 115
Treatment of Assets ................................................................................. 115
Treatment of Liabilities ............................................................................. 115
Valuation Techniques ............................................................................... 115
Three Levels of Inputs .............................................................................. 116
Disclosures ............................................................................................... 116
Methods and Input Levels .......................................................................... 116
Customer Service ..................................................................................... 119
Appendix B Intraday Evaluated Pricing .............................................. 120
Price Recipes from TRPS ......................................................................... 120
Real Time Benchmark Updates ................................................................ 120
Intraday Quality Control Checks ............................................................... 120
DataScope Select File Delivery ................................................................ 121
Customer Service ..................................................................................... 121
Chapter 1: Thomson Reuters Evaluated Pricing What is Evaluated Pricing?
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About This Document
This document details the methods that Thomson Reuters Pricing Service (TRPS) incorporates to provide fair market value on over the counter fixed income securities, syndicated bank loans, and derivatives. This guide addresses each asset-specific evaluation method in its own section so that you can easily find, read, and print the information you need.
This guide is intended for financial professionals who use Thomson Reuters to obtain validated end of day evaluated prices to support portfolio, fund, single security, and other types of valuations.
Feedback
We invite your comments, corrections, and suggestions about this guide: contact Thomson Reuters Customer Support at 1-800-738-8377 or your Technical Account Manager (TAM). Your feedback helps us continue to improve our user assistance.
Getting Help
For help with Thomson Reuters products, visit Thomson Reuters Customer Zone, the single online entry point to Thomson Reuters support and service functions.
The menu bar at the top of the page provides links to the key content areas of the site, including:
Contact Us, providing contact numbers for support requests. Customers can also log support requests online.
Support, providing links to product, technical, and data support, as well as to other support areas. Find links here for product change notifications and product documentation for both end users and IT/Market data. Clients are encouraged to subscribe to the following support channels:
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For detailed information about Thomson Reuters Customer Support and Customer Zone, please see the DataScope Support Guide, posted on Customer Zone. (The Guide, while addressed to DataScope users, describes customer support and Customer Zone features used by all Thomson Reuters products.)
Chapter 1: Thomson Reuters Evaluated Pricing What is Evaluated Pricing?
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Summary of Changes
This section summarizes substantive differences between versions of this document that are released to customers. Please note that this summary may not be exhaustive, as certain style, formatting, and grammatical edits may be excluded. This log begins with document Version 5.0.
Version # Date Description of Change
5.0 March 2013 Added two new methodologies:
Global Money Market
European Government Bonds
5.1 March 2014 Updated 12 methodologies:
United States Agency Debentures
Global Investment Grade Bonds
Global High Yield Bonds
Convertible Bonds & Convertible Preferred Stocks
Emerging Markets
Syndicated Bank Loans
Municipal Bonds
Fixed Rate US Mortgage-Backed Securities
Adjustable Rate and Hybrid US Mortgage-Backed Securities
United States Agency Collateralized Mortgage Obligations
United States Residential Mortgage-Backed Securities
United States Commercial Mortgage-Backed Securities
5.2 May 2014 Added one methodology:
Mortgage-Backed Securities TBA Pricing Methodology
5.3
June 2015 Added Appendix B:
Intraday Evaluated Pricing
Updated two methodologies:
Global Money Market
Syndicated Bank Loan
5.4 August 2015 Added one methodology:
Collateralized Debt Obligation
Pricing Service Fixed Income and Derivative Evaluated Pricing Methodology Guide / Version 5.4 Page 15 of 122
Part I: Overview
Chapter 1: Thomson Reuters Evaluated Pricing What is Evaluated Pricing?
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1 Thomson Reuters Evaluated Pricing
Thomson Reuters provides real time and validated end of day evaluated prices on over 2.4 MM securities. Our staff consists of over one hundred and fifty fixed income professionals in New York, Toronto, London, Tokyo, Singapore, and Sydney. Coverage includes sovereign debt, corporate debt, convertible securities, bank debt, mortgage backed securities, asset backed securities, municipal securities, derivatives, and structured notes.
Evaluations are available daily at all industry standard valuation cut-off times. Typical customers include banks, brokers, insurance companies, mutual funds, fund administrators, bank custodians, and software vendors. Evaluations are used for net asset value calculations, research, statement processing, portfolio valuation, and risk management. Thomson Reuters pricing methodologies incorporate bond terms and conditions, proprietary pricing models and real-time quotes from contributing dealers. They are produced by an expert evaluation staff with market experience working to rigorous quality assurance standards. Terms and conditions are collected and maintained by our global team of data analysts. Evaluation models are developed and maintained by the renowned EJV fixed income development team at Thomson Reuters. Dealer quotes are obtained from our extensive IDN contributions network, supplemented by direct market relationships between evaluators and sell-side participants.
What is Evaluated Pricing?
Evaluated pricing is an assessment at a specific time of the fair market value of a financial instrument. Evaluated prices provide a superior price compared to composite or contributed prices that may be out of date. The fair market value assessment is consistent with the accounting guidelines outlined in Topic 820 (FAS 157) and ASC 820 (IAS 39), and takes into account the following:
Dealer quotes, trade prices, and the new issue market.
Inherent risk of each security including credit, prepayment, industry, market, and liquidity risk.
Terms and conditions of each security
Prices of other instruments by the same issuer, or issuers of similar industry sector
The Thomson Reuters Advantage
Thomson Reuters is the clear choice for evaluated pricing:
Deep market information. The Thomson Reuters financial data network includes transmissions of all exchanges, contributed broker/dealer data, and actual live trading markets. Our strong ties to the broker/dealer community offer the most timely and reliable market information. This information includes trade prices, dealer quotes, benchmark curves, credit curves, performance data, and much more. Our proprietary analytical libraries, validated by market professionals, ensure the most accurate valuations. Prices are delivered throughout the day or at market closing times around the world, per client or regulatory requirements. We provide supporting commentary to give insight on the day’s events and market movements.
Consistent and accurate evaluations. Thomson Reuters incorporates stringent quality control procedures to ensure accurate evaluations. Evaluators monitor market data feeds, review pricing models, and view all final prices prior to delivery.
Independent. Thomson Reuters is a completely independent third party pricing provider with no conflict of interest as the company does not originate, issue, trade, buy, sell, or position these instruments.
Chapter 1: Thomson Reuters Evaluated Pricing Price Challenges
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Access to our team of specialists. Thomson Reuters experienced team—covering all facets of evaluation—includes market data experts, software developers, financial engineers, and valuation authorities. Specialists are available to answer all methodology and coverage questions. With staff in Singapore, Sydney, Tokyo, London, New York, and Toronto, we are able to respond quickly to all queries and price challenges. Staff members are knowledgeable in all asset classes and specific client deliveries.
Market-leading rates and foreign exchange. Thomson Reuters swap rates are used globally and represent standard rates for market participants. Thomson Reuters Dealing is the market leading, peer-to-peer trading application with a community of approximately 19,000 users in 120 countries: it is the largest, most established FX and money market community in the world.
Responsive. Our focus is ensuring we are the most responsive provider to the growing demands of the market place. All customer queries are measured on timeliness and accuracy.
Price Challenges
The ability to challenge prices is an important part of Thomson Reuters customer service. In most cases, Thomson Reuters evaluators respond to your price challenges on a same-day basis. Customers are encouraged to discuss pricing levels directly with evaluators.
Service and Quality
Thomson Reuters evaluators and analysts work to a series of metrics relating to:
New issue timeliness
New issue accuracy
Pricing accuracy
Factor accuracy and timeliness
Price challenge response times
Customer satisfaction with quality of response
Thomson Reuters pricing models include a series of intra-day and end-of-day quality and tolerance checks to ensure price and factor accuracy. All issues that exceed a daily set tolerance are examined prior to final release to customers. Tolerance comments that depict reason for movement and evaluator information are available with the DataScope products. To give you additional insight into market moves for the day and help you anticipate how your portfolio will move, Thomson Reuters produces a daily commentary that outlines major market moves and trading information.
Price Updates
Thomson Reuters DataScope offers the following validated evaluated pricing service snap times:
Region Time
Asia-Pacific Premium Pricing Files 15:00, 16:00, and 18:00 JST
EOD between 9:00 and 12:30 JST next day
Europe Premium Pricing Files 12:00, 14:00, 16:15 and 18:00 GMT EOD 23:00 GMT
United States Premium Pricing Files 15:00 and 16:00 ET
EOD 19:00 ET
Chapter 1: Thomson Reuters Evaluated Pricing Asset Coverage and Methodology Overview
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Asset Coverage and Methodology Overview
Thomson Reuters evaluated pricing covers the following classes of fixed income and derivative assets.
Fixed Income Coverage
ASSET CLASS COVERAGE METHODOLOGY
Global Fixed Income:
Asia-Pacific, EMEA, Americas
Investment grade All Australasian, EMEA and American markets
Evaluated on nominal spread, discount margin or OAS basis depending on how the market trades a security or sector
High yield Major markets priced on customer request
Individually evaluated, mostly on a price basis using the lead underwriter as the primary source of information
Emerging markets Emerging market investment grade and non-investment grade bonds, including fixed rate, floating rate, callable, zero coupon, covered bonds, and sinking fund issues.
Issues are priced using a network of market contacts; calls to trading desks; files of executed trades (“axe sheets”); daily broker bid lists; Thomson Reuters Electronic Contribution Network; current market spreads and quotes via Reuters editorial staff; theoretical assumptions based upon observable market data (for unquoted issues); and the latest benchmark rate, spread/margin, and quotes from Adfin’s global calculation library.
Money markets T-bills, commercial paper, certificates of deposit (CD), repurchase agreements (REPO)
Evaluated on spread or discount rate basis
Islamic Sukuk Priced on a dollar price basis using broker-derived data
Syndicated loans Syndicated bank loans LSTA pricing methodology – average of bids and offers from the broker/dealer community
Asset-backed securities ABS, RMBS Individually evaluated using historical and projected prepayments speed and loss scenarios. Spreads obtained from trade prices and dealer quotes
Collateralized loan obligations (CLO)
Cash CLO Individually evaluated using historical and projected prepayments speed and loss scenarios. Spreads obtained from trade prices and dealer quotes
Chapter 1: Thomson Reuters Evaluated Pricing Asset Coverage and Methodology Overview
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ASSET CLASS COVERAGE METHODOLOGY
Credit linked notes (CLN) Credit ratings of issuers; amount issued/outstanding; deal underwriters; coupon, maturity, and other prospectus data; reference security identifiers.
Evaluated using an appropriate yield that represents the risk associated with the individual security. Yields are obtained from broker contacts, trade prices, and the new issue market. TRPS evaluators pay close attention to changing credit situations and interest rate fluctuations. Special adjustments can be made based upon political, economic, and liquidity factors as well as on currency fluctuations.
Convertible bonds Convertible Bonds and Convertible Preferred Stocks
Thomson Reuters proprietary convertible pricing model uses a delta model incorporating a real time equity feed
Americas Fixed Income
Treasuries Bills, notes, bonds, STRIPS Thomson Reuters receives daily valuations on bills, notes, bonds and STRIPS from multiple contributors
Agencies Discount notes, bonds, medium term notes
Individually evaluated on an OAS basis or nominal spread for non-callable issues
Fixed-rate mortgage pools
GNMA, FNMA, FHLMC: TBA, fixed rate, balloon and graduated payment
All seasoned pools are priced off MBS TBA prices. TBA prices are obtained from market makers and live trading systems. Seasoned quotes are obtained from dealer community and trade prices
Adjustable-rate mortgage pools
GNMA, FNMA, FHLMC: COFI, CMT, LIBOR, MTA
Individually evaluated on an BEEM (Bond Equivalent Effective Margin) basis
Hybrid – adjustable rate mortgage pools
GNMA, FNMA, FHLMC:3-1, 5-1,7-1, 10-1
Priced by Z spread to balloon date
Agency CMO GNMA, FNMA, FHLMC: fixed rate, IO/PO (Interest Only/Principal Only) simple and complex floaters and inverse floaters
Individually evaluated using OAS and nominal spread. OAS valuations use the Andrew Davidson prepayment model and Thomson Reuters OAS
calculator. Cash flows are calculated internally
Non-agency RMBS, CMBS
Multiple issuers: prime, Alt A, subprime
Individually evaluated using historical and projected prepayments speed and loss scenarios. Spreads obtained from trade prices and dealer quotes
Consumer ABS Auto and boat loans, credit card, recreational vehicle loans
Individually evaluated on a nominal spread basis. Spreads obtained from trade prices and dealer quotes
Chapter 1: Thomson Reuters Evaluated Pricing Asset Coverage and Methodology Overview
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ASSET CLASS COVERAGE METHODOLOGY
Municipal bonds Revenue, general obligation, industrial development, special obligation, Build America bonds (BABs)
Credit curve attribute model
Derivative Coverage
ASSET CLASS COVERAGE METHODOLOGY
Global Plain Vanilla Derivatives
Interest rate Interest rate swaps, bond forwards, bond options, swaptions, caps and floors
Proprietary zero coupon swap curves derived from network of contributed market rates. Broker quoted implied volatilities from interest rate option markets.
Credit Bond CDS, loan CDS, index CDS Credit spreads obtained from multiple broker/dealers and monitored by evaluation team.
Currency Options, spots, forwards Spot rates, forwards rates, and volatilities are obtained from contributing broker dealer network.
Equity Options Spot and historic prices directly from exchanges. Implied volatilities from listed options across all tenors and strike prices.
Commodity Forwards, options Spot and historic prices directly from exchanges. Historic and implied volatilities.
Global Exotic Derivatives
Interest rate Range accruals, structured swaps Proprietary zero coupon swap curves derived from network of contributed market rates.
Inflation Inflation caps/floors, inflation swaps
Broker quoted implied volatilities from interest rate option markets. Internal and external interest rate simulation models.
Credit Bond total return swaps, loan total return swaps
Underlying cash prices obtained from Thomson Reuters Pricing Service (TRPS).
Currency Swaps, baskets Spot rates, forwards rates, and volatilities are obtained from contributing broker dealer network.
Equity Total return swaps, barrier options, Asian options, binary options
Spot and historic prices directly from exchanges. Implied volatilities from listed options across all tenors and strike prices.
Chapter 1: Thomson Reuters Evaluated Pricing Asset Coverage and Methodology Overview
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ASSET CLASS COVERAGE METHODOLOGY
Commodity Total return swaps Spot and historic prices directly from exchanges.
Global Structured Notes
Interest rates Range accrual notes, CMS spread notes
Libor market models, Monte Carlo simulation.
Inflation Inflation linked notes Current and historic inflation rates from government statistical bureau.
Forward inflation points calculated from broker sourced break even rates.
Equity Equity linked notes, index linked notes
Spot and historic prices directly from exchanges.
Implied volatilities from listed options across all tenors and strike prices.
Correlations from internal and external analytical models.
Equity Reverse convertibles Price is the sum of the underlying note and short ‘down in’ put.
Credit Credit linked notes Underlying asset prices from dealer contributions and Thomson Reuters evaluation team. Credit risk determined by issuer CDS credit curve.
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Part II: Fixed Income Methodologies
Chapter 2: United States Treasuries Terms and Conditions
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2 United States Treasuries
Thomson Reuters provides end of day prices on all United States (US) Treasury securities. Treasury coverage includes: notes, bonds, T-bills, TIPS, and STRIPS. Each security is individually priced by incorporating the following information, techniques, and resources:
Terms and conditions in Thomson Reuters government and corporate database
Thomson Reuters evaluation staff
Dealer contribution network
Treasury pricing model
Market news from Thomson Reuters editorial staff
Quality control checks
Terms and Conditions
Treasury security terms and conditions are collected and maintained by Thomson Reuters government data staff, consisting of 9 full time analysts. Coverage starts on announcement date and is updated and completed on auction day.
New issue information is gathered from official documents released by the Federal Reserve. The information is then entered and updated, if necessary, into our database immediately.
Thomson Reuters Evaluation Staff
US Treasury securities are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as maintaining current spreads and speeds. They also maintain “street” contacts that enable them to obtain up-to-date market information.
Dealer Contribution Network
Thomson Reuters has a vast network of real time contributors of US Treasury prices. These contributors include primary and secondary dealers, as well as inter-dealer brokers.
Treasury Pricing Model
Thomson Reuters evaluation staff updates US Treasury prices throughout the day. The model incorporates real time on-the-run updates and dealer contributions. Evaluators compare the output with multiple price sources.
Chapter 2: United States Treasuries Market News
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Snapshots are taken at 15:00 and 16:00 ET. Evaluators perform several quality control checks to ensure pricing accuracy. These checks include yield curve analysis and broker quote comparisons. Final adjustments are made before prices are released to customers.
Market News
Thomson Reuters editorial staff covers all financial markets globally, including the US Treasury market. They have significant relationships with all dealer desks in major market locations. Evaluators are notified of all new issues, news stories, and credit events.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed for approval by the desk team leader before the prices are released to customers.
The following quality control tests are incorporated into the evaluation process:
Report Type Description
15:00 and 16:00 ET Tolerance Reports
Reports that list the current day’s prices and yields, as well as their respective movements on the day for all Treasury issues. Reports are checked by both the evaluator and desk manager for any final changes that might need to be made before the prices are released.
Yield Curve Analysis The Treasury pricing model allows evaluators to view yields on Treasury issues in logical order.
Manager Check A Thomson Reuters Pricing Service (TRPS) manager must approve Treasury price movements before the pricing cycle is completed.
Contributor Check A final check of prices between 15:10 and 15:30 ET against dealer sources before prices are released to customers.
Chapter 2: United States Treasuries Customer Service
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Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 3: United States Agency Debentures Terms and Conditions
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3 United States Agency Debentures
Thomson Reuters provides end of day prices on United States (US) agency debentures. Each security is individually priced by incorporating the following information, techniques, and resources:
Terms and conditions in Thomson Reuters government and corporate database
Thomson Reuters evaluation staff
Market data inputs
Thomson Reuters OAS pricing analytics
Market news from Thomson Reuters editorial staff
Quality control checks
Terms and Conditions
Agency terms and conditions are collected and maintained by Thomson Reuters government data staff, consisting of nine full time analysts. Coverage starts on announcement date – new issue information is initially obtained from contributors (ISMA, DTC, and CUSIP), dealers, and underwriters. Full terms and conditions are populated when available on the issuers’ website or when a prospectus is obtained. Analysts monitor these issues for any relevant changes or updates. All data is validated by more than 300 timeliness and accuracy checks.
Coverage includes the following asset classes:
FNMA, FHLMC, FHLB, FFCB, and TVA
Fixed Rate Bullet and Callable
Floating Rate Notes
Zero Coupon/Discount Notes
Step Up and Step Down Coupons
Thomson Reuters Evaluation Staff
US agency securities are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as maintaining current spreads and speeds. They also maintain “street” contacts that enable them to obtain up-to-date market information.
Market Data Inputs
Agency debentures are evaluated by using a spread to the US Treasury curve. All non-callable issues (e.g. bullet bonds, discount notes, and zero coupon bullets) are priced on a nominal spread basis incorporating the term structure of agency market spreads and the appropriate point along the risk free benchmark curve. Callable bonds with European, Bermudan, and American style options are priced using option adjusted spreads. Interest rate volatilities are incorporated with all OAS calculations (see the description below regarding OAS Pricing Analytics).
The market provides several inputs that can be used in the evaluation process. The hierarchy of inputs includes trade prices, the new issue market, swaption volatilities, broker quotes, and prices on comparable securities.
Chapter 3: United States Agency Debentures Thomson Reuters OAS Pricing Analytics
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Trade Prices: Thomson Reuters evaluators observe trade prices from a systematic feed from the FINRA TRACE reporting system into their pricing software. All trade prices are reviewed and scrutinized by the evaluation team. Trade inputs are assessed for impact by examination of execution time, trade size, and buy vs. sell. Seasoned evaluators use their knowledge and experience with trading patterns for individual issues, issuers, and sectors to determine if the trade data should be included in the evaluation process. For example, trades that are inconsistent with other color such as broker quotes may be excluded as a “fire sale transaction” or a short covering. Thresholds for exclusion can vary based upon current market conditions.
New Issue Market: The US agency debenture market is active and serves as a robust source of price discovery. New issues are observed on a daily basis. All new issues are actively priced by the evaluation team and these new levels help drive the pricing of secondary issues. New issue demand can be heavy. Evaluators must determine if new issue quotes accurately depict secondary levels by observing secondary trading and broker quotes.
Swaption Volatilities: All callable agency debentures are evaluated on an OAS basis. Interest rate volatilities are a key model input. Swaption volatilities are incorporated into the pricing model. These volatilities are observed from Thomson Reuters live data network which includes multiple dealer contributions. Evaluators may also reengineer volatilities from observed trade prices.
Broker/Dealer Quotes: Broker quotes are used to help validate model outputs and to determine the levels on thinly traded issues. The evaluation team is responsible for maintaining and growing the supply of broker/dealer quotes. Executable quotes are preferred but evaluators also examine bid wanted lists and general market quotes. Evaluators view executable quotes through direct access to online trading platforms such as Tradeweb. Offer and axe sheets are generally not considered as executable observations.
Comparable Securities: Evaluators maintain groups of comparable securities by issuer, tenor, call type, call exercise period, and other reference data and performance data attributes. Observed spreads on comparable securities can be used when there is a lack of directly observable information on a specific security.
Evaluators are responsible for reviewing all sources of observable inputs when determining the spread level used to calculate the fair value of agency securities. The actual weightings of specific inputs are based upon evaluator judgment. Not all sources or inputs are available each day.
Thomson Reuters OAS Pricing Analytics
All callable issues are priced on an option adjusted spread basis. Thomson Reuters OAS analytics uses a single factor binominal model based upon the Black-Derman-Toy (BDT) interest rate generation process which incorporates a 40-year US Treasury benchmark spot curve, constant interest rate volatility, and market spreads. Interest rate volatility is monitored from the swaptions market available on Thomson Reuters dealer contribution network.
OAS spreads are derived from observed market inputs including trade prices, the new issue market, and dealer quotations. All spreads are updated on a daily basis.
Market News
Thomson Reuters editorial staff covers all financial markets globally, including the US Agency market. They have significant relationships with all dealer desks in major market locations. Evaluators are notified of all new issues, news stories, and credit events.
Chapter 3: United States Agency Debentures Quality Control Checks
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Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed for approval by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Early Tolerance Report A daily report generated at 14:00 ET that flags bonds with significant moves on that day. All issues are researched before the final pricing process.
Tolerance Report A daily report that shows all bonds moving by more than a predetermined percentage.
Unchanged Report A daily report that alerts the evaluation team of any bond that has not changed in price in the last five business days. Evaluators attempt to obtain new broker quotes on these issues.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 4: Global Investment Grade Bonds Terms and Conditions
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4 Global Investment Grade Bonds
Thomson Reuters provides end of day prices on global investment grade bonds including fixed rate, floating rate, callable, zero coupon, covered bonds, and sinking fund issues. Each issue is priced by incorporating the following information, techniques, and resources:
Terms and conditions in Thomson Reuters government and corporate bond database
Thomson Reuters evaluation staff
Spreads derived from observable market inputs
Market news and sentiment from Thomson Reuters editorial staff
Quality control checks
Terms and Conditions
Security terms and conditions are collected and maintained by Thomson Reuters global fixed income data collection team. Coverage includes:
Credit ratings of issuers
Amount issued/outstanding
Deal underwriters
Call/put schedules
Coupon, reset specifications, maturity, and all significant reference data
New issue information is gathered from official prospectuses and offering documents obtained from public document libraries and underwriter solicitation. Data accuracy is assured and measured by more than 300 timeliness and accuracy checks.
Thomson Reuters Evaluation Staff
Investment grade corporate bonds are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as maintaining current yield spreads, discount margins, and performance projections. They also maintain “street” contacts that enable them to obtain up-to-date market information. TRPS has multiple offices in Asia, Europe, and North America.
Market Data Inputs
Investment grade fixed income securities are evaluated by using a spread to a benchmark curve. Benchmark curves are selected based upon market convention for each asset type. The market provides several inputs that can be used in the evaluation process. The hierarchy of inputs includes trade prices, broker quotes, the new issue market, and comparable securities. The list below describes these inputs in detail.
Chapter 4: Global Investment Grade Bonds Market News
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It is important to note that periods of illiquidity can constrain the amount of market data available. However, even under normal market conditions, typically only a fraction of the outstanding issues actually trade or appear in any market data (because fixed income is typically a buy and hold asset class). The evaluated pricing process has evolved under conditions of general information scarcity and utilizes the hierarchy of inputs and correlations to comparable issues to provide a basis for ongoing evaluated prices. Regardless of liquidity, there are always benchmark rates available (such as Treasury and Libor) and; while there may be less trading, dealers still provide quotes and make markets, albeit at wider spreads, during periods of market distress.
Trade Prices: Thomson Reuters evaluators observe trade prices from a systematic feed from the FINRA TRACE reporting system into their pricing software. All trade prices are reviewed and scrutinized by the evaluation team. Trade inputs are assessed for impact by examination of execution time, trade size, and buy vs. sell. Seasoned evaluators use their knowledge and experience with trading patterns for individual issues, issuers, and sectors to determine if the trade data should be included in the evaluation process. For example, trades that are inconsistent with other color such as broker quotes may be excluded as a “fire sale transaction” or a short covering. Thresholds for exclusion can vary based upon current market conditions.
Broker/Dealer Quotes: Thomson Reuters has relationships with all the major broker/dealers who supply pricing levels and market information. The evaluation team is responsible for maintaining and growing the supply of broker/dealer quotes. Executable quotes are live tradable markets. Executable quotes are preferred inputs for most pricing processes but are typically not available for all but a few issues. Accordingly, evaluators also examine bid wanted lists and general market quotes. While this data is not “executable” it is still valuable as an input. Evaluators view executable quotes via direct access to online trading platforms such as Tradeweb. Offer and axe sheets are examples of market quotes generally not considered to be executable observations (because dealers are not beholden to those prices, issues, or quantities due to interim sales and market movements).
New Issue Market: For active markets, new issue price discovery is a source of most current spread information. Price talk and deal levels are viewed as barometers by the market and establish reference points for comparison to seasoned issues. Market data related to seasoned issues is captured through trade prices, broker quotes, and comparable securities.
Comparable Securities: Evaluators maintain groups of comparable securities by issuer, industry, credit rating, and other reference data and performance data attributes. Observed spreads on comparable securities can be used in conjunction with directly observable information for a specific security to determine evaluated price levels.
Evaluators are responsible for reviewing all sources of observable inputs when determining the spread level used to calculate an evaluated price for a global investment grade corporate security. The actual weightings of specific inputs are based upon evaluator judgment. Not all sources or inputs are available each day.
Market News
Thomson Reuters editorial staff covers financial markets globally. They have significant relationships with all dealer desks in major market locations. Evaluators are notified of all new issues, news stories, and credit events.
Chapter 4: Global Investment Grade Bonds Quality Control Checks
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Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator before released to customers. Issues that are systematically flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Stale Contributor Report A monthly report that tracks prices from Thomson Reuters Pricing Service (TRPS) contributors. This report compares prices on a monthly basis to ensure that all contributors are keeping their prices up to date. Stale prices are investigated.
Unchanged Report A daily report that alerts the evaluation team to any bond that has not changed in price in the last five business days. Evaluators must obtain new market data (usually broker quotes) on these issues to continue pricing these issues.
Tolerance Report A daily report that shows all bonds moving by more than a predetermined percentage. Investment corporate bonds that exceed a 2% change must be approved by the evaluation desk before final release to customers.
Price Challenge Process as a Quality Control
Thomson Reuters provides clients with the ability to “challenge” our evaluated prices. Any client can submit a challenge with supporting market data including trades, quotes, or other market data for the exact security being challenged or one considered sufficiently comparable to be relevant to the challenged security. All such supporting data must be verified or corroborated by the evaluator. Challenges are systematically logged and tracked by management for trends or potential problems. The challenge process is taken very seriously by TRPS as our large client base provides a valuable “negative feedback loop” that contributes significant additional inputs to the pricing process.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 5: Canadian Bonds Terms and Conditions
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5 Canadian Bonds
Thomson Reuters provides end of day prices on Canadian bonds including corporate, municipals, STRIPS, Canadian Government, preferreds, and provincials. Each issue is individually priced by incorporating the following information, techniques, and resources:
Terms and conditions in Thomson Reuters government and corporate bond database
Thomson Reuters evaluation staff
Spreads derived from observable market Inputs
Market news from Thomson Reuters editorial staff
Quality control checks
Terms and Conditions
Canadian security terms and conditions are collected and maintained by Thomson Reuters full time data staff. Coverage includes:
Credit ratings of issuers
Amount issued/outstanding
Deal underwriters
Call/put schedules
Coupon, maturity, and all significant reference data
New issue information is gathered from official prospectuses and offering documents obtained from public document libraries and underwriter solicitation. All data must pass multiple quality checks to ensure consistency and accuracy.
Thomson Reuters Evaluation Staff
Canadian securities are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as maintaining current spreads and speeds. They also maintain “street” contacts that enable them to obtain up-to-date market information. TRPS has multiple offices in Asia, Europe, and North America.
Spreads Derived from Market Data Inputs
Canadian securities are evaluated by using a spread to a benchmark curve. Benchmark curves are selected based upon market convention for each asset type. The market provides several inputs that can be used in the evaluation process. The hierarchy of inputs includes broker quotes, the new issue market, and comparable securities. The list below describes these inputs in detail.
It is important to note that periods of illiquidity can constrain the amount of market data available. However, even under normal market conditions, typically only a fraction of the outstanding issues actually trade or appear in any market data (because fixed income is typically a buy and hold asset class). The evaluated pricing process has evolved under conditions of general information scarcity and utilizes the hierarchy of inputs and correlations to comparable issues to provide a basis for ongoing evaluated prices. Regardless of liquidity, there are always benchmark rates available (CAD government curve) and while there may be less trading, dealers still provide quotes and make markets, albeit at wider spreads, during periods of market distress.
Chapter 5: Canadian Bonds Market News
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Broker/Dealer Quotes: Thomson Reuters has relationships with all major broker/dealers who supply pricing levels and market information. The evaluation team is responsible for maintaining and growing the supply of broker/dealer quotes. Executable quotes are live tradable markets and are preferred inputs for most pricing processes. Due to the number of contributors that TRPS receives real time, TRPS is able to maintain accurate and timely pricing for quoted and non-quoted issues. Accordingly, evaluators also examine current bid indications from the dealer community. While this data is not “executable” it is still valuable as an input. Evaluators view executable quotes via direct access to online trading platforms such as Candeal and Canpx. Offer and axe sheets are examples of market quotes generally not considered to be executable observations (because dealers are not beholden to those prices, issues, or quantities due to interim sales and market movements). Seasoned evaluators use their knowledge and experience with trading patterns for individual issues, issuers, and sectors to determine if the trade data should be included in the evaluation process. For example, contributed prices that are inconsistent with other color such as broker quotes may be excluded as a “fire sale transaction” or a short covering. Thresholds for exclusion can vary based upon current market conditions.
New Issue Market: For active markets, new issue price discovery is a source of most current spread information. Price talk and deal levels are viewed as barometers by the market and establish reference points for comparison to seasoned issues. Market data related to seasoned issues is captured through trade prices, broker quotes, and comparable securities.
Comparable Securities: Evaluators maintain groups of comparable securities by issuer, industry, credit rating, and other reference data and performance data attributes. Observed spreads on comparable securities can be used in conjunction with directly observable information for a specific security to determine evaluated price levels.
Evaluators are responsible for reviewing all sources of observable inputs when determining the spread level used to calculate an evaluated price for a security. The actual weightings of specific inputs are based upon evaluator judgment. Not all sources or inputs are available each day.
Market News
Thomson Reuters editorial staff covers all financial markets globally, including the Canadian bond market. They have significant relationships with all dealer desks in major market locations. Evaluators are notified of all new issues, news stories, and credit events.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Unchanged Report A daily report that alerts the evaluation team to any bond that has not changed in price in the last five business days. Evaluators attempt to obtain new broker quotes on these issues.
Tolerance Report A daily report that shows all bonds moving by more than a predetermined percentage.
Chapter 5: Canadian Bonds Customer Service
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Report Type Description
Stale Contributor Report A monthly report that tracks prices from Thomson Reuters Pricing Service (TRPS) contributors. This report compares prices on a monthly basis to ensure that all contributors are keeping their prices up to date. Prices that are stale are investigated further for news about mergers and acquisitions, or any other information that might have led to a stale price.
Vendor Price Comparison Report
A real time report that enables the Evaluator to view all real time quotes on a particular issue. Any discrepancies or outliers that fall out of tolerance are flagged and reviewed by the Evaluator.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 6: Global High Yield Bonds Terms and Conditions
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6 Global High Yield Bonds
Thomson Reuters provides evaluated prices for global high yield corporate bonds and preferred stocks. Each issuance is individually priced by incorporating the following information, techniques, and resources:
Terms and conditions contained in Thomson Reuters corporate bond database
Thomson Reuters evaluation staff
Market data including dealer quotes and trade prices
Market information from Thomson Reuters News
Quality control checks
Terms and Conditions
High yield security terms and conditions are collected and maintained by Thomson Reuters full time data staff. Coverage includes:
Full descriptions, coupons, maturities, and covenants
Issuer credit ratings
Amount issued/outstanding
Deal underwriters
Call/put schedules
Pay in kind and toggle bonds
New issue information is gathered from official prospectuses and offering documents obtained from public document libraries and underwriter solicitation. All data is assessed and quality measured by more than 300 timeliness and accuracy checks. These checks include new issue timeliness, the accuracy of key fields such as coupon, maturity, and floating rate formulas. All bonds are scored based upon reference data completeness. A score of 1 indicates that only skeletal data is available; a score of 5 indicates complete terms. Bonds are generally not evaluated unless the score is 4 or higher.
Thomson Reuters Evaluation Staff
High yield securities are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as maintaining current spreads and speeds. They also maintain “street” contacts that enable them to obtain up-to-date market information.
Market Data
All high yield securities are individually evaluated by the evaluation staff using broker quotes, Thomson Reuters terms and conditions, and real time market data, such as Trade Reporting and Compliance Engine (TRACE). Evaluators review TRACE prints with other market information to determine the most current bid and offer price. The list below describes the hierarchy of inputs that can be used in a high yield evaluation.
Chapter 6: Global High Yield Bonds Market News
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Broker Quotes: Most high yield issues are priced by dealer quote. Executable quotes are preferred, but evaluators also view bid wanted lists and general market quotes. Executable quotes are observed on online trading platforms such as Tradeweb. Offer and axe sheets are generally not considered executable quotes. TRPS receives broker runs from market participants throughout the trading day. Evaluators examine all available quotes and choose the most accurate based upon parameters such as underwriter status, historical reliability, time of quote, and quote size. Thomson Reuters has relationships with over 50 broker/dealers who supply pricing levels and market information. The evaluation team is responsible for maintaining and growing these relationships. In addition, Thomson Reuters maintains an electronic dealer contribution network that supplies prices through its desktop products. Evaluators are able to use these contributions to confirm evaluated prices.
Trade Prices: Thomson Reuters US based evaluators observe trade prices from a systematic feed from the FINRA TRACE reporting system into their pricing software. All round lot trade prices are reviewed and scrutinized by the evaluation team. Trade inputs are assessed for impact by examination of execution time, trade size, and buy vs. sell. Evaluators use their experience of trading patterns for individual issues, issuers, and sectors to determine if the trade data should be included in the evaluation process. For example, trades that are inconsistent with other color such as broker quotes may be excluded as a “fire sale transaction” or a short covering and therefore not indicative of true market levels. Thresholds for inclusion or exclusion can vary based upon current market conditions.
Comparable Securities: High yield issues not quoted by the broker/dealer community are evaluated using assumptions based upon observable market data. This market data includes yields on bonds from the same issuer or industry. High yield issues are grouped into sectors, allowing evaluators to easily compare securities in the same industry.
New Issue Market: Price talk and deal levels are viewed as barometers by the market and establish reference points for comparison to seasoned issues. Market data related to new issues are captured through trade prices, broker quotes, and comparable securities.
Evaluators are responsible for reviewing all sources of observable inputs when determining the pricing level used for a global high yield corporate security. The actual weightings of specific inputs are based upon evaluator judgment and can vary over time. Not all sources or inputs are available each day.
Market News
Thomson Reuters news staff covers all financial markets globally, including high yield bonds and listed preferred stocks. They have significant relationships with dealer desks in major market locations. Evaluators are notified of all new issues, news stories, and credit events.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed each day by the assigned evaluator. Issues with prices that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Stale Contributor Report A monthly report that tracks prices from Thomson Reuters Pricing Service (TRPS) contributors. This report compares prices on a monthly basis to ensure that all contributors are keeping their prices up to date. Prices that are stale are investigated further for information that might have led to a stale price.
Unchanged Report A daily report that alerts the evaluation team to any bond that has not changed in price in the last five business days. Evaluators are required to obtain new market data or broker quotes on these issues.
Chapter 6: Global High Yield Bonds Customer Service
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Report Type Description
Tolerance Report A daily report that shows all bonds moving by more than a predetermined percentage. High yield bonds that exceed a 2% change must be approved by the evaluation desk before final release to customers. The 2% tolerance on price movement is subject to change due to market conditions.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 7: Convertible Bonds & Convertible Preferred Stocks Terms and Conditions
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7 Convertible Bonds & Convertible Preferred Stocks
Thomson Reuters Pricing Service (TRPS) provides end of day prices for over 1,500 convertible bonds and convertible preferred stocks. TRPS evaluates each issuance individually, providing extensive coverage to meet our clients’ investment needs and professional requirements.
Our evaluated pricing is provided by a team of experts located around the globe who are in constant contact with market participants. Evaluators are specialized in each of their respective asset classes, responsible for gathering up-to-date market news and activity along with maintaining an active network for market data and quotes.
Each issuance is individually priced by our evaluation staff incorporating the following:
Terms and conditions
Market data Inputs
TRPS Convertible Pricing Model
Market news and activity
Quality control checks
Terms and Conditions
Convertible security terms and conditions are collected and maintained from sources including official prospectuses and offering documents obtained from public document libraries, underwriters, exchange listed feeds, as well as a wide range of external sources. Coverage includes:
Conversion price and ratios
Underlying equity tickers
Credit ratings of issuer
Amount issued/outstanding
Deal underwriters
Option details including call/put schedules
Convertibility features
New issue information is updated daily and undergoes multiple quality checks to ensure data accuracy and validity.
Market Data Inputs
The hierarchy of inputs used within our models includes broker quotes, TRACE activity, spot price of the underlying shares, delta sensitivity, comparable securities, and theoretical pricing.
Detailed methodologies on our hierarchy are as follows:
Broker/Dealer Quotes: The convertible team maintains a vast broker/dealer network across the globe, who supplies real time and end of day market indications and information on convertible securities. Thomson Reuters also maintains an electronic dealer contribution platform that supplies prices and market information through its desktop products. Evaluators are able to synchronize and analyze these contributions within our proprietary models to provide clients with an accurate and objective market price. Broker quotes used within evaluation are continuously assessed for reasonableness to identify and isolate inaccurate data.
Chapter 7: Convertible Bonds & Convertible Preferred Stocks Thomson Reuters Pricing Model
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TRACE Activity: Evaluators have access to a real time systematic feed from the FINRA TRACE reporting system that is fed directly into the pricing models. Trade inputs are assessed based on recency (i.e. trade times), trade size relative to overall issue volume activity, as well as buy vs. sell side of the market. Evaluators use their experience and knowledge with trading patterns for individual issues, issuers, and sectors to assess the validity and accuracy of input trade data. Thresholds for exclusion can vary based upon current market conditions and activity. Trade inputs and the convertibles “moneyness” determine the weight of the trades vs. broker color.
Spot Price on the Underlying Shares: Real time equity prices are also extracted directly into the pricing models in order to reflect the most accurate evaluated price at any point in time. Any observed movement in the underlying shares is used to measure the movement of the bond in relation to other inputs.
Delta Sensitivity: The convertible delta is the bond’s price sensitivity to movements in the underlying share price. This allows evaluators to understand the theoretical price change of the bond. Expressions such as ‘out of’, ‘at’, and ‘in the money’ are used in reference to the stock and the conversion price of the bond. Depending on the status of the bond, equity sensitivity is adjusted to capture the most accurate trajectory for the convertible. For example, distressed debt or “junk” convertibles usually do not have a high sensitivity to the delta calculation; they trade more like regular fixed income debt and thus the appropriate adjustments are reflected in our models.
Comparable Securities: Evaluators have access to and maintain groups of comparable securities qualified by issuer, industry, credit rating, coupon, maturity, and other reference data and performance data attributes. These securities can be used to price bonds that may not be quoted by the broker/dealer community.
Theoretical pricing: Securities that have no available broker quotes are priced by evaluators by tapping into financial libraries along with using theoretical assumptions based upon observable market data. Theoretical pricing comprises of the following inputs: bond floor, volatility of exchange based options, risk free rates, and yields on comparables to calculate the theoretical price of a convertible bond.
Thomson Reuters Pricing Model
All convertible securities are individually evaluated using TRPS proprietary pricing models, which have been stress-tested to handle large volumes and extreme market conditions. The pricing models are dynamic and are updated daily to capture real time market movement for convertible bonds. They incorporate broker/dealer quotes and relevant TRACE bids (as selected by the evaluation staff) for accuracy, consistency, underlying terms and conditions, and real time market data including but not limited to equity prices and risk free rates.
Most convertibles are priced using a large array of active dealer quotes. Evaluators test all available quote sources for historical reliability, generally lending higher relative weight to issue underwriter quotes, and perform stale price checks prior to using them within our models. Adjustments are dependent upon the frequency of the source’s contribution along with supporting market activity and news. Models also calculate and reflect delta sensitivity for each bond in relation to the equity and conversion price.
Real Time Market News & Activity
Thomson Reuters editorial staff covers all financial markets globally, including the convertible market. They have significant relationships with all dealer desks in major market locations and evaluators are promptly notified of all new issues, news stories, and credit events.
Chapter 7: Convertible Bonds & Convertible Preferred Stocks Quality Control Checks
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Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy and reliability. All issues are reviewed by the assigned evaluator on a daily basis and prior to each release cycle. Prices that are flagged as outliers must also be reviewed by the desk team leader before they are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Unchanged Report A daily report that alerts the evaluation team of any price that has not changed in the last seven business days. Evaluators are responsible for checking each of these issues and providing color regarding the price both internally and externally. Typical reasons for unchanged quotes and prices include cash conversion, mergers and acquisitions, and illiquid issues marked to trades.
Tolerance Report A daily report that computes daily bond movements by more than a predetermined percentage, which is currently at >3%; but can be adjusted as per market conditions. Evaluators are responsible for providing detailed and enhanced color/justification regarding large price jumps/movements.
The designated desk leader or manager also approves large movements prior to prices being released to their appropriate desktop products.
Stale Contributor Report A monthly report that tracks prices from all TRPS contributions to ensure quotes validity and identify outliers. This report compares prices on a monthly and weekly basis to ensure our broker/dealer quotes are up to date and movement correlates with existing market data. Prices/sources that may be stale are investigated further for news regarding mergers, cash conversions, liquidity, or any other news to confirm accuracy.
Movement & Parity Report Prior to each pricing cycle, evaluators are responsible for checking the convertible’s price in relation to parity (conversion value).
Contributor Report A daily check within each pricing model that catches any new issues/securities added to our contributor files. The team is responsible for maintaining and expanding their market coverage of convertibles and aims to price securities as soon as they are issued.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 7: Convertible Bonds & Convertible Preferred Stocks Customer Service
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TRPS aims to provide transparent, independent and accurate pricing, using tools and models surpassing market standards and requirements. Our evaluations aim to provide clients with pricing for securities that may not have any market activity, thus making us a vital and objective source in the space. The quality and level of expertise delivered by our team is the core strength of our business model, aimed to deliver and evaluate a large array of complex instruments.
Chapter 8: Emerging Markets Terms and Conditions
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8 Emerging Markets
Thomson Reuters provides evaluated prices for emerging market investment grade and non-investment grade bonds, including fixed rate, floating rate, callable, zero coupon, covered bonds, and sinking fund issues. Each issue is individually priced by incorporating the following information, techniques, and resources:
Terms and conditions in Thomson Reuters corporate bond database
Thomson Reuters evaluation staff
Market data including broker quotes and trade prices
Thomson Reuters proprietary bond model
Market news from Thomson Reuters editorial staff
Quality control checks
Terms and Conditions
Security terms and conditions are collected and maintained by Thomson Reuters full time data staff. Coverage includes:
Full descriptions, coupons, maturities, and covenants
Issuer credit ratings
Amount issued/outstanding
Deal underwriters
Call/put schedules
Coupon, maturity, and all significant reference data
New issue information is gathered from official prospectuses and offering documents obtained from public document libraries and underwriter solicitation. All data must pass multiple quality checks to ensure consistency and accuracy. These checks include new issue timeliness, the accuracy of key fields such as coupon, maturity, and floating rate formulas. All bonds are scored based upon reference data completeness. A score of 1 indicates that only skeletal data is available; a score of 5 indicates complete terms. Bonds are generally not evaluated unless the score is 4 or higher.
Some of the countries covered by the global team are as follows:
Latin America: Argentina, Brazil, Chile, Columbia, Costa Rica, Ecuador, Guatemala, Mexico, Peru, Uruguay, and Venezuela.
Central, Southern, and Eastern Europe: Russia, Belarus, Czech Republic, Georgia, Greece, Hungary, Latvia, Poland, Romania, Serbia, and Ukraine.
Middle East and Central Asia: Algeria, Bahrain, Dubai, Egypt, Jordan, Kazakhstan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, Turkey, and UAE.
Sub-Saharan Africa: Botswana, Ghana, Kenya, Mauritius, Nigeria, South Africa, Tanzania, Uganda, and Zambia.
Chapter 8: Emerging Markets Thomson Reuters Evaluation Staff
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Thomson Reuters Evaluation Staff
Emerging market corporate bonds are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is responsible for gathering market color, pricing a sector of bonds, and performing quality control checks. TRPS has multiple offices in Asia, Europe, and North America.
Market Sources and Contributed Pricing
In order to provide accurate evaluations, TRPS evaluators incorporate multiple market sources. The main sources of market prices and spreads are:
Broker Quotes: Most issues are priced by dealer quote. Executable quotes are preferred, but evaluators also view bid wanted lists and general market quotes. Executable quotes are observed on online trading platforms such as Tradeweb. Offer and axe sheets are generally not considered executable quotes. TRPS receives broker runs from market participants throughout the trading day. Evaluators examine all available quotes and choose the most accurate based upon parameters such as underwriter status, historical reliability, time of quote, and quote size. Thomson Reuters has relationships with over 50 broker/dealers who supply pricing levels and market information. The evaluation team is responsible for maintaining and growing these relationships. In addition, Thomson Reuters maintains an electronic dealer contribution network that supplies prices through its desktop products. Evaluators are able to use these contributions to confirm evaluated prices.
Trade Prices: Thomson Reuters evaluators observe trade prices from a systematic feed from the FINRA TRACE reporting system into their pricing software. All round lot trade prices are reviewed and scrutinized by the evaluation team. Trade inputs are assessed for impact by examination of execution time, trade size, and buy vs. sell. Seasoned evaluators use their experience and knowledge of trading patterns for individual issues, issuers, and sectors to determine if the trade data should be included in the evaluation process. For example, trades that are inconsistent with other color such as broker quotes may be excluded as a “fire sale transaction” or a short covering and therefore not indicative of true market levels. Thresholds for inclusion or exclusion can vary based upon current market conditions.
Comparable Securities: Issues not quoted by the broker/dealer community are evaluated using assumptions based upon observable market data. This market data includes yields on bonds from the same issuer or industry. Issues are divided by country, industry and sector, allowing evaluators to easily compare illiquid issues with similar characteristics.
New Issue Market: Price talk and deal levels are viewed as barometers by the market and establish reference points for comparison to seasoned issues. Market data related to new issues are captured through trade prices, broker quotes, and comparable securities.
Evaluators are responsible for reviewing all sources of observable inputs when determining the pricing level for emerging market securities. The actual weightings of specific inputs are based upon evaluator judgment and can vary over time. Not all sources or inputs are available each day.
Thomson Reuters Proprietary Bond Model
The Thomson Reuters pricing application combines an evaluator interface with Adfin analytics (Adfin is a Thomson Reuters company that provides the financial industry with financial calculation software). Evaluators are able to enter appropriate discount margins for floating rate notes, spreads for investment grade fixed rate issues, and actual quotes on high yield issues from contributing broker dealers. Final prices are calculated using the latest benchmark rate, spread/margin, and quotes from Adfin’s global calculation library which incorporates all conventions from the appropriate market and country of issuance.
Chapter 8: Emerging Markets Market News
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Market News
Thomson Reuters editorial staff covers all financial markets globally. They have significant relationships with dealer desks in major market locations. Evaluators are notified of all new issuances, news stories, and credit events through Thomson Reuters products and via internal email and messaging systems.
Quality Control
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues with prices that are flagged as outliers must be viewed by the assigned evaluator, as well as the desk team leader, before prices are released to customers. There are three separate exception reports used in the quality control process:
Report Type Description
Stale Contributor Report A monthly report that tracks prices from Thomson Reuters Pricing Service (TRPS) contributors. This report compares prices on a monthly basis to ensure that all contributors are keeping their prices up to date. Prices that are stale are investigated further for information that might have led to a stale price.
Unchanged Report A daily report that alerts the evaluation team to any bond that has not changed in price in the last five business days. Evaluators are required to obtain new market data or broker quotes on these issues.
Tolerance Report A daily report that shows all bonds moving by more than a predetermined percentage. High yield bonds that exceed a 2% change must be approved by the evaluation desk before final release to customers. The 2% tolerance on price movement is subject to change due to market conditions.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 9: Syndicated Bank Loans Terms and Conditions
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9 Syndicated Bank Loans
Thomson Reuters provides end of day composite prices (LSTA/TRLPC Mark-to-Market Pricing) on Global Syndicated Bank Loans. Each loan is individually priced by incorporating the following information, techniques, and resources:
Terms and conditions in Thomson Reuters Bank Loan (LPC) database
Thomson Reuters Pricing Service (TRPS) staff located in New York City and London
Observable market data including broker quotes and trade prices
Thomson Reuters proprietary loan analytics
Strategic partnership with the Loan Syndications and Trading Association (LSTA)
News from Thomson Reuters/Loan Pricing editorial staff
Quality control checks
Terms and Conditions
Bank Loan terms and conditions are sourced from SEC filings, dealer league table contributions, and Thomson Reuters News editorial staff. Over 200 fields are added for each deal in the Thomson Reuters Bank Loan database. The database is maintained by 18 staff members located in New York City, London, Hong Kong, and Bangalore. Most new issues are added within one business day of issuance. Each deal is entered by two separate analysts and subsequently compared to ensure the highest data quality. Dynamic data, such as issue level ratings, are also maintained. Thomson Reuters Bank Loan database currently contains over 100,000 active deals.
Thomson Reuters Evaluation Staff
Bank Loans are priced within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each Bank Loan evaluator has expertise in one or more sectors, and is responsible for gathering quotes from dealers. Evaluators also maintain “street” contacts that enable them to obtain up-to-date market information.
Market Data
All Bank Loans are individually evaluated by the evaluation staff using broker quotes. An average price is created by incorporating multiple broker quotes on the universe of facilities from the Thomson Reuters network of over 40 loan brokers and dealers globally. Bank Loan quotes are obtained daily. The list below describes the hierarchy of inputs that can be used in a Bank Loan evaluation:
Broker Quotes: All bank loans are priced by dealer quote. Most observable quotes are dealer indications provided by LSTA member firms. The evaluation team determines if these quotes reflect an accurate market value by using the following criteria:
Lead Manager: The lead manager is often the most reliable quote source, providing active markets, especially in new issues.
Two Sided Markets: Brokers who present a two side market (bid and ask) tend to be more active market makers and therefore generally are better sources.
Historical Accuracy: Evaluators determine which brokers are “accurate” (on a deal by deal basis) based primarily on a broker’s frequency of updates and a comparison of executed trades to quoted levels.
Chapter 9: Syndicated Bank Loans Proprietary Loan Analytics
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Trade Prices: Thomson Reuters US based evaluators observe trade prices from buy-side firms. Buy-side customers often communicate transaction prices to TRPS. TRPS does not use these prices as inputs, but compares the values to broker quotes received to help assess the ongoing quality of the broker quotes.
The LSTA performs a quarterly trade study comparing TRPS prices to secondary market trades. Results of the study are shared with TRPS and LSTA members. TRPS uses the output to assess the quality of Bank Loan prices.
New Issue Market: Price talk and deal levels are viewed as barometers by the market and serve to establish reference points for comparison to seasoned issues. Market data related to new issues is captured through trade prices, broker quotes, and comparable securities.
Proprietary Loan Analytics
Thomson Reuters maintains a database of loan analytics that help evaluators determine prices for certain issues in the absence of active dealer quotes. The analytics are compiled from more than 7,500 actual broker contributions, received on a daily basis. Average prices, spreads, and market movements can be viewed based upon rating and industry. Evaluators will assign the market spread based upon an issue’s risk characteristics by a comparison to issues with similar ratings, covenants, and industry classification.
Strategic Partnership with the LSTA
In the United States, Thomson Reuters has a contractual strategic partnership with the LSTA, who serves as the lead governing body and advocate for the US syndicated loan market. The LSTA has over 200 buy and sell side members, most of whom are pricing service clients of Thomson Reuters. LSTA sell side members provide daily marks to Thomson Reuters for use in daily aggregate pricing. The Mark-to-Market Trade Data & Pricing Accuracy Survey is highly anticipated by the market as a key benchmark of valuation precision and transparency.
Market News
The Thomson Reuters editorial staff covers all financial markets globally. Fifteen journalists around the world cover the syndicated bank loan market. They have significant relationships with dealer desks in major market locations. Evaluators are notified of all new issues, news stories, and credit events. Evaluators pay special attention to these credits by obtaining multiple quotes, as late in the day as possible. In the case of volatile markets, evaluators have the ability to move entire sectors, if appropriate.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed each day by the assigned evaluator. Issues with prices that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Intraday Movers Report Developed in conjunction with the LSTA, we statistically segment out parts of the market, proactively evaluate which loan prices are outliers, and remove the broker quote until it becomes more in line with the market.
Tolerance Report A daily report that shows all loans moving by more than 2% compared to the previous price.
Chapter 9: Syndicated Bank Loans Customer Service
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Report Type Description
Unchanged Report A daily report that alerts the evaluation team of any stale loan quotes. Evaluators are required to request new broker quotes on these issues.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 10: Municipal Bonds Terms and Conditions
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10 Municipal Bonds
Thomson Reuters provides end of day prices for municipal bonds. Coverage includes investment grade and high yield bonds including the following structures: fixed rate, zero coupon, callable, puttable, serial bonds, adjustable rate, and certain derivatives. Each issue is priced by incorporating its individual characteristics using the following information, techniques, and resources:
Terms and conditions from the Mergent municipal bond database
Thomson Reuters evaluation staff
Observable market data
Proprietary credit curves and attributes
Market news
Quality control checks
Terms and Conditions
Full terms and conditions are collected and maintained by Mergent, a leading provider of municipal market data. Mergent’s coverage includes credit ratings, issuer and issue level data, amount issued/outstanding, deal underwriters, call/put sinking fund schedules, coupon, maturity, and all significant reference data.
New issue information is gathered from official prospectuses, offering documents, and electronic feeds obtained from public document libraries as well as direct underwriter solicitation.
Thomson Reuters Evaluation Staff
Municipal securities are evaluated within Thomson Reuters Pricing Service (TRPS), a group of over 150 professionals with trading, sales, analytics, and evaluation backgrounds. Municipal bond evaluators are organized by market sector (investment grade and high yield) and are responsible for gathering quotes, reviewing trades, and updating credit curves daily. They also maintain “street” contacts that enable them to obtain up-to-date market information. Thomson Reuters has relationships with major broker/dealers, buy side participants, and inter-dealer brokers, who supply pricing levels and market information. The evaluation team is responsible for maintaining and expanding (as necessary) these “street” relationships.
Market Data Inputs
Municipal securities are evaluated using an attribute-based modeling system driven by and calibrated by observable market data. Muni sector curves (typically called “scales” in the muni market) are constructed by evaluators based upon observed market data. The market provides several inputs that can be used in the evaluation process. The hierarchy of inputs includes trade prices, broker quotes, the new issue market, and comparable securities. The list below describes these inputs in detail.
It is important to note that periods of illiquidity can constrain the amount of market data available. However, even under normal market conditions, typically only a fraction of the outstanding issues actually trade or appear in any market data (because fixed income, especially municipal bonds, is typically a buy and hold asset class). The evaluated pricing process has evolved under conditions of general information scarcity and utilizes the hierarchy of inputs and correlations to comparable issues to provide a basis for ongoing evaluated prices. Regardless of liquidity, there are always benchmark rates available (such as the MMD AAA curve) and while there may be less trading, dealers still provide quotes and make markets.
Chapter 10: Municipal Bonds Market Data Inputs
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Trade Prices: Thomson Reuters evaluators observe trade prices from a systematic feed from the MSRB Emma reporting system. Trade prices are reviewed and scrutinized by the evaluation team. Trade inputs are assessed for impact by examination of execution time, trade size, and buy vs. sell. Seasoned evaluators use their knowledge and experience with trading patterns for individual issues, issuers, and sectors to determine if the trade data should be included in the evaluation process. For example, trades that are inconsistent with other color such as broker quotes may be excluded as a “fire sale transaction”. Thresholds for exclusion can vary based upon current market conditions.
Broker/Dealer Quotes: Thomson Reuters has relationships with major broker/dealers who supply pricing levels and market information. The evaluation team is responsible for maintaining and growing the supply of broker/dealer quotes. Executable quotes are live tradable markets. Executable quotes are preferred inputs for most pricing processes but are typically not available for all but a few issues. Accordingly, evaluators also examine bid wanted lists and general market quotes. While this data is not “executable” it is still valuable as an input. Offer and axe sheets are examples of market quotes generally not considered to be executable observations (because dealers are not beholden to those prices, issues, or quantities due to interim sales and market movements).
New Issue Market: For the muni market, new issue price discovery is a source of valuable current spread information. Price talk and deal levels are viewed as barometers by the market and establish reference points for comparison to seasoned issues. Market data related to seasoned issues is captured through trade prices, broker quotes, and comparable securities.
Comparable Securities: Evaluators maintain groups of comparable securities by issuer, industry, credit rating, and other reference data and performance data attributes. Observed spreads on comparable securities can be used in conjunction with directly observable information for a specific security to determine evaluated price levels.
Evaluators are responsible for reviewing all sources of observable inputs when determining the curve levels for each municipal sector. The actual weightings of specific inputs are based upon evaluator judgment. Not all sources or inputs are available every day.
Chapter 10: Municipal Bonds Proprietary Credit Curves and Attributes
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Proprietary Credit Curves and Attributes
The foundation for Thomson Reuters municipal evaluations is a credit curve attribute model. All issues are evaluated based upon attributes including (but not limited to) sector/type, credit rating, coupon, maturity, use of proceeds, and redemption schedules. Quotes are obtained from the observable inputs listed in the previous section. Bonds are grouped by sector allowing evaluators to easily compare similar issues. Municipal evaluators create proprietary credit curves for each group every day. These curves drive the pricing model. All inputs are examined to validate macro and micro adjustments. Each bond is priced using the most appropriate credit curve, and adjusted for its individual attributes.
Municipal Market Data Yield Curves
Market News
Thomson Reuters municipal evaluations desk uses a variety of news sources generally recognized as authoritative by the muni market including The Bond Buyer, Thomson Reuters News services, and Municipal Market Data News ticker, as well as other major news sources.
Chapter 10: Municipal Bonds Quality Control Checks
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Quality Control Checks
The following quality control tests are incorporated into the evaluation process:
Report Type Description
QA Report A daily report showing a change in price due to a change in data. Ratings, call, and call prices are among the attributes given weight in this report. This report runs several times a day to maintain proper pricing levels due to data changes.
Tolerance Report A daily report that shows all bonds moving by more than a predetermined percentage. A 2% tolerance threshold is used for municipal bonds.
MSRB Trade Report This report compares actual pride prices against evaluated prices. All discrepancies are reviewed and adjusted if necessary.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 11: Mortgage-Backed Securities TBA Pricing Methodology Terms and Conditions
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11 Mortgage-Backed Securities TBA Pricing Methodology
Thomson Reuters provides real time and end of day prices on agency mortgage-backed securities (MBS) to-be-announced (TBA) securities. Each instrument is priced by incorporating the following information, techniques, and resources:
Terms and conditions contained in Thomson Reuters mortgage and factor database
Thomson Reuters Pricing Service (TRPS) evaluation staff
TBA pricing model
Market data inputs
Quality control checks
Terms and Conditions
Terms and conditions are stored in the Thomson Reuters mortgage and factor (mort) database. Mort is updated daily from automated files received from the US Federal agencies including Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), and Government National Mortgage Association (GNMA). SIAC delivers some feed data on behalf of GNMA. Coverage includes, but is not limited to:
FNMA, FGLMC, GNMA I, GNMA II 15 Year
FNMA, FGLMC, GNMA I, GNMA II 30 Year
FNMA 7 Year Balloons
FGLMC 5 & 7 Year Balloons
Database updates are dependent on each agency’s file delivery calendar. Alerts are generated when agency files are not received by the specified delivery time. Each alert is researched immediately by the data team.
Thomson Reuters Evaluation Staff
Mortgage-backed securities are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes as well as maintaining current spreads and speeds. They also maintain broker/dealer contacts that enable them to obtain up-to-date market information.
TBA Pricing Model
The TRPS TBA pricing model updates on a real time basis by incorporating prices from live trading systems, dealer quotes, trades, as well as the following inputs: real time US Treasury yields, street consensus prepayment speeds, Z spreads derived from dealer quotes and trades.
TRPS currently prices TBA current month, one month, two month, and three month forward prices. Forward month pricing is calculated by adding the appropriate dollar roll, which is based on multiple dealer indications.
The TRPS MBS TBA model rolls all classes (A, B, C, and D) on their respective notifications dates as determined by the Securities Industry and Financial Markets Association (SIFMA) calendar.
Chapter 11: Mortgage-Backed Securities TBA Pricing Methodology Market Data Inputs
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Market Data Inputs
The market provides several inputs that can be used by the evaluators to assess MBS TBA prices. The hierarchy of inputs includes trade prices, broker quotes, research publications, and Thomson Reuters analytics. These inputs are described in further detail below.
Trade Prices: Thomson Reuters prioritizes the inclusion of executed trades in evaluating MBS TBA prices. Trade files are reviewed daily and are the main tool for the evaluator in pricing the liquid TBA market. Trade color is reviewed and verified by the evaluation staff to ensure the quality of the trade color being used in evaluation. Live trading systems, mainly Tradeweb, are the primary source of TBA prices.
Broker/Dealer Quotes: Thomson Reuters has relationships with major broker/dealers who supply pricing levels and market information. The evaluation team is responsible for maintaining and growing the supply of broker/dealer quotes. Thomson Reuters MBS evaluators review market bids and offers where trade color is not available. Covers, bids, and offers are verified and confirmed by independent market sources. “Price talk” is also included in the evaluation of TBA prices in the absence of trade color, covers, bids, and/or offers.
Research Publications: TRPS staff has access to numerous research reports provided by the broker dealer community. These reports are widely distributed and considered authoritative secondary market intelligence. MBS research reports frequently contain dealer perspectives on TBA prices, performance, prepayment speeds, and spreads.
Thomson Reuters Analytics: TRPS evaluators have the ability to compute and/or verify MBS TBA prices through the use of mortgage analytics. These analytics incorporate spreads and prepayment speeds from dealer sources in the TBA pricing model.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following report informs quality control is incorporated into the evaluation process:
Report Type Description
Detail QA Report A daily report showing TBA prices and price movement for all MBS TBA prices.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 12: Fixed Rate US Mortgage-Backed Securities Terms and Conditions
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12 Fixed Rate US Mortgage-Backed Securities
Thomson Reuters provides evaluated end of day prices on fixed rate US mortgage-backed securities (MBS). Each MBS pool is priced by incorporating the following information, techniques, and resources:
Terms and conditions contained in Thomson Reuters mortgage and factor database
Thomson Reuters Pricing Service (TRPS) evaluation staff
TRPS aggregate pricing model
Market data inputs
Individual pool pricing
Quality control checks
Terms and Conditions
Terms and conditions for mortgage pools are collected and stored in Thomson Reuters mortgage and factor (mort) database. Mort is updated daily from automated files received from US Federal agencies including the Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), and Government National Mortgage Association (GNMA). SIAC delivers some feed data on behalf of GNMA. Small Business Administration (SBA) pool files are obtained from Colson. Database updates are dependent on each agency’s file delivery calendar. Alerts are generated when agency files are not received by the scheduled delivery time. Each alert is researched immediately by the data team.
Thomson Reuters Evaluation Staff
Mortgage-backed securities are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as maintaining current spreads and speeds. They also maintain “street” contacts that enable them to obtain up-to-date market information.
TRPS Aggregate Pricing Model
Fixed rate mortgage pools are grouped into aggregate categories. Aggregates (sometimes referred to as “buckets”) are defined by issuer program, weighted average coupon (WAC), and weighted average loan age (WALA).
Each aggregate is benchmarked to an appropriate MBS TBA (to be announced) issue with a dollar “pay-up”/”pay-down”. Most TBA securities represent the more liquid section of the MBS sector and are generally considered benchmarks for seasoned pool valuations. TRPS evaluates all TBA securities by obtaining contributions from broker dealers, inter-dealer brokers, and live dealer screens. TBA snapshots occur daily at 15:00 and 16:00 ET. Less liquid TBA (such as high coupons in a low interest rate environment) are evaluated by TRPS using observable market inputs including street consensus prepayment speeds and spreads obtained from inputs described in the section below.
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Market Data Inputs
MBS evaluators must account for interest rate risk, prepayment risk, and liquidity. These risks are quantified by the “pay-up” over the benchmark TBA levels used to price each pool. The market provides several inputs that can be used by the evaluators to assess MBS pool pay-ups. The hierarchy of inputs includes trade prices, broker quotes, research publications, and Thomson Reuters analytics. These inputs are described in further detail below:
Trade Prices: Thomson Reuters generally assigns a high priority to executed trades as inputs for evaluating MBS pools. Trade files are reviewed daily and are the main input for the evaluator in pricing the liquid MBS pools market. Trade color is reviewed and verified by the evaluation staff to assure the quality of the trade color being used in evaluation.
Broker/Dealer Quotes: Thomson Reuters has relationships with major broker/dealers who supply pricing levels and market information. The evaluation team is responsible for maintaining and growing the supply of broker/dealer quotes. Thomson Reuters MBS evaluators review market bids and offers where trade color is not available. Covers, bids, and offers are verified and confirmed with independent market sources. “Price talk” is also included in the evaluation of MBS pools in the absence of trade color, covers, bids, and/or offers.
Research Publications: TRPS evaluation staff has access to numerous research reports provided by the broker dealer community. These reports are widely distributed and considered authoritative secondary market intelligence. MBS research reports frequently contain dealer perspectives on collateral performance, prepayment speeds, option adjusted spreads, and pay-up.
Thomson Reuters Analytics: TRPS evaluators will also compute and/or verify MBS pay-ups through the use of mortgage analytics. These analytics incorporate two prepayment models (the TRPS internal model and the Andrew Davidson Prepayment Model), agency- sourced terms and conditions, and the market color described above.
Individual Pool Pricing
MBS pool pay-ups are adjusted based upon underlying loan characteristics. TRPS makes adjustments for the following attributes/performance: Low Loan Balance (LLB), FICO, Loan to Value (LTV), Investment Properties, Seasoning, and Low Loan Count.
Low Loan Balance (LLB): Thomson Reuters applies a price adjustment to pools that have a low loan balance at origination. Pools with an original loan balance of $175K or less receive an adjustment to account for the typically slower anticipated prepayment speed.
Credit Score (FICO): Thomson Reuters applies a price adjustment to pools that carry a weighted average credit score of less than 700. This adjustment reflects the different prepayment profile associated with these pools. Specifically, slower prepayments are expected due to a credit impaired borrower having limited ability to refinance their mortgage.
Loan to Value (LTV): MBS pools with an LTV of greater than 80% receive price adjustments because of their different prepayment profile. Pools with an LTV between 80% and 105% are considered to be TBA deliverable and often trade at a relative premium based on the anticipated slower prepayments associated with these LTVs. Pools with an LTV of greater than 105% are non-deliverable and often trade at a relative discount.
Investor Property: MBS pools that consist of 100% investor property loans receive price adjustments to reflect their distinct prepayment profile.
Low Loan Count: TRPS adjusts prices on MBS fixed rate pools that have a low loan count and low outstanding principal balance. These adjustments reflect the prepayment behavior observed from historical data analysis and market expectations as evidenced by trade prices. Pools must have a loan count of five loans or less and an outstanding principal balance of less than $1MM to qualify for this adjustment.
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Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Tolerance Report A daily report that shows all bonds moving by more than a predetermined percentage, typically 2%.
Unchanged Report A daily report that alerts the evaluation team of any bond that has not changed in price in the last five business days. Evaluators must obtain new market color on these issues to continue to provide evaluations.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 13: Adjustable Rate and Hybrid US Mortgage-Backed Securities Terms and Conditions
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13 Adjustable Rate and Hybrid US Mortgage-Backed Securities
Thomson Reuters provides evaluated pricing on adjustable rate US mortgage-backed securities (ARM) and hybrid ARMs. Each pool is priced by incorporating the following information, techniques, and resources:
Terms and conditions contained in the Thomson Reuters mortgage and factor database
Thomson Reuters Pricing Service (TRPS) evaluation staff
ARM Pricing Model
Market data inputs
Quality control checks
Terms and Conditions
Terms and conditions for (gage pools are stored in the Thomson Reuters mortgage and factor (mort) database. Mort is updated daily from automated files received from the US Federal agencies including Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), and Government National Mortgage Association (GNMA). SIAC delivers some feed data on behalf of GNMA. Small Business Administration (SBA) pool files are obtained from Colson. Coverage includes, but is not limited to, 1 Year LIBOR, 6 Month LIBOR, 1 Year CMT, 3 Year CMT, 5 Year CMT, MTA, GNMA ll +150, and COFI.
Database updates are dependent on each agency’s file delivery calendar. Alerts are generated when agency files are not received by the specified delivery time. Each alert is researched immediately by the data team.
Thomson Reuters Evaluation Staff
Mortgage-backed securities are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as maintaining current spreads and speeds. They also maintain broker/dealer contacts that enable them to obtain up-to-date market information.
ARM Pricing Model
Long Reset ARMs
Hybrid ARMs with more than 18 months to first reset are individually valued to their respective balloon dates using an appropriate prepayment speed and spread. Prepayment speeds are obtained from sell side sources and are updated periodically. Spreads are observed from trade prices, broker quotes, and the new issue market, and are updated daily. Through a licensing agreement, TRPS integrates the Andrew Davidson & Co. (AD&Co) prepayment model to effectively analyze and price agency mortgage-backed securities.
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Short Reset ARMs
All ARMs with less than 18 months to first reset date are evaluated on a Bond Equivalent Effective Margin (BEEM) basis. Each specific pool is mapped to a pricing bucket which represents issuer, index, ARM type, and convertibility characteristics. These securities are priced using levels obtained from trade prices and broker quotes. The current buckets are defined by lifetime cap ranges, current coupon ranges, and prepayment ranges. Each pool price is fine-tuned by incorporating its individual characteristics including months to roll, periodic and lifetime caps and floors, margin, seasoning, outstanding balance, and prepayment speed.
ARMs Matrix
Market Data Inputs
ARMs evaluators must account for interest rate risk, prepayment risk, and liquidity. The hierarchy of inputs includes trade prices, broker quotes, research publications, and Thomson Reuters analytics. These inputs are described in further detail below.
Trade Prices: Thomson Reuters generally assigns a high priority to executed trades as inputs for evaluating ARM pools. Trade files, received primarily from TRPS customers, are reviewed daily and are the main input for the evaluator in pricing the ARM pools market. Trade color is reviewed and verified by the evaluation staff to assess the applicability of the trade color being used in evaluation.
Broker/Dealer Quotes: Thomson Reuters has relationships with major broker/dealers who supply pricing levels and market information. The evaluation team is responsible for maintaining and growing the supply of broker/dealer quotes. Thomson Reuters ARMs evaluators review market bids and offers where trade color is not available. Covers, bids, and offers are verified and confirmed with independent market sources. “Price talk” is also reviewed and assessed for quality.
Research Publications: TRPS staff has access to numerous research reports provided by the broker/dealer community. These reports are widely distributed and considered authoritative secondary market intelligence. Research reports frequently contain dealer perspectives on collateral performance, prepayment speeds, and spreads.
Thomson Reuters Analytics: In addition to the above, the key analytical tool employed by TRPS evaluators to analyze ARMs is the AD&Co prepayment model. AD&Co is a leading provider of benchmark analytics for the mortgage-backed securities industry; the AD&Co prepayment model is a robust predictive pool level model.
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Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers.
The following quality control tests are incorporated into the evaluation process:
Report Type Description
Baseline Report A daily report to monitor and verify any changes in pricing recipes caused by overnight updates to bond descriptive and/or performance data.
ARMs Index Rates and ARMS Matrix Reports
Compares previous day’s benchmark rates against current levels. These are useful tools for verifying the accuracy of rates used in pricing. In addition, they help monitor daily changes in the pricing matrix.
Tolerance Report A daily report showing all bonds moving by more than a predetermined percentage.
Unchanged Report A daily report alerting the evaluation team to any bond that has not changed in price in the last five business days. Evaluators attempt to obtain new broker quotes on these issues.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 14: United States Agency Collateralized Mortgage Obligations Terms and Conditions
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14 United States Agency Collateralized Mortgage Obligations
Thomson Reuters provides end of day prices on United States agency collateralized mortgage obligations (CMOs). Agency CMOs are evaluated by incorporating the following information, techniques, and resources:
Terms and conditions in Thomson Reuters structured finance database
Cash flows generated from Thomson Reuters proprietary deal library
Thomson Reuters evaluation staff
Thomson Reuters proprietary US agency CMO model
Market data inputs
Market news from Thomson Reuters editorial staff
Quality control checks
Terms and Conditions
Terms and conditions for CMOs are collected and maintained by Thomson Reuters CMO/ABS data staff, which consists of 30 full time analysts. Coverage includes fixed-rate, IO/PO, floaters, and inverse floaters.
New issue information is gathered from official prospectuses and offering documents obtained from public document libraries and underwriter solicitation. Monthly updates such as factors and coupons are collected directly from trustee reports. All data is measured by more than 300 timeliness and accuracy checks.
Cash Flows
All CMO deals are modeled by Thomson Reuters modeling team located in New York City. Thomson Reuters maintains its own proprietary modeling system with a dedicated staff of reverse engineers and developers who interpret each deal’s waterfall. All deals must match decrement tables found in the prospectus before release to customers.
Thomson Reuters Evaluation Staff
CMOs are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as maintaining current spreads and speeds. They also maintain “street” contacts that enable them to obtain up-to-date market information.
Thomson Reuters Proprietary CMO Model
Most US Agency CMOs are calculated on a proprietary OAS model, a single-factor binomial model based on the Black-Derman-Toy interest rate generation process. This model is organized by tranche type, average life, and average life volatility. Tranche type represents cash flow risk and range from planned amortization classes to support classes. Average life is calculated from the Thomson Reuters OAS model, which incorporates prepayment speeds from Andrew Davidson, a leading provider of MBS analytics. Average life volatility (variance) is the standard deviation of a security’s average life based on multiple prepayment paths. This creates over 300 combinations or classes of tranche type and average life.
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Evaluators obtain nominal market spreads and trade prices by interacting with major dealers, buy side customers, and various other participants in the mortgage market. OAS spreads are derived by combining these inputs with the current market prepayment expectations for the underlying collateral. These OAS values are then assigned to the various combinations defined by tranche, average life, and average life volatility. Additional OAS spread adjustments are made to account for coupon rate, collateral rate, and collateral type.
Some securities are priced independently because of their unique structure or collateral performance. Evaluators can override the model price by assigning individual spreads and speeds to account for the securities characteristics. Inverse and complex floaters are examples of tranche types that fall into this category.
Market Data Inputs
Agency CMO evaluators must account for interest rate risk, prepayment risk, and liquidity risk. These risks are handled by incorporating an OAS model and prepayment model. As stated above, Thomson Reuters incorporates the Andrew Davidson prepayment model to project cash flows. The resulting average lives are checked with decrement tables found in the original prospectus. Option adjusted spreads are populated by the evaluation team. The market provides several inputs that can be used for option adjusted spreads. The hierarchy of inputs includes the new issue market, broker quotes, and trade prices. The list below describes these inputs in detail.
New Issue Market: Agency CMOs have an active new issue market which is widely used as a benchmark for secondary market evaluations. On average, there are 35 new agency deals per month or 2,000 new tranches. The new issue process gives the evaluation staff a clear understanding of how the market perceives prepayment speeds and liquidity risks.
Broker/Dealer Quotes: Thomson Reuters has relationships with major broker/dealers who supply pricing levels and market information. The evaluation team is responsible for maintaining and growing the supply of broker/dealer quotes. Executable quotes are rarely observed for this asset class; however, there are numerous research publications that provide robust information on market spreads and speeds across various tranche types and tenors (see below). Evaluators observe bid wanted lists and general market quotes.
Research Publications: Thomson Reuters evaluation staff has access to numerous research reports provided by the broker dealer community. These reports are widely distributed and considered authoritative secondary market intelligence.
Trade Prices: Thomson Reuters Evaluators periodically observe trade prices on agency CMOs. These trades are provided by Thomson Reuters buy side customers. These are carefully corroborated with other markets prior to inclusion with the evaluation process. There are no firm rules or thresholds for exclusion. It is the responsibility of the evaluation to verify each market trade.
Market News
Thomson Reuters editorial staff covers all financial markets globally, including the CMO/ABS market. They have significant relationships with all dealer desks in major market locations. Evaluators are notified of all new issues, news stories, and credit events.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Chapter 14: United States Agency Collateralized Mortgage Obligations Customer Service
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Report Type Description
Collateral Update Report A report that lists deals that have not received a monthly trustee update.
Tolerance Report A daily report that shows all bonds moving by more than a predetermined percentage. Agency CMOs that exceed a 2% change must be verified by the evaluation desk before final release to customers.
Unchanged Report A daily report that alerts the evaluation team of any bond that has not changed in price in the last five business days. Evaluators attempt to obtain new broker quotes on these issues.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 15: United States Consumer Asset-Backed Securities Terms and Conditions
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15 United States Consumer Asset-Backed Securities
Thomson Reuters provides end of day prices on United States consumer asset-backed securities (ABS). These securities are individually priced by incorporating the following information, techniques, and resources:
Terms and conditions in Thomson Reuters structured finance database
Cash flows generated from Thomson Reuters proprietary deal library
Thomson Reuters evaluation staff
Prepayment speeds from historic analysis and the dealer community
Spreads derived from broker quotes and trades
Loss analytics
Market news from Thomson Reuters editorial staff
Quality control checks
Terms and Conditions
ABS terms and conditions are collected and maintained by Thomson Reuters ABS data staff, consisting of 30 full time analysts. Coverage includes:
Credit cards
Auto and boat loans
Manufactured housing
Recreational vehicle collateral
Stranded assets
Other ABS
New issue information is gathered from official prospectuses and offering documents obtained from public document libraries and underwriter solicitation. Monthly updates, such as factors and coupons are collected directly from trustee reports. All data is measured by more than 300 timeliness and accuracy checks.
Cash Flows Generated from Moody’s Analytics
Thomson Reuters incorporates Moody’s Analytics through its structured finance workstation (SFW). Moody’s SFW is a comprehensive asset-backed library covering close to 100% of the market. It enables Thomson Reuters evaluators to build multiple scenarios using static or vector-based analysis.
Thomson Reuters Evaluation Staff
ABS securities are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as maintaining current spreads and speeds. They also maintain “street” contacts that enable them to obtain up-to-date market information.
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Prepayment Speeds and Spreads
Evaluators can choose to use historic prepayment speeds or dealer projected speeds. Historic prepayment speeds are obtained from factor history within Thomson Reuters databases. Dealer speeds are obtained by maintaining direct relationships with the broker/dealer community.
ABS evaluators collect spreads from trade prices, dealer quotations, and research reports. Trade prices are obtained from market contacts and from Thomson Reuters buy-side customer base. Dealer quotes are also obtained by direct solicitation. The evaluation team maintains a wide set of contacts in order to obtain up-to-date market information.
Thomson Reuters evaluates ABS tranches by grouping similar securities together or on an individual security basis. Issues are grouped using parameters, which include vintage, rating, issuer, collateral type, and loss coverage ratios. Individual adjustments are frequently made based upon issuer/servicer risk, collateral coupons, insurer, and average lives.
End of day evaluations are derived at 15:00 and 16:00 each day by discounting cash flows incorporating the current speed, spread, and risk free rate.
Loss Analytics
Thomson Reuters Evaluation team uses external vendors to analyze collateral performance. These vendors are experts in the collection of collateral updates and aggregating performance data. Evaluators monitor deal losses, delinquency pipelines, and current subordination to determine loss coverage ratios.
Market News
Thomson Reuters editorial staff covers all financial markets globally, including the ABS market. They have significant relationships with all dealer desks in major market locations. Evaluators are notified of all new issues, news stories, and credit events.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Collateral Update Report A report that lists deals that have not received a monthly trustee update.
Tolerance Report A daily report that shows all bonds moving by more than a predetermined percentage.
Unchanged Report A daily report that alerts the evaluation team of any bond that has not changed in price in the last five business days. Evaluators attempt to obtain new broker quotes on these issues.
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Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 16: United States Residential Mortgage-Backed Securities Terms and Conditions
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16 United States Residential Mortgage-Backed Securities
Thomson Reuters provides end of day prices for United States (US) Residential Mortgage-backed Securities (RMBS). These include prime, Alt-A, option ARM, and subprime collateral. RMBS are evaluated by incorporating the following information, techniques, and resources:
Terms and conditions contained in Thomson Reuters structured finance database
Cash flows generated from Moody’s Structured Finance Workstation (Moody’s SFW)
Thomson Reuters evaluation staff
Prepayments, default, and loss severity assumptions
Market data inputs
Market news from Thomson Reuters editorial staff
Quality control checks
Terms and Conditions
RMBS terms and conditions are collected and maintained by Thomson Reuters CMO/ABS data staff, consisting of 30 full time analysts. Coverage includes CMOs backed by prime and Alt-A fixed/ARM, option ARM, and subprime collateral.
New issue information is gathered from official prospectuses and offering documents obtained from public document libraries and underwriter solicitation. Monthly updates, such as factors and coupons, are collected directly from trustee reports. All data is measured by more than 300 timeliness and accuracy checks.
Cash Flows Generated from Moody’s Analytics
Thomson Reuters incorporates Moody’s Analytics through its structured finance workstation (SFW). Moody’s SFW is a comprehensive asset-backed library covering close to 100% of the market. It enables Thomson Reuters evaluators to build multiple scenarios using static or vector-based analysis. All deal cash flows must match decrement tables found in prospectuses as a key control before release to production.
Thomson Reuters Evaluation Staff
RMBS are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as maintaining current spreads and speeds. They also maintain “street” contacts that enable them to obtain up-to-date market information as well as verifying or corroborating information received.
Prepayment, Default, and Loss Severity Assumptions
Prepayment and default assumptions are derived from monthly remittance reports. Analysis of delinquency and default data is based on a roll rate model which incorporates historical performance to project expected loss. Voluntary prepayments assumptions are based upon analysis of historical data, current cohort averages, and color from the broker/dealer community.
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Market Data Inputs
The evaluation team maintains a yield table that allows them to price securities with similar attributes efficiently and consistently. Buckets are formed dynamically based upon tranche attributes and collateral performance. They are comprised of bonds with similar characteristics including collateral type, vintage, tranche type, and delinquency ratio. Securities are priced based upon their related bucket and individual characteristics. Additional adjustments are frequently made based upon collateral coupon, average life, rating, and issuer/servicer risk. The market provides several inputs that can be used to determine the appropriate yield for each bond category. The hierarchy of inputs includes broker quotes, research reports, and trade price. The list below describes these inputs in detail.
Broker/Dealer Quotes: Thomson Reuters has relationships with major broker/dealers who supply pricing levels and market information. The evaluation team is responsible for maintaining and growing the supply of broker/dealer quotes. Executable quotes are rarely observed for this asset class; however, the evaluation staff has electronic access to aggregated market data from market participants. This data is classified into bid wanted in competition (BWIC) and offerings. Both are viewed and used in the evaluation process.
Research Publications: Thomson Reuters evaluation staff has access to numerous research reports provided by the broker dealer community. These sell side research reports provide market participants with various current and historical analyses to help assess current valuations and support portfolio management. As such, they are highly relevant to the pricing process. They are widely distributed and considered authoritative secondary market intelligence.
Trade Prices: Verified trade information is generally a highly valued input to the pricing process. Thomson Reuters evaluators periodically observe trade prices on RMBS. Trades are provided by Thomson Reuters buy side customers. These are generally from known and trusted sources but are still carefully corroborated with other market data prior to inclusion with the evaluation process. The RMBS market has experienced significant distress during the recent financial crisis. Many loans defaulted, traded at deep discounts, or became worthless. In addition, many mortgage investors had to sell securities due to margin calls or other reasons. Thus, verified trades may still represent “fire sale” transactions from distressed holders and as such would likely be excluded. It is the responsibility of the evaluator to make that judgment.
New Issue Market: Since the financial crises started in 2008, the new issue market for RMBS has been essentially non-existent as investors completely shunned private label mortgage related securities. New issue markets ordinarily provide excellent data regarding market assessments of spreads, risk premiums, prepayment, and default projections as well as demand for various tranche types. The evaluation process has had to function without new issue market data and has focused on the data actually available from the market. If and when the new issue market revives, TRPS will once again incorporate its information, as appropriate, into the evaluation process.
Market News
Thomson Reuters editorial staff covers all financial markets globally, including the CMO/ABS market. They have significant relationships with dealer desks in major market locations. Evaluators are notified of all new issues, news stories, and credit events.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Chapter 16: United States Residential Mortgage-Backed Securities Price Challenge Process as a Quality Control
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Report Type Description
Collateral Update Report A report that lists deals that have not received a monthly trustee update.
Tolerance Report A daily report that shows all bonds moving by more than a predetermined percentage. RMBS that exceed a 3% change must be verified by the evaluation desk before final release to customers.
Unchanged Report A daily report that alerts the evaluation team of any bond that has not changed in price in the last five business days. Evaluators attempt to obtain new broker quotes on these issues.
Price Challenge Process as a Quality Control
Thomson Reuters provides clients with the ability to “challenge” our evaluated prices. Any client can submit a challenge with supporting market data including trades, quotes, or other market data for the exact security being challenged or one considered sufficiently comparable to be relevant to the challenged security. All such supporting data must be verified or corroborated by the evaluator. Challenges are systematically logged and tracked by management for trends or potential problems. The challenge process is taken very seriously by TRPS as our large client base provides a valuable “negative feedback loop” that contributes significant additional inputs to the pricing process.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 17: United States Commercial Mortgage-Backed Securities Terms and Conditions
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17 United States Commercial Mortgage-Backed Securities
Thomson Reuters provides end of day prices on United States (US) commercial mortgage-backed securities (CMBS). These include private label and agency deals Each CMBS is individually priced by incorporating the following information, techniques, and resources:
Terms and conditions contained in Thomson Reuters structured finance database
Cash flows from Trepp
Thomson Reuters evaluation staff
Market data inputs
Market news from Thomson Reuters editorial staff
Quality control checks
Terms and Conditions
CMBS terms and conditions are collected and maintained by Thomson Reuters structured finance content staff, consisting of 30 full time analysts. New issue information is gathered from official documents obtained from public document libraries and underwriter solicitation. Monthly updates (such as current collateral information) are collected directly from trustee reports. All data is measured by more than 300 timeliness and accuracy checks.
Cash Flows – Trepp CMBSAnalytics Model
Through a licensing agreement, TRPS incorporates the Trepp CMBSAnalytics model to calculate CMBS prices. Trepp is a leading provider of CMBS and commercial mortgage information, analytics, and technology to the global securities and investment management industries.
Thomson Reuters Evaluation Staff
CMBS are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as maintaining current spreads and speeds. They also maintain “street” contacts that enable them to obtain up-to-date market information.
Thomson Reuters evaluates CMBS tranches by grouping similar securities together, or on an individual security basis. Issues are grouped using parameters which include vintage, rating, issuer, and collateral type. The TRPS evaluation team uses the Trepp database to analyze collateral performance. Evaluators monitor collateral realized losses, interest shortfalls, delinquency pipelines, and current subordination levels in determining the grouping of comparable securities. End of day evaluations are derived each day by discounting cash flows incorporating the current speed and spread to a benchmark curve.
Market Data Inputs
CMBS evaluators must account for credit risk, interest rate risk, and prepayment risk. The evaluation team accounts for these risks by assigning spreads based on available market information. Evaluators maintain a wide set of contacts in order to obtain up-to-date market inputs. The hierarchy of inputs include: trade prices, broker quotes, new issue market spreads, CMBX indications, and fixed income research reports. The list below describes these inputs in detail.
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Trade Prices: Thomson Reuters evaluators periodically observe trade prices on CMBS. These trades are provided by Thomson Reuters buy side customers. All trade prices are carefully corroborated with other market participants prior to inclusion with the evaluation process. It is the responsibility of the evaluation team to verify each market trade and determine how it should be incorporated into the evaluation process.
Broker/Dealer Quotes: Thomson Reuters has relationships with major broker/dealers who supply pricing levels and market information. The evaluation team is responsible for maintaining and growing the supply of broker/dealer quotes.
New Issue Market Spreads: The CMBS new issue market is widely used as a benchmark for secondary market evaluations. All new issue spreads are reviewed and compared to the current model inputs.
CMBX Index: The published CMBX Index provides a benchmark for evaluating subordinated issues across different rating classes and vintages. Adjustments are made based on issuer/servicer risk, collateral coupon, and average lives.
Research Publications: TRPS has access to numerous research reports provided by the broker/ dealer community. These reports are widely distributed and considered authoritative secondary market intelligence. They contain information such as sector spreads, the new issue pipeline, and market trends.
Market News
Thomson Reuters editorial staff covers all financial markets globally, including the CMBS market. They have significant relationships with all dealer desks in major market locations. Evaluators are notified of all new issues, news stories, and credit events.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Tolerance Report A daily report showing all bonds moving by more than a predetermined percentage.
Unchanged Report A daily report that alerts the evaluation team of any bond that has not changed in price in the last five business days. Evaluators attempt to obtain new broker quotes on these issues.
Chapter 17: United States Commercial Mortgage-Backed Securities Customer Service
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Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 18: European Asset-Backed Securities Terms and Conditions
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18 European Asset-Backed Securities
Thomson Reuters provides end of day prices on European asset-backed securities (ABS). This includes prime and non-conforming RMBS, auto loan/leases, equipment loans/leases, other consumer ABS (excluding credit cards), and SME CLOs. Each deal is individually priced by incorporating the following information, techniques, and resources:
Terms and conditions in Thomson Reuters structured finance database
Thomson Reuters evaluation staff
Cash flows from ABSNet
Performance data from ABSNet
Spreads obtained from dealer quotes and trade prices
Historical and consensus prepayment speeds
Loss rates based upon collateral performance
Market news from Thomson Reuters editorial staff
Quality control checks
Terms and Conditions
European ABS terms and conditions are collected and maintained by Thomson Reuters ABS data staff, consisting of 30 full time analysts.
New issue information is gathered from official prospectuses and offering documents obtained from public document libraries and underwriter solicitation. Monthly updates such as factors and coupons are collected directly from trustee reports. All data is measured by more than 300 timeliness and accuracy checks.
Thomson Reuters Evaluation Staff
European ABS are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as maintaining current spreads and speeds. They also maintain “street” contacts that enable them to obtain up-to-date market information.
Cash Flows from ABSNet
The ABSNet team reads the prospectus/OC/reds for each deal and individually constructs a deal model based on these documents. The first step in the process is to write a deal synopsis that summarizes the deal modeler’s understanding of the following:
Structure of the deal
Underlying collateral
Triggers
Various accounts associated with the deal, including the conditions under which cash flows are to be made into and out of each account
Final waterfall
Chapter 18: European Asset-Backed Securities Performance Data from ABSNet
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From this document, each deal is modeled from ABSNet’s library of components. For example, typical collateral types are projected using common function calls rather than custom developed programs for each deal. A deal can be modeled quickly from the deal synopsis. The deal modeler then verifies that various scenarios will cause the deal's triggers to behave as expected, and that the calculated weighted average life (WAL) is in line with the issuer's expectations for given prepayment speeds.
Performance Data from ABSNet
ABSNet updates the key fields from the servicer or trustee report into our database during each reporting cycle. When it is not possible to source the data electronically, double-blind manual entry is used to ensure data quality.
On a daily basis, Thomson Reuters downloads the relevant performance and ratings data for the cash flow library. This ensures that the published prices reflect the most current performance and ratings information available on the market.
Spreads
Thomson Reuters evaluators collect spreads from trade prices, dealer quotations, and research reports. Trade prices are obtained from market contacts and from Thomson Reuters buy-side customer base. Dealer quotes are obtained by direct solicitation. The evaluation team maintains a wide set of contacts in order to gather up-to-date market information.
All European ABS issues are priced using a model, which is organized by collateral, geography, average life, and rating. These spread curves are updated on a daily basis from information received by the evaluation team. Individual adjustments are made on an issuer, deal or tranche basis.
Prepayment Speeds
Prepayment speeds are determined by a number of factors, including performance history and dealer forecasts. Performance history is observed from trustee surveillance reports and dealer forecasts from direct solicitation by the evaluation team.
Loss Rates
Loss rates are based upon historical performance and delinquency trends. Loss assumptions by market participants that drive bid-side valuation levels are considered by the evaluator when they differ from historical data.
Market News
Thomson Reuters editorial staff covers all financial markets globally, including the European ABS market. They have significant relationships with all dealer desks in major market locations. Evaluators are notified of all new issues, news stories, and credit events. In Europe, Thomson Reuters notably benefits from the work done by ISR and IFR journalists in structured finance.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Chapter 18: European Asset-Backed Securities Customer Service
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Report Type Description
Tolerance Report A daily report that shows all bonds moving by more than a predetermined percentage.
Unchanged Report A daily report that alerts the evaluation team of any bond that has not changed in price in the last five business days. Evaluators attempt to obtain new broker quotes on these issues.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 19: Collateralized Loan Obligations Granular Loan-Level Data
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19 Collateralized Loan Obligations
Thomson Reuters provides end of day prices on global cash collateralized loan obligations (CLOs). These include both broadly syndicated and middle market CLOs. Each CLO security is individually priced by Thomson Reuters Pricing Service (TRPS) by incorporating the following information, techniques, and resources:
Granular loan-level data.
Thorough structural analysis.
Moody’s Analytics CDOnet library and cashflow engine.
Credit assumptions: prepayment and default speeds/recoveries.
Pricing assumptions / discount margins.
Thomson Reuters evaluation staff / vigorous quality control checks.
Market news from Reuters editorial staff.
Granular Loan-Level Data
Accurate analysis of collateralized loan obligations necessitates a granular approach to loan level information. Thomson Reuters evaluators assess the concentration and quality of various loan level buckets such as second liens, covenant lites, and other structured product assets. Particular emphasis is also placed on the assessment of the CCC rated and defaulted loan buckets, which can greatly affect the performance triggers and cash flows in the deal.
Additionally, Thomson Reuters has the advantage of leveraging Thomson Reuters LPC loan pricing platform, the leading loan pricing provider, to calculate and assess the weighted average price of the portfolio of each CLO’s assets.
Thorough Structural Analysis
Thomson Reuters evaluators perform thorough checks on all structural features of each CLO such as the credit enhancement of each bond and various performance triggers (including overcollateralization tests, interest coverage and diversion tests, as well as any turbo features). Furthermore, the evaluators carefully analyze the reinvestment language specific to each deal, as well as the collateral manager’s performance and capabilities.
Moody’s Analytics CDOnet
Thomson Reuters incorporates Moody’s Analytics CDONet Library. CDOnet is a comprehensive global CLO deal library, covering close to 100% of the market. The group employs rigorous quality checks to ensure accurate content and cash flows.
Scenario Assumptions: Prepayments, Defaults and Recoveries
Evaluators tailor prepayment, default and recovery assumptions specific to each CLO deal — observing recent deal performance as well as forming various projections based on the quality of the collateral, collateral manager capabilities and macroeconomic conditions. All underlying assets of the CLO are aggregated into several buckets in order to ensure proper default and recovery analysis (for example, second lien loans will have lower recoveries than first lien loans). Evaluators review all weekly dealer research on the CLO sector, as well as maintain constant communication with the broker/dealer community to continually update all assumptions.
Chapter 19: Collateralized Loan Obligations Pricing Assumptions/Discount Margins
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Pricing Assumptions/Discount Margins
In addition to reviewing weekly dealer research and commentary on discount margins applied to various parts of the CLO capital structure, the evaluators also carefully monitor the daily Bid List activity. Evaluators collect prices/spreads from trades, covers, and reserves. Constant communication with the broker/dealer community also allows the evaluators to assess Bid List “talk” prior to the trades.
End of day evaluations are derived at 15:00 and 16:00 each day by discounting projected cash flows with updated discount margins.
Thomson Reuters Evaluation Staff and Quality Control
CLOs are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as maintaining current spreads and speeds. Maintaining relationships with “street” contacts enables them to obtain up-to-date market information.
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues that are flagged must be viewed by the assigned evaluator, as well as the desk team leader before prices are released to customers. Below are two reports used in the quality control process:
Tolerance report, a daily report that shows all bonds moving by more than a predetermined percentage.
Unchanged report, a daily report that alerts the evaluation team of any loan that has not changed price in five business days. Evaluators attempt to obtain new broker quotes on these issues.
Market News
Thomson Reuters editorial staff covers all financial markets globally, including the Structured Products market. They have significant relationships with all dealer desks in major market locations. Evaluators are notified of all new issuances, news stories, and credit events.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 20: Collateralized Debt Obligation Cashflow Analysis through Granular Loan-Level Data
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20 Collateralized Debt Obligation
Thomson Reuters provides end of day prices on Asset-backed Securities (ABS) Collateralized Debt Obligations (CDOs), Commercial Real Estate (CRE) CDOs, and Trust Preferred Securities (TruPS) CDOs. Each CDO security is individually priced by incorporating the following information, techniques, and resources:
Granular asset-level analysis that drives Credit Assumptions
Thorough structural analysis
Moody’s Analytics CDOnet library and cashflow engine
Net Asset Value analysis
Yield/Discount Margin assignment
Thomson Reuters evaluation staff and quality control checks
Market news from Reuters editorial staff
Thomson Reuters primarily uses a Discounted Cashflow approach, combined with Net Asset Value (NAV) analysis, to price CDO tranches.
Cashflow Analysis through Granular Loan-Level Data
In order to accurately analyze and generate cashflows for CDO tranches, a granular asset level approach is followed. CDO evaluators assess the concentration and quality of the collateral backing the CDOs, stratifying by asset type: Residential Mortgage-backed Securities (RMBS), Consumer ABS, Commercial Mortgage-backed Securities (CMBS), CRE Whole Loans, Bank Loans, etc. In-depth analytics are then performed at the underlying asset level. Each loan in the underlying transaction is assigned a prepayment, default, and recovery assumption based on observable performance metrics and other relevant characteristics.
For ABS CDOs, prepayment, default, and recovery scenarios are assigned to underlying RMBS/ABS primarily based on the following metrics:
Vintage
Delinquency metrics; roll rates
Historical CPR/CDR/Severity
Servicers/Advance Rates
Insurers
For CRE CDOs, prepayment, default, and recovery scenarios are assigned to underlying CMBS/CRE Whole Loans based on:
Delinquency/Special Servicing/Watchlist status
DSCR
NOI/NCF
MTM LTV (varying Cap Rates based on Property Type)
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For TruPS CDOs1 prepayment, default, recovery, and call scenarios are assigned to underlying loans
based on:
TRuPS type (bank, insurance, mixed)
Issuer level analysis/default probability
EDF vectors
Loss assumptions generated via Moody’s Analytics proprietary tools: CreditEdge and RiskCalc
Net Asset Value (NAV) Analysis
Thomson Reuters has the advantage of leveraging the Thomson Reuters Pricing Service (TRPS) platform, which allows for direct access to mark-to-market scenarios on all underlying structured products. Furthermore, TRPS’s RMBS, CMBS, and ABS desks allow evaluators to readily access end of day pricing on underlying securities to determine tranche NAV. Although there are limitations to this analysis due to exposure to some illiquid and/or distressed assets in some portfolios, cashflow analysis is supplemented with NAV analysis where such calculation is possible.
Thorough Structural Analysis
Once the cashflows are generated, Thomson Reuters evaluators perform thorough checks on all structural features of each CDO, such as the credit enhancement, performance triggers (including Overcollateralization tests, Interest Coverage tests, etc.). The evaluators carefully analyze the Priority of Payments and Controlling Rights language. Additionally, the team ascertains whether an Event of Default has been triggered (or if an event is near), and determines how such a trigger will redirect cashflows through a new EOD/Acceleration Waterfall.
Market Color
In addition to reviewing weekly dealer research and commentary on developments/assumptions in the CDO market, the CDO evaluators also carefully monitor any bid list activity to assess yields/discount margins and discounts to NAV which are applied to various parts of the CDO capital structure. Evaluators collect prices/spreads from trades, covers, and reserves. Constant communication with market participants also allows the evaluators to assess bid list “talk” prior to the trades. End of day evaluations are derived each day by discounting projected cashflows with updated discount margins.
Key Metrics for Yield Assignment
As trading activity is less frequent in the CDO market, yields implied by observed trades are categorized primarily based on the following metrics, and similar discount rates are applied to securities that have comparable deal and tranche characteristics.
Deal Metrics
Deal Type – each CDO transaction is classified as a CRE CDO or ABS CDO based on asset composition
1 TruPS pricing will be provided in collaboration with Moody’s Analytics Structured Valuation & Advisory service.
Further details of Moody’s Analytics TruPS CDO market pricing methodology are available upon request.
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Deal Currency – used to distinguish US and EUR deals
EOD status – indicator as to whether the deal is in EOD, and if Acceleration or Liquidation has occurred. Any consequence on priority of payments is tracked under various EOD scenarios.
Tranche Metrics
Tranche payment priority and ratings; each tranche is
assigned an original rating (lowest of Moody’s, S&P, Fitch).
assigned a current rating (lowest of Moody’s, S&P, Fitch).
associated with a payment priority (first pay/second pay, etc.).
Tranche subordination:
Par subordination is calculated for each tranche, based on the current balances of assets and liabilities
Effective subordination is calculated for each tranche, after haircutting the par amount by the amount of the haircut reported by the trustee (based on defaults and lower rated assets)
Asset composition:
Asset type bucketing for each deal
Percentage of defaults
Percentage of Synthetics
WAL/Current Factor – used to distinguish shorter life tranches from longer ones
NAV – using TRPS pricing, tranche level NAV is calculated as described above
Moody’s Analytics CDOnet
Thomson Reuters incorporates Moody’s Analytics CDOnet Library. CDOnet is a comprehensive global CDO deal library. The group employs rigorous quality checks to ensure accurate content and cashflows.
Thomson Reuters Evaluation Staff and Quality Control
ABS and CRE CDOs are evaluated within Thomson Reuters Pricing Service – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering market color (price talk, covers, trades, and offers) as well as maintaining current spreads. Maintaining relationships with “street” contacts enables the evaluators to obtain up-to-date market information.
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues that are flagged must be reviewed by the assigned evaluator, as well as the desk team leader, before prices are released to customers. Below are two reports essential to the quality control process:
Report Type Description
Tolerance Report A daily report that shows all bonds moving by more than a predetermined percentage.
Unchanged Report A daily report that alerts the evaluation team of any loan that has not changed in price in the last five business days.
Chapter 20: Collateralized Debt Obligation Market News
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Market News
Reuters editorial staff covers all financial markets globally, including the structured products market. They have significant relationships with all dealer desks in major market locations. Evaluators are notified of all new issuances, relevant news stories, and credit events.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 21: Credit Linked Notes Terms and Conditions
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21 Credit Linked Notes
Thomson Reuters provides end of day prices on Credit Linked Notes (CLNs). CLNs are fixed-rate structured securities, whose principal and interest payments are contingent on the performance of specified borrower companies or reference entities. Thomson Reuters evaluates CLNs using the following information, techniques, and resources:
Terms and conditions from the Thomson Reuters Corporate Bond database.
Thomson Reuters evaluation staff.
Broker quoted and evaluated reference security prices.
Spreads obtained from market contacts and trade prices.
Market news from Thomson Reuters editorial staff.
Quality control checks.
Terms and Conditions
The underlying security’s terms and conditions are collected and maintained by the full-time data staff of Thomson Reuters. Coverage includes:
Credit ratings of issuers.
Amount issued/outstanding.
Deal underwriters.
Coupon, maturity, and other prospectus data.
Reference security identifiers.
New issue information is gathered from official prospectuses and offering documents obtained from public document libraries and underwriter solicitation. All data is validated by more than 300 timeliness and accuracy checks.
Thomson Reuters Evaluation Staff
CLNs are evaluated by Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as maintaining current spreads and speeds. They also maintain “street” contacts that enable them to obtain up-to-date market information. TRPS has multiple offices in Asia, Europe, and North America.
Broker Quoted and Evaluated Reference Security Prices
Thomson Reuters receives quotes on reference securities from its electronic contribution network. This network consists of major sell-side dealers and intra-dealer brokers. Quotes are available on a real-time basis, and coverage includes 100% of reference securities.
Reference securities are also evaluated by TRPS teams located in their respective markets, and are updated on a daily basis.
Chapter 21: Credit Linked Notes Yields Derived from Broker Quotes and Trade Prices
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Yields Derived from Broker Quotes and Trade Prices
Most CLNs are priced by using an appropriate yield that represents the risk associated with the individual security. Yields are obtained from broker contacts, trade prices, and the new issue market. TRPS evaluators pay close attention to changing credit situations and interest rate fluctuations. Special adjustments can be made based upon political, economic, and liquidity factors as well as on currency fluctuations.
Market News
Thomson Reuters editorial staff covers all financial markets globally. They have significant relationships with all dealer desks in major market locations. Evaluators are notified of all new issues, news stories, and credit events.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Stale Contributor Report, a monthly report that tracks prices from TRPS contributors. This report compares prices on a monthly basis to ensure that all contributors are keeping their prices up to date. Prices that are stale are investigated further for news about mergers, or any other information that might have led to a stale price.
Unchanged Report, a daily report that alerts the evaluation team to any price that has not changed in the last five business days. Evaluators are responsible for checking each of these issues and providing a detailed report as to why the price is stale.
Tolerance Report, a daily report that shows all bonds moving by more than a predetermined percentage.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 22: Global Money Market Terms and Conditions
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22 Global Money Market
Thomson Reuters Pricing Service (TRPS) provides end of day and intra-day evaluated prices on global money market instruments.
Asset Classes Covered Include:
Short Term Government and Corporate Bonds Commercial Paper
Short Term Asset Backed Securities Certificates of Deposit
Short Term Municipal Notes Time Deposits
United States Treasury Bills Bankers Acceptances
United States Agency Discount Notes Repurchase Agreements
Methodologies differ for each money market asset class, but each issue will be individually priced by incorporating the following information, techniques, and resources:
Terms and conditions from Thomson Reuters fixed income database or provided by customer.
Thomson Reuters evaluation staff.
Yield curves available on Thomson Reuters dealer contribution network.
Spreads and rates observed from new issue market, trades, and dealer quotations.
Thomson Reuters Money Market pricing model.
Market news from Thomson Reuters editorial staff.
Thomson Reuters quality control checks.
Terms and Conditions
Thomson Reuters fixed income content team obtains new issue information and full terms sheets on many money market instruments including government, corporate, municipal, and asset backed securities. New issue information is gathered from official prospectuses and offering documents obtained from public document libraries and underwriter solicitation. All data must pass multiple quality checks to ensure consistency and accuracy.
Various money market instruments such as repurchase agreements and bankers acceptances are bespoke transactions between counterparties. On these instruments, clients provide their own terms through a DataScope input template.
Thomson Reuters Evaluation Staff
Money market instruments are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors and is responsible for gathering market information and adjusting yields and spreads. TRPS has multiple offices in Asia, Europe, and North America.
Chapter 22: Global Money Market Contributed Yield Curves
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Contributed Yield Curves
Yield curves on many market instrument classes are available on Thomson Reuters vast electronic contribution network. Brokers and dealers from around the world contribute rates on a real time and/or daily basis. Thomson Reuters local contribution teams continue to seek new sources of data to improve coverage on this asset class.
Thomson Reuters evaluators incorporate these yield curves by choosing the best contributors and performing quality control checks to ensure these rates reflect the latest market conditions.
Spreads and Rates
Along with contributed yield curves, Thomson Reuters Pricing Service derives yields from the new issue market, trades, and dealer quotations. The robust new issue market gives insight to rates on certificates of deposit and commercial paper. Commercial paper rates are adjusted based upon an issuer’s credit rating and any relevant news that affects their credit status. Money market evaluators work closely with the corporate bond desk to stay up to date on any credit worthy news.
Money Market Pricing Model
Thomson Reuters strives to provide complete coverage on all money market instruments. Many instruments with public identifiers are available in our pricing database. New instruments and instruments without standard identifiers are also valued through the Money Market pricing model by referencing the appropriate yield curves based upon terms and conditions provided by the customer.
The Money Market pricing model works as follows:
For instruments that reside in Thomson Reuters Fixed Income Database, prices are obtained from fixed income price tables at the appropriate extraction time as determined by the customer. These securities are valued by TRPS evaluation teams who assign the most relevant yield curve and/or spreads individually on these securities.
For price calculations on instruments that do not reside in the database, the Money Market pricing model will reference the issue’s terms and conditions provided by the customer to determine appropriate yield curve or rate. These yield curves are maintained by Thomson Reuters evaluation staff and are updated daily, reflecting current market conditions. Final prices are calculated using that rate and the price/yield formula consistent with each asset class.
Customers must provide the following data to ensure complete coverage on all instruments:
Asset Class (CP, CD, BA)
Issuer Name
Coupon Rate
Issue Date
Maturity Date
Day Count
Margin (only for floating rate issues)
Frequency (only for floating rate issues)
Index (only for floating rate issues)
Chapter 22: Global Money Market Market News
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Market News
Thomson Reuters editorial staff covers all financial markets globally. They have significant relationships with all dealer desks in major market locations. Evaluators are notified of all new issues, news stories, and credit events.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Unchanged Report A daily report that alerts the evaluation team to any price that has not changed in the last 5 business days. Evaluators are responsible for checking each of these issues and providing a detailed report as to why the price is stale.
Tolerance Report A daily report that shows all bonds moving by more than 2% from the prior day. Evaluators must approve the change and give a detailed report on the movement before prices can be released to customers.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 23: European Government Bonds Terms and Conditions
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23 European Government Bonds
Thomson Reuters provides end of day prices on all European Government securities. Government coverage includes: notes, bonds, bills, index linked, and stripped coupons. Each security is individually priced by incorporating the following information, techniques, and resources:
Terms and conditions in Thomson Reuters government and corporate database
Thomson Reuters evaluation staff
Dealer contribution network
European government pricing model
Market news from Thomson Reuters editorial staff
Quality control checks
Terms and Conditions
European Government security terms and conditions are collected and maintained by Thomson Reuters government data staff, consisting of 50 full time analysts. Full security terms are available upon auction date.
New issue information is gathered from official documents released by the Sovereign finance department. The information is then entered into our database immediately, and updated whenever necessary.
Thomson Reuters Evaluation Staff
European Government securities are evaluated within Thomson Reuters Pricing Service (TRPS) – a group of over 150 fixed income professionals with trading, sales, analytics, and data backgrounds. Each evaluator is a specialist in one or more sectors, and is responsible for gathering quotes, as well as
maintaining current spreads. They also maintain “street” contacts that enable them to obtain up-to-date market information.
Dealer Contribution Network
Thomson Reuters has a vast network of real time contributors of European Government prices. These contributors include primary and secondary dealers, as well as inter-dealer brokers.
European Government Pricing Model
Thomson Reuters Evaluation staff updates European Government prices throughout the day. The model incorporates real time on-the-run updates and dealer contributions. Evaluators compare the output with multiple price sources. Illiquid issues that do not have dealer or broker contributed prices are spread off their specific country curve. Prices may also be adjusted for liquidity risk.
Snapshots are taken three times daily: 14:00, 16:00, and 18:00 GMT. Evaluators perform several quality control checks to ensure pricing accuracy. These checks include yield curve analysis and broker quote comparisons. Final adjustments are made before prices are released to customers.
Chapter 23: European Government Bonds Market News
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Market News
Thomson Reuters editorial staff covers all financial markets globally, including the European Government market. They have significant relationships with all dealer desks in major market locations. Evaluators are notified of all new issues, news stories, and credit events.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
14:00 and 16:00 GMT Tolerance Reports
Reports that list the current day‘s prices and yields, as well as their respective movements on the day for all European Government issues. Reports are checked by both the evaluator and desk manager for any final changes that might need to be made before the prices are released.
Yield Curve Analysis The European Government pricing model allows evaluators to view yields on Government issues in logical order.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
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Part III: Derivative Methodologies
Chapter 24: Interest Rate Swaps Terms and Conditions
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24 Interest Rate Swaps
Thomson Reuters Pricing Service (TRPS) provides end of day net present values (NPV) and prices of interest rate swaps (IRS) on over 40 currencies.
Terms and conditions provided by customer
Thomson Reuters proprietary swap pricing model
Zero coupon curves and benchmark curves sourced from Thomson Reuters vast contribution network and evaluation staff
Quality control checks
Terms and Conditions
Interest Rate Swaps are private transactions between swap participants. Customers are required to supply terms and conditions for each swap. The following information is an example of the terms and conditions required:
Item Description
Identifier Internal identifier provided by the customer.
Notional Amount Face amount of the IRS. Thomson Reuters does not need to know the actual amount, but some default value must be given.
Currency The currency of the IRS transaction.
Paying Leg Is the customer paying the fixed or floating rate?
Fixed Rate This is the coupon of the fixed leg.
Fixed Frequency The number of cash flows per year of the fixed leg.
Fixed Day Count The fixed leg interest accrual convention.
Floating Index Index used to determine floating rate (for example LIBOR).
Floating Index Term The frequency of floating rate resets per year.
Floating Index Margin Spread over index used to determine floating rate.
Floating Frequency The number of cash flows per year for the floating leg.
Floating Day Count The floating leg interest accrual convention.
Effective Date The date on which the cash flows of the IRS start accruing (can be forward).
Maturity Date The end date of the IRS.
Chapter 24: Interest Rate Swaps Proprietary Swap Pricing Model
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Terms and conditions can be communicated via file format, or customers can create their own instruments by using this DataScope Select interface:
Proprietary Swap Pricing Model
TRPS employs a proprietary IRS pricing model to calculate the NPV of the swap. Customer delivered terms and conditions, combined with the appropriate zero curve, are used to project forward rates and discount cash flows. The discounted cash flows from both legs of the swap are netted to arrive at the final NPV. The zero curve to be used is based on the currency of the swap, and the reset tenor of the floating index.
Zero Coupon Swap Curves
Thomson Reuters derives zero curves denominated in nearly 40 currencies. These curves are created from broker-contributed real-time market instruments, including deposits, futures, and interest rate swaps. In most cases, the zero curves are created or “bootstrapped” based on the tenor of the relevant floating index. For example, an IRS that exchanges a fixed rate for USD three-month LIBOR will use a zero curve that is bootstrapped using three-month market instruments. Alternatively, an IRS that exchanges a fixed rate for USD six-month LIBOR will use a zero curve that is bootstrapped using six-month market instruments. The zero curves are validated by the Thomson Reuters evaluation staff.
Thomson Reuters is also able to price collateralized interest rate swaps using an overnight index swap (OIS)-based curve for discounting cash flows. Interest rate swaps collateralized either through a credit support annex (CSA) or a clearinghouse should use OIS discounting methodology to reflect the lower risk implied by secured forward payments. OIS curves imply risk-free discounting, as opposed to the higher degree of risk implied by LIBOR discounting. Collateral posted typically earns interest at the OIS rate rather than the higher LIBOR rate.
TRPS OIS-based zero curves are derived wholly from traded OIS instruments, using a constant forward-rate bootstrapping methodology. Forward cash flows will continue to be projected using LIBOR-based zero curves, only the way that these cash flows are to be discounted has changed.
OIS curve should be denominated in the currency of posted collateral.
Chapter 24: Interest Rate Swaps Quality Control Checks
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OIS curves are available for IRS in AUD, CAD, CHF, DKK, EUR, GBP, INR, JPY, NZD, PLN, SEK, and USD.
Non-collateralized IRS should continue to use LIBOR-based zero curves for discounting to account for a higher degree of risk.
At IRS inception or when LIBOR-OIS spreads are narrow, the difference in discounting methodology will be minimal.
When LIBOR-OIS spreads diverge widely, there can be material differences in MTM depending on discounting methodology used.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Real Time IRS Curve Tolerance Report
Thomson Reuters contributions group validates all IRS curves throughout day. All suspect data is checked with the broker dealer contributor.
End of Day Tolerance Report Evaluators within Thomson Reuters Pricing Service (TRPS) check each curve’s day to day movements before each contract is processed.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 25: Credit Default Swaps Terms and Conditions
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25 Credit Default Swaps
Thomson Reuters provides end of day net present values (NPV) on credit default swaps (CDS), loan CDS, municipal CDS, and index CDS. Each deal is individually priced by incorporating the following information, techniques, and resources:
Terms and conditions provided by the customer
Credit curves and recovery rates maintained by Thomson Reuters evaluation staff
Street standard CDS calculation analytics
Quality control checks
Terms and Conditions
Credit default swaps are private transactions between swap participants. Customers are required to supply terms and conditions for each swap. The following information is an example of the terms and conditions required:
Item Description
Identifier Internal identifier provided by the customer.
Entity Name Name of the entity that the protection is bought or sold on.
Currency The currency in which the premium is paid.
Effective Date Start date of the contract.
Maturity Date The termination date of the CDS.
Notional Amount The face amount of the CDS. Thomson Reuters does not need to know the actual amount, as long as some default value is given.
Original Premium This is the number of basis points paid yearly for protection.
Upfront payment Fee paid at beginning of contract expressed in basis points.
Buy/Sell Customer must indicate whether they bought or sold the credit protection.
Frequency The number of premium payments per year.
Day Count The day count convention.
Restructuring Type Mod, MMR, Full, and No Restructuring.
Reference Obligation Identifier CUSIP, ISIN, SEDOL, etc.
Reference Obligation Description Description of the bond or reference obligation. For example, name, ticker, etc.
Reference Obligation Coupon Coupon on the reference obligation.
Reference Obligation Maturity Date
Maturity date of the reference obligation.
Reference Obligation Seniority Senior or Subordinate.
Chapter 25: Credit Default Swaps Credit Curves and Recovery Rates
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Sample CDS terms and conditions entry interface on DSS
Credit Curves and Recovery Rates
Thomson Reuters Pricing Service (TRPS) maintains credit curves and recovery rates on individual reference names. TRPS receives up to 2,500 real-time credit curves and recovery rates daily. Our CDS evaluators populate credit curves by soliciting spreads directly from the dealer community, and from Thomson Reuters vast dealer contribution network. They also work closely with our bond evaluators and our news desks that monitor new issue markets, latest prices and spreads, credit stories, and market events.
Sample CDS term structure of Thomson Reuters Group:
Street Standard CDS Calculation
Thomson Reuters incorporates CDS analytics that are consistent with the market standard International Swaps and Derivatives Association (ISDA) calculator, which is calibrated for Big Bang and Small Bang protocol. Inputs into the calculation model include TRPS credit curves, TRPS recovery rates, and zero coupon swap curves. Zero coupon swap rates are obtained from broker dealer contributors available on Thomson Reuters real-time network.
Chapter 25: Credit Default Swaps Quality Control Checks
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Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Tolerance Report A daily report that shows all bonds moving by more than a predetermined percentage.
Unchanged Report A daily report that alerts the evaluation team of any bond that has not changed in price in the last five business days. Evaluators attempt to obtain new broker quotes on these issues.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 26: Over-the-Counter Equity Options Terms and Conditions
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26 Over-the-Counter Equity Options
Thomson Reuters provides end of day over-the-counter (OTC) equity option valuations. Each contract is individually priced by incorporating the following information, techniques, and resources:
Terms and conditions provided by the customer
Zero coupon swap curves from Thomson Reuters dealer contribution network
Implied and historical volatilities
Equity price and dividend yield
Proprietary option pricing model
Quality control checks
Terms and Conditions
OTC equity options are private transactions between the participants. Customers are required to supply terms and conditions for each instrument. The following information is required:
Item Description
Identifier Customer provides their own internal identifier.
Description A description of the issue.
Currency Currency of the transaction.
Equity Ticker Stock ticker symbol.
Option Expiry Date Termination date of the option.
Option Type Call or put.
Exercise Type American/European.
Strike price Option exercise price.
Zero Coupon Swap Curves
Zero coupon swap curves are derived from liquid swap rates available on Thomson Reuters vast dealer contribution network. Curves are calculated using the standard bootstrapping in conjunction with a cubic spline interpolation of the continuously compounded rate.
Implied and Historical Volatilities
Thomson Reuters incorporates both implied and historic volatility in the option calculation. Implied volatility is used if active listed options exist for the same underlying equity with similar tenors and strike prices. Thomson Reuters has access to all global listed options. If an implied volatility is not available, a 75-day historical moving average is calculated. A 75-day volatility is consistent with observable quotes in the market.
Chapter 26: Over-the-Counter Equity Options Equity Price and Dividend Yield
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Equity Price and Dividend Yield
Equity prices and dividend yields are sourced from global exchanges. Closing prices are used for all calculations.
Proprietary Option Pricing Model
Thomson Reuters Option Pricing Model uses proprietary software to incorporate the above user inputs with market exchange rates, interest rates, and volatility term structures to arrive at an option premium. The option calculator uses a form of the Black & Scholes model.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Tolerance Check Description
Underlying Equity If the closing equity price varies by more than 40% from the previous day’s closing price, the OTC equity option is not calculated. Evaluators must research the issue.
Dividend Yield If the dividend yield varies by more than 40% from the previous day, the option is calculated using the previous day’s dividend yield. Evaluators will research why the yield changed for future calculations.
Zero Coupon Swap Rate If the swap rates vary by more than 20% from the previous day’s rates, the option is priced using the previous day’s rates. Evaluators will research the curve for future calculations.
Implied Volatility If the implied volatility varies by more than 25% from the previous day’s volatility (historic or implied), the historic volatility is used to calculate the option premium. Evaluators will research why the implied volatility changed for future calculations.
Volatility Cap If the implied volatility is over 75%, it is rejected in favor of historical volatility. If the historic volatility is over 75%, a cap of 65% is used to calculate the option premium.
Historic Volatility If the historic volatility varies from the previous day by more than 25%, the previous day’s historic volatility is used to calculate the option premium. Evaluators will research the historic volatility for future calculations.
Chapter 26: Over-the-Counter Equity Options Customer Service
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Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 27: Currency Options Coverage
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27 Currency Options
Thomson Reuters Pricing Service (TRPS) provides end of day premium values on currency options. Each option is individually priced using the following information:
Terms and conditions provided by the customer
FX rates, volatilities, and interest rate curves derived from Thomson Reuters dealer contribution network and Thomson Reuters evaluation team
Thomson Reuters proprietary option pricing model
Coverage
TRPS evaluates currency options contracted in most major and emerging market currency pairs.
Terms and Conditions
Currency Options are private transactions between participants. Customers are required to supply terms and conditions for each transaction. The following information is an example of the terms and conditions required:
Item Description
Identifier Internal identifier provided by the customer.
Notional Currency Currency in which the option is priced.
Currency Pair The two currencies that are being bought or sold.
Type of Option Call or put.
Exercise Type European or American.
Option Expiry Date Final date on which the option can be exercised.
Option Strike Price The price for which the currency can be purchased or sold.
Thomson Reuters Pricing Model
Thomson Reuters employs a Black Scholes option pricing model within its proprietary Adfin OpPremium function. This model returns the premium value of the call or put option to exchange currencies at the strike rate. Model inputs include foreign exchange spot rates, currency volatility, and zero coupon swap curves. We will provide the value of this option premium in terms of the notional currency.
Foreign Exchange (FX) Rates
Thomson Reuters is recognized as the leader in FX transaction platforms. TRPS is able to leverage this position to obtain the best real-time foreign exchange pricing data available.
Chapter 27: Currency Options Swap Zero Rates
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Swap Zero Rates
Zero coupon swap curves are derived from liquid deposit, future, and swap rates available on Thomson Reuters vast dealer contribution network. These zero curves are calculated using standard bootstrapping methods, and are used in the OpPremium function as a Black Scholes option model input.
Volatility
Option volatilities are interpolated from Thomson Reuters FX option volatility surfaces calculated using Adfin Analytics and real-time values from major brokers.
Delivery
Currency Option premiums are delivered in a spreadsheet format either by email or ftp shortly after 16:00 ET each business day.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Market Data Test This report shows the latest changes on all market data used for evaluations.
Final Price Tolerance Check This report shows all premiums that move by more than a pre-determined percentage. All issues are investigated before final release to customers.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 28: Interest Rate Swaptions Coverage
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28 Interest Rate Swaptions
Thomson Reuters Pricing Service (TRPS) provides end of day prices of interest rate swaptions. A swaption is an option to enter into a fixed-for-float interest rate swap at a predetermined fixed or “strike” rate. The floating leg of the swap is determined in part by a referenced index.
Coverage
TRPS presently covers interest rate swaptions denominated in the following currencies:
AUD, GBP, CAD, CHF, CNY, CZK, DKK, EUR, HUF, JPY, KRW, MXN, NOK, PLN, SEK, TWD, THB, and USD.
TRPS can price swaptions with European, Bermudan, or American style execution.
Pricing
Each swaption is individually priced using the following information:
Terms and conditions provided by customer
Zero coupon curves and volatilities sourced from Thomson Reuters vast contribution network and evaluation staff
Thomson Reuters proprietary swaption pricing model
Quality control checks
Terms and Conditions
Interest rate swaptions are private transactions between participants. Customers are required to supply terms and conditions for each swaption. The following information is an example of the terms and conditions required:
Item Description
Identifier Internal identifier provided by the customer.
Notional Amount Face amount of the swaption.
Currency Currency of the swaption transaction.
Swaption Type Call (fixed receiver) or put (fixed payer).
Margin Margin on the floating rate.
Swaption Expiry Date Termination date of the swaption.
Swap Effective Date The date on which the cash flows of the swaption start accruing (can be forward).
Swap Maturity Date The end date of the swaption.
Swaption Strike Fixed rate of the swap on which the swaption is struck.
Floating Index Index used to determine floating rate (for example LIBOR).
Floating Reset Frequency Frequency of floating rate resets.
Chapter 28: Interest Rate Swaptions Calculation
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Item Description
Floating Payment Frequency
Cash flows per year of floating leg.
Floating Day Count Floating leg interest accrual convention.
Fixed Payment Frequency Cash flows per year of fixed leg.
Fixed Day Count Fixed leg interest accrual convention.
Calculation
Thomson Reuters employs a form of the Black option pricing model within its proprietary Adfin analytics for European style swaptions. A Black-Derman-Toy option pricing model, also within the Adfin function, is used for Bermudan and American style swaptions. This model returns the premium value of the option to pay or receive the fixed rate on an interest rate swap. The option valuation depends heavily on the volatility input, as well as the zero interest rate curves. Volatilities are contributed from Thomson Reuters broker network, and when available, volatilities are adjusted for the skew that results from an option being in or out of the money.
Zero Coupon Swap Curves
Thomson Reuters derives zero curves denominated in nearly 40 currencies. These curves are created from broker-contributed real-time market instruments, including deposits, futures, and interest rate swaps. In most cases, the zero curves are created or “bootstrapped” based on the tenor of the relevant floating index. For example, a swaption on an IRS that exchanges a fixed rate for USD three month Libor will use a zero curve that is bootstrapped using three month market instruments. Alternatively, for a swaption on an IRS that exchanges a fixed rate for USD six month Libor will use a zero curve that is bootstrapped using six month market instruments. The zero curves are validated by Thomson Reuters evaluation staff.
Quality Control check
Thomson Reuters makes every effort to ensure the accuracy of the Interest Rate Swaption pricing. Zero coupon swap curves and volatilities are checked daily for errors and significant movement. Pricing files are verified by a pricing analyst, before they are delivered to customers.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 29: Loan Total Return Swaps Terms and Conditions
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29 Loan Total Return Swaps
Thomson Reuters provides end of day values on loan total return swap (LTRS) securities. Each LTRS is individually evaluated by incorporating the following information, techniques, and resources:
Terms and conditions provided by the customer
Currency based LTRS zero curve sourced from Thomson Reuters
Daily loan prices sourced from Thomson Reuters LPC
Loan based total return swap analytics
Quality control checks
Terms and Conditions
Loan total return swaps are private transactions between the participants. Customers are required to supply terms and conditions for each LTRS. The following information is required:
Item Description
Security ID Internal security identifier provided by the customer.
Notional Amount The face amount of the LTRS.
Currency Currency of the LTRS transaction.
Underlying Loan Borrower Name The issuer of the underlying loan.
Underlying Loan Identifier (LIN) Thomson Reuters LPC identifier for the underlying loan.
Underlying Loan Margin The spread over the index for the underlying loan.
Underlying Loan Maturity Date The maturity date of the underlying loan.
Underlying Loan Tranche Type The tranche type of the underlying loan.
Index Reference (usually 3month Libor) The reference index used to pay the coupon of the underlying loan.
Frequency (usually Quarterly) The coupon frequency of the underlying loan.
Funding Leg Margin The interest paid by the LTRS buyer.
SWAP Coupon Frequency The funding leg payment frequency.
SWAP maturity date The date the swap expires.
Currency Based LTRS Zero Curve
A swap zero curve is used to discount the future cash flows on the interest and capital gains earned and or lost. The curve is calculated using the standard bootstrapping in conjunction with a cubic spline interpolation of the continuously compounded rate. This ensures that the input source rates can be derived exactly from the zero curve, and that the instantaneous forward rate is continuous.
Chapter 29: Loan Total Return Swaps Daily Loan Prices Sourced From Thomson Reuters LPC
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Thomson Reuters zero curve is created from the most liquid interest rate instruments that are available including a combination of deposits, liquid futures, and interest rate swaps. For example:
Deposit rates: ON, TN, SW, 1M, 2M, 3M, 6M, 9M, and 1Y.
Futures: First 6 International Money Market (IMM) contracts.
Interest Rate Swaps: From 2 to 30 years (where available)
Daily Loan Prices Sourced From Thomson Reuters LPC
The return’s leg capital gain/loss is dependent on the performance of the underlying loan. Syndicated bank loan prices are evaluated by Thomson Reuters Pricing Service (TRPS) using the average of bids and offers obtained from the broker/dealer community involved in trading syndicated loans. Thomson Reuters then produces a simple average of the most recently collected bids and offers. The final Thomson Reuters Mark to Market composite price is generated at 15:00 ET. Once a loan price is given, the model calculates a current yield. The Thomson Reuters LTRS model assumes a constant yield from present to maturity for capital gain calculation purposes.
Loan Based Total Return SWAP Analytics
Final values are derived by Thomson Reuters LTRS model. Each component of the LTRS, income and capital gain, is priced separately. The net present value (NPV) of the income portion is calculated by discounting the difference between the funding and return interest. Discount factors used in the calculation are derived from the LTRS zero curve, as described above. The capital gain of the underlying loan portion is calculated by discounting future returns, assuming the same current yield of the loan is maintained to maturity. Because a Syndicated Loan’s tenor can be extended, a T+4 year maturity is assumed (current market standard). For a LTRS with a tenor greater than four years, the loan maturity will equal the LTRS maturity date. The Thomson Reuters LTRS model assumes that the payments from both funding and return legs occur on the same dates. Finally, the NPV from both portions are totaled to produce the LTRS NPV.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Unchanged Price Report This report shows which LTRS securities have not changed in value. All unchanged issues are flagged and verified.
Price Direction Report This report compares LTRS movement with the underlying loan and interest movement. This test ensures that LTRS securities move when there is movement in the underlying loan and interest.
File Completeness Report This report verifies that every LTRS requested by a customer has a NPV.
Chapter 29: Loan Total Return Swaps Customer Service
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Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 30: Structured Notes Terms and Conditions
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30 Structured Notes
Thomson Reuters provides end of day prices on structured notes. Structured notes are fixed income instruments tailored to individual investor needs. Their return is often dependent upon the performance of other financial instruments. Structures can vary, but typically consist of a coupon or zero coupon paying bond and plain vanilla or exotic options.
Thomson Reuters coverage includes the following:
Equity linked notes
Commodity linked notes
Index linked notes
Currency linked notes
Each note is individually priced using the following information, techniques, and resources:
Terms and conditions
Volatility
Thomson Reuters evaluation staff
Thomson Reuters bond and option analytics
Quality control checks
Terms and Conditions
Terms and condition are obtained by Thomson Reuters data staff from original prospectuses and offering documents. Most public deals are available. For private issues, customers must provide deal terms and all necessary information.
Volatility
Evaluations incorporate implied volatilities derived from exchange listed contracts and Thomson Reuters dealer contribution network. These volatilities are computed by reverse engineering option premiums on traded options with similar maturities and strike prices. If implied volatility is not available, evaluations default to historical volatility. Historic volatility is calculated from Thomson Reuters time series database.
Thomson Reuters Evaluation Staff
Thomson Reuters derivative team members are located in offices throughout the world (US, Tokyo, London, and Bangalore). Team members consist of experienced evaluators of fixed income instruments and derivatives. Their mathematical and financial backgrounds allow them to reverse engineer complex structures, price the individual parts, and re-package to price the structured note.
Chapter 30: Structured Notes Bond and Option Analytics
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Bond and Option Analytics
Final prices are derived from Thomson Reuters proprietary bond and option models. Each component of the note is priced separately. The bond portion is calculated by discounting future cash flows with a zero coupon swap curve plus a risk premium, supplied by the evaluation desk. The option portion is calculated using a Black Scholes pricing model that incorporates volatility, maturity, strike, spot prices, dividend, and risk free rates. Option calculations can vary. For plain vanilla and barrier options, premiums are calculated with a closed form function. For baskets, the Monte Carlo simulation is used. The final price is the sum of the bond and option portions. This methodology accurately accounts for features found in structured notes such as the following:
Principal protection
Multiplier participation
Barriers
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Price Movement Report A daily report that compares current values to previous day values. All issues that move more than 5% are flagged and verified.
Unchanged Report A report that alerts the evaluation team of any structured note that has not changed in price in the last five business days. Evaluators attempt to obtain new broker quotes on these issues.
Price Direction Report A report that compares structured note movement with the underlying movement. This ensures that structured notes move in a related direction of the underlying.
Underlying Equity Price Report A report that monitors underlying movements. Analysts research any underlying with an unusual price movement.
File Completeness Report A report that verifies that every structured note requested by a customer has a price.
Chapter 30: Structured Notes Customer Service
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Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Chapter 31: Equity/Index Based Total Return Swaps Coverage
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31 Equity/Index Based Total Return Swaps
Thomson Reuters provides end of day net present values on total return swaps (TRS). These include: equity swaps and index swaps. TRS are private transactions where two counterparties contract to exchange the periodic capital gains (losses) and dividends from an equity or index for a fixed interest rate, a floating interest rate or the returns on another equity or index. These exchanges are based on a notional principal amount and have a periodic payment schedule.
Coverage
Thomson Reuters evaluates equity swaps and Index TRS based upon all listed equities and indices in most major currencies. Coverage also includes many non-listed indices that are contributed by Thomson Reuters dealer contribution network. Each TRS is individually evaluated by incorporating the following information:
Terms and conditions
Intrinsic valuation approach
Market data
Quality control checks
Terms and Conditions
Since TRS are private transactions between two counterparties, customers are required to supply terms and conditions for each swap. To capture all details unique to each contract, it is suggested that customers provide term sheets for each TRS.
Relevant terms of a TRS include:
Equity/Index ticker
Return leg instrument
Funding leg instrument
Effective date, reset dates, valuation dates, and termination date
Notional principal amount
Initial equity, index, and/or floating rate
Frequency
Intrinsic Valuation Method
This is the most common method for pricing TRS. It assumes that equity/index prices will change in value from valuation date to maturity by the same rate of change as the risk free rate.
Each leg (funding and return) is calculated from current spot rates and/or the appropriate reference rates along with accrued interest or dividends. The final NPV is the difference between the two legs.
Chapter 31: Equity/Index Based Total Return Swaps Market Data
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Market Data
All market data is obtained from Thomson Reuters evaluation staff and vast dealer contribution network. This includes reference interest rates, interest rate curves, equity prices, dividend rates, and index prices.
Quality Control Checks
Thomson Reuters employs vigorous quality control checks to ensure pricing accuracy. All issues must be reviewed by the assigned evaluator. Issues that are flagged as outliers must also be reviewed by the desk team leader before the prices are released to customers. The following quality control tests are incorporated into the evaluation process:
Report Type Description
Price Movement Report A daily report that compares current values to previous day values. All issues that move more than 5% are flagged and verified.
Unchanged Report A report that alerts the evaluation team of any structured note that has not changed in price in the last five business days. Evaluators attempt to obtain new broker quotes on these issues.
Price Direction Report A report that compares structured note movement with the underlying movement. This ensures that structured notes move in a related direction of the underlying movement.
Underlying Equity Price Report A report that monitors underlying movements. Analysts research any underlying with an unusual price movement.
File Completeness Report A report that verifies that every structured note requested by a customer has a price.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
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Part IV: General Methodologies
Appendix A: Topic 820 Security Terms and Conditions
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32 Indicative Optimized Portfolio Valuation
Thomson Reuters provides indicative optimized portfolio valuation (IOPV) for all exchanged traded funds (ETF) by incorporating the following information, techniques, and resources:
Security terms and conditions from Thomson Reuters.
Real time equity prices from all major exchanges.
Intraday bond price spread updates from Thomson Reuters Pricing Service (TRPS).
Benchmark curves from Thomson Reuters real time data feeds.
Real time IOPV prices available on the Thomson Reuters real time network.
Delivery via Elektron hosting capability.
Security Terms and Conditions
Thomson Reuters collects and maintains terms and conditions on over three million financial securities. Global teams in local offices capture new issue information through electronic sources and direct dealer solicitation. Most new issues are available in the Thomson Reuters database 45 minutes after announcement. Full terms and conditions are added by the data team — a staff of over 1,000 analysts who employ over 200 quality control checks to insure accuracy.
Real Time Equity Pricing from All Major Exchanges
Thomson Reuters has relationships with all primary and secondary exchanges. Real time prices are available on all exchange-traded instruments through Thomson Reuters Integrated Data Network (IDN).
Intraday Price / Spread Updates from TRPS
Evaluated bond pricing is generated by TRPS, a team of over 100 fixed income professionals located in Singapore, Sydney, Tokyo, London, and New York. They incorporate available market data including trade prices, broker quotations, the new issue market, and news to produce a fair value of over 2.4 million securities. Evaluators update spreads throughout the day reflecting any significant trading or credit risk changes. Customer can interact directly with the evaluation team to discuss current spread assumptions. All price challenges are responded to on a same day basis.
Benchmark Curves from Thomson Reuters Real Time Data Network
Benchmark curves are sourced from live data contributions available on Thomson Reuters IDN. These contributions are supplied by major broker dealers on a real time basis. The data team monitors this critical data and performs daily quality control checks to ensure data timeliness and accuracy.
IOPV Prices Available on Thomson Reuters Real Time Network
Thomson Reuters calculates IOPV on a real time basis by incorporating real time benchmarks, TRPS intraday pricing, and intraday equity prices. Final IOPV is published via RIC (Reuters Instrument Code) and available on Thomson Reuters real time data network (IDN).
Appendix A: Topic 820 Delivery via Elektron Hosting Capability
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Delivery via Elektron Hosting Capability
Our IOPV services can be provided turnkey via our Elektron service. Elektron is a global, ultra-high speed and resilient cloud for the financial services industry. Integral to this service are strategically located proximity hosting sites in all major financial centers with high-speed connectivity to an execution venue’s own co-location sites.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Appendix A: Topic 820 Latest Prices / Spreads from Asian and European Pricing Desk
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33 Fixed Income Global Snapshot (FIGS)
Thomson Reuters provides evaluated prices on Asian and European fixed income securities at 15:00 and 16:00 New York time. Each issue is individually priced by incorporating the following information, techniques, and resources:
Prices / spreads from Thomson Reuters evaluation staff located in Asia and London.
15:00 and 16:00 New York time benchmark curve updates.
Spread changes reflecting perceived credit changes in industry, sector, and issuer at 15:00 and 16:00 New York time.
Quality control checks.
Latest Prices / Spreads from Asian and European Pricing Desk
Thomson Reuters evaluation staff in Europe (London) and Asia (Singapore, Tokyo, Sydney) provide prices on fixed income instruments using standard pricing methodologies (see methodology documents) which incorporate trade prices, broker quotes, and market news. The final prices, spreads, and yields are passed to the New York based staff to continue the same process in a New York timeframe.
Benchmark Curve Updates
Many bonds evaluated by TRPS are benchmarked against government curves and swap curves. All benchmark curves will be adjusted at 15:00 and 16:00 New York time. Rates can be updated from a number of sources including dealer quotations, futures, and other interest rate indicators.
Spread Updates
Spreads will be updated by the New York based evaluation staff. This staff will monitor appropriate market data, including but not limited to benchmark curves, futures markets, CDS curves, and industry / sector / issuer news. Final spreads will be updated to reflect current information available.
Quality Control
Thomson Reuters employs vigorous quality control checks to insure pricing accuracy. All issues that are flagged must be viewed by the assigned evaluator, as well as by the desk team leader, before prices are released to customers. The following four reports are used in the quality control process:
Quality Check Description
Unchanged Report A daily report that alerts the evaluation team to any price that has not changed in the last 5 business days. Evaluators are responsible for checking each of these issues and providing a detailed report as to why the price is stale.
Tolerance Report A daily report that shows all bonds moving by more than 2% from the prior day. Evaluators must approve the change and give a detailed report on the movement before prices can be released to customers.
Yield Curve Report A daily report that shows the change of all points in every benchmark curve used for Thomson Reuters evaluations.
Recipe Report Daily report that alerts local evaluator of all spread / price changes that occurred in New York time frame.
Appendix A: Topic 820 Days of Coverage or Holiday Coverage
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Days of Coverage or Holiday Coverage
Thomson Reuters provides evaluations on all fixed income securities and derivatives every weekday, regardless of market holiday. This includes all Asian, EMEA, and North American prices. Asian and EMEA prices will be available at their local snapshot times and at the New York snapshot times every weekday.
Sample Bond
The sample bond illustrates how the bonds will be adjusted at the New York time zones:
Barclays Bank PLC Medium Term Note: 4.875 08/13/19 Euro Currency
Snapshot Time
Benchmark
Credit Spread
Final Yield
Final Price Evaluation Comment Name Rate
London 09:00 Euro Swaps 2.16% 228 4.44% 102.793 Value from previous night
London 16:15 Euro Swaps 2.20% 225 4.45% 102.714 Benchmark change, bank spreads tighten
London 18:00 Euro Swaps 2.21% 225 4.46% 102.649 Benchmark change
New York 15:00 Euro Swaps 2.20% 223 4.43% 102.845 Benchmark change, spreads tighten further
New York 16:00 Euro Swaps 2.21% 223 4.44% 102.793 Benchmark change
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Appendix A: Topic 820 What Is Topic 820?
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Appendix A Topic 820
The Federal Accounting Standards Board issued Topic 820 (formerly known as FAS 157) to establish a framework to measure fair value. Thomson Reuters supplies exchange-traded, dealer-contributed, and evaluated pricing to many financial institutions that need to comply with Topic 820. Thomson Reuters data collection methods and evaluation techniques are consistent with the techniques stated in Topic 820.
This document includes:
A clear explanation of Topic 820.
A table describing the pricing methods and levels that are consistent with Topic 820.
What Is Topic 820?
Topic 820 establishes a framework for fair value in generally accepted accounting principles. It applies to the fair value of all the assets and liabilities that are subject to accounting measurement. Prior to Topic 820, there were different definitions of fair value.
Treatment of Assets
The fair value is the price that would be received if an asset were sold in a hypothetical sale. It is not a forced transaction. The seller has time to find a buyer. The sale takes place in the principal market that the asset is normally sold, and the price is not adjusted for transaction costs. The market participants (buyer or seller) must be knowledgeable, able to transact, not forced to transact, and not related to each other.
Treatment of Liabilities
This is the same as treatment of assets. It assumes that the non-performance risk of the liability is the same before and after the liability is transferred.
Valuation Techniques
There are three types of valuation techniques that are acceptable for fair market value:
Market approach uses actual prices and all relevant information. It includes model pricing, defined as valuing securities based upon their relationship with other benchmark securities.
Income approach simply means the present value of future cash flows. It includes mathematical models, including option models such as the Black Scholes Merton formula, binomial models, and others.
Cost approach is the amount needed to replace the capacity of the asset.
Sometimes a single approach is valid, other times a combination is required. This will vary by asset class. The approach should be consistent, but can change when necessary. There are two types of inputs: observable and unobservable. Observable can be seen in the market; unobservable are assumptions based upon the best available information. The use of observable inputs should be maximized; unobservable inputs should be minimized.
Appendix A: Topic 820 Three Levels of Inputs
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Three Levels of Inputs
The techniques above require inputs. These inputs can be placed in three categories:
Level 1. Quoted prices in active markets on actual asset.
Level 2. Inputs other than quoted prices in level 1 that are observable, including:
Quoted prices on similar assets in active markets.
Quoted prices on actual assets that are not active.
Inputs other than quoted prices such as yield curves, volatilities, prepayments speeds.
Inputs derived from market data.
Level 3. All unobservable inputs.
Disclosures
When reporting fair value measurements, the following inputs must be reported:
Reporting date.
Level of input.
Details of level 3 inputs.
Valuation technique.
Methods and Input Levels
Asset Class Evaluation method
Levels Coverage Methodology
Foreign Exchange Rates
Market 1 All Prices are received real time from active market makers.
Global equities, ETFs, closed end funds
Market 1 All Prices are received from all primary and secondary exchanges.
Global options and futures
Market 1 All Prices are received from all primary and secondary exchanges.
Global commodities
Market 1 All Prices are received from all primary and secondary exchanges.
US Treasury securities
Market 1 Bills
Notes
Bonds
TIPS
Dealer quotes from five active market makers and real-time trading systems.
Global Sovereign Market 2 All Prices for liquid issues are obtained directly from market participants. Less liquid issues are benchmarked off liquid issues based up trading activity and observable quotes.
Appendix A: Topic 820 Disclosures
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Asset Class Evaluation method
Levels Coverage Methodology
US agency debentures
Market 2 Fixed rate
Floating rate
Callable
OAS model which incorporates LIBOR/swap forward curve, credit spreads, and interest rate volatilities. LIBOR/swap curves are sourced from multiple dealer sources. Credit spreads are obtained from the new issue market, dealer quotes, and trade prices. Interest rate volatilities are observed from the dealer-quoted swaptions market.
Global investment grade corporate
Market 2 Fixed rate
Floating rate
All currencies
Short-term issues priced using spread of the LIBOR curve. Longer-term issues are priced using spread of risk free curves – swaps or government. Spreads are determined from new issue market, actual trades, and direct dealer contacts. Issues with embedded options are priced via OAS model.
Commercial paper
Market 2 Discount
Interest bearing
Issues are spread of the LIBOR curve. Spreads are obtained from new issue market, FRB bulletin, and direct dealer quotes.
Certificates of deposit
Market 2 Fixed
Floating
Callable
Short terms issues are spread of the LIBOR curve. Longer-term issues are priced off government curve. Spreads are obtained from new issue market and direct dealer quotes.
High yield corporate
Market 2 Fixed rate
Floating rate
Issue underwriters are the main dealer source, but prices are received from multiple dealers. Evaluators determine which dealer has the best market for each security.
Global bank loans
Market 2 All Prices reflect an average of dealer quotes from multiple dealer sources.
MBS TBA Market 1 Fixed rate
Balloons
Prices are obtained from market makers and live trading systems.
MBS pools Market 2 Fixed rate All seasoned pools are priced off MBS TBA prices .TBA prices are obtained from market makers and live trading systems. Seasoned quotes are obtained from dealer community and trade prices.
MBS ARMS Market 2 CMT
COFI
MTA
LIBOR
Priced by bond equivalent effective margin. Margins are primarily sourced from new issue market and dealer quotes.
Appendix A: Topic 820 Disclosures
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Asset Class Evaluation method
Levels Coverage Methodology
MBS hybrid ARMS
Market 2 3 -1
5-1
7-1
10-1
IO
Priced via z-spread to next average reset date. Spreads are obtained from the new issue market, trade prices, and dealer quotes.
Agency CMO Market 2 Fixed rate
Floating rate
IO and PO
All tranche types
Priced by model that matches tranche type and collateral coupon with appropriate payments speeds and spreads. The Andrew Davidson (street accepted) prepayment model is incorporated along with internal OAS model (see Fed agency debentures) to create average life.
Spreads are based upon tranche type and average life volatility.
Spreads are gathered from dealer quotes, trade prices, and the new issue market.
Non-agency CMO
Market 2 Fixed rate
hybrid collateral
All tranche types
All issues are individually priced with speed and spread based upon rating, collateral, and tranche type.
Spreads and speeds are sourced from the new issue market, dealer quotes, and trade prices.
ABS Market 2 Auto,
Credit card
MH
Marine
Home equity
All tranche types
All issues are individually priced with speed and spread based upon rating, collateral, and tranche type.
Spreads and speeds are sourced from the new issue market, dealer quotes, and trade prices.
CMBS Market 2 All Cash flows obtained from Trepp PLC, the leading provider of CMBS data and analytics.
All investment-grade issues are priced via spread over swap curve.
All high yields are priced via spread over treasury curve.
CLO Market 2 Global cash CLO Cash flows are obtained from Moody’s Analytics.
All issues are individually priced using spreads, prepayment speeds, and credit assumptions obtained from market participants and trade prices.
Appendix A: Topic 820 Customer Service
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Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
Appendix B: Intraday Evaluated Pricing Price Recipes from TRPS
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Appendix B Intraday Evaluated Pricing
Thomson Reuters Pricing Service (TRPS) provides intraday evaluated pricing on the following asset classes:
Global Sovereign Debt
Global Investment Grade Corporate Bonds
Global High Yield Corporate Bonds
Global Money Market Securities
These evaluated prices are available during market hours and are updated continuously with benchmark rates and the latest evaluated pricing recipe. Thomson Reuters intraday evaluated prices are calculated and delivered using the following techniques, data, and resources:
Price recipes from Thomson Reuters Pricing Service (TRPS) evaluators
Real time benchmark updates from the Thomson Reuters electronic network
System-generated Intraday quality control performed by TRPS
File delivery through DataScope Select (DSS)
Price Recipes from TRPS
Intraday evaluation methodologies are consistent with the end of day evaluation methodologies as described within the Thomson Reuters Fixed Income and Derivative Evaluated Pricing Methodology Guide. Thomson Reuters Pricing Service evaluators, a team of over 115 fixed income specialists, update credit spreads and bond prices throughout the day. Spreads are obtained from trade prices, dealer quotes, and the primary new issue market.
Real Time Benchmark Updates
Benchmark curves are available on the Thomson Reuters real time data network. These curves are updated throughout the day from contributing market makers and brokers. Many bond pricing recipes are linked to a benchmark curve that is associated with the bond’s market and asset class.
Intraday prices are benchmark adjusted throughout the day incorporating a yield derived from the latest TRPS price recipe and appropriate benchmark point which “ticks” continuously 24/5 around the globe.
Intraday Quality Control Checks
TRPS evaluators perform quality control checks on a periodic basis throughout the day. The following quality control tests are incorporated into the intraday evaluation process to insure pricing accuracy:
Yield Curve Analysis: Changing yield curves play an important role in the intraday pricing process. Since most yields update on a real time basis, they serve as a major contribution to price movement. Yield curve quality checks are performed by two teams – the Fixed Income Content Team and TRPS. The Fixed Income Content Team monitors all real time benchmark curves for consistency and accuracy and proactively contacts contributing dealers when curve points appear erroneous. TRPS evaluators monitor yield curves at periodic benchmark snap times (e.g., 12:00 / 14:00 / 16:00 / 18:00 UK time and 14:00 / 15:00 / 16:00 NY time).
Appendix B: Intraday Evaluated Pricing DataScope Select File Delivery
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Intraday Price Movement Check: Tolerance checks are performed every two hours beginning at 10:00 Tokyo time and finishing at 18:00 New York time. All price movements that exceed a preset tolerance limit from the previous day’s closing price are identified and researched by the evaluation team. Evaluators can confirm each price movement or adjust the current price recipe.
DataScope Select File Delivery
Intraday evaluated pricing is available within the DataScope Select product. Customers have the ability to customize extraction times to meet their requirements by using the real time reporting template. Intraday prices are available within seconds of the scheduled extraction time.
Customer Service
Customers with questions or concerns can contact any regional evaluation desk via email or phone:
Region Coverage Email Phone
Americas 8:00 to 18:00 ET [email protected] +1 866 NY1 BOND
(+1 866 691 2663)
Europe, Middle East, and Africa
8:00 to 18:00 UK time [email protected] +48 58 698 3526
Asia Pacific 8:00 to 18:00 JST [email protected] +632 858 4368
or 4369
Customers can also open a service request with Thomson Reuters Customer Zone at any time.
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