A leap forward for ICE’s Evaluations
Our senior director of product management Tim Monahan discusses three takeaways on ICE’s Evaluations.
What’s new in fixed income evaluations? How has ICE enhanced its evaluations process?
The evolution in fixed market structure and order flow has built up speed, and alongside this, ICE has made significant enhancements to our fixed income evaluations process over the past six years. The tightening of the gap between our evaluations and the next trade price is what resonates most with clients. For example, since 2018, for US Investment Grade bonds, our evaluations are on average 38% closer to the next trade price. For US high yield bonds, that figure is 79%.
The changes ICE has made that have helped narrow the gap between our evaluated prices and the next trade price can be split into the following steps:
- Restructure the Quant and Data Science Team which allows for subject matter experts like our evaluators to work directly with individuals with a different expertise related to analyzing large amounts of quote and trade data so they can gain a deeper understanding of details related to trade and quote data.
- Observe and systematically apply incoming market data to automatically adjust Bid/Ask spreads. In the past, for US Credit for example, we did not have a systematic way to change our bid/ask spread - it required a manual action.
- Apply an expanded set of data including live executable markets, a wider set of quote data and a wider range of trade data, including smaller trade activity that can now be used within the evaluation process as appropriate.
- Develop a set of algorithms that runs throughout the day that take into consideration a variety of market color received throughout the day that can be applied by the evaluations team.
A future enhancement will involve implementing a systematic approach to the use of comparable bonds between issuers and sectors to update less liquid instruments using more recent market color. We currently use a manual approach for this.
What investments have made the biggest impact to ICE’s evaluation process?
We believe the restructuring of the quant and data science team and applying new machine learning techniques have had the biggest impact on our evaluations. Using new talent and pairing that with experienced evaluators has resulted in higher quality evaluations that are more sensitive to updates to stay ahead of the market. Here at ICE, we pride ourselves on a simple, transparent, and easy to understand evaluation approach and we feel that has contributed towards ICE being an industry leader in this space. The company is making a clear effort to invest in evaluations, which sits at the core of what ICE’s Pricing and Reference Data focuses on.
Who benefits from these evaluations?
Any client who subscribes to our evaluations will benefit from these enhancements. This is most noticeable within our Continuous Evaluated Pricing (CEPTM) product so any clients who consume CEPTM will see the benefits of our investment. We’ve seen the biggest improvements in US credit and municipals, where clients will notice higher quality and more timely evaluations that better align to where the next trade takes place. CEPTM has been around for several years, but this is by far the biggest leap in product enhancement ICE has implemented since launching the service in 2015. With our depth and breadth of coverage, including less liquid and more exotic instruments, ICE still offers industry-leading asset coverage, with transparency for clients into the process. Our effort and investment is continuous and is being implemented across global corporates and sovereigns. We plan to continue investing, especially now that we’ve seen such a great improvement here in the US.