Markit expanding OIS capability for derivatives valuations

London and New York - 31 July 2012

Markit, a leading, global financial information services company, today announced its Portfolio Valuations service has enhanced its overnight indexed swap (OIS) discounting methodologies to allow for more accurate valuations of collateralised and uncollateralised trades. The enhancements enable Markit clients to select the discounting method that matches their credit support annexes (CSAs), namely OIS, Libor, or specific dual-currency funding curves, and to match the funding curve to the tenor basis of the trade.

Markit first introduced OIS discounting to its valuations services in 2011 and the practice has since become the industry standard for calculating the margin requirements specified in CSAs, the agreements that govern collateral posted for non-cleared OTC derivatives transactions.

A key benefit for customers of Portfolio Valuations is Markit’s ability to incorporate a wide range of data under various CSA assumptions into its valuation methodologies. In addition, Markit can create extensive issuer curves to account for the credit risk of the issuer properly and facilitate the valuation of trades margined by non-cash collateral.

Nigel Cairns, Managing Director and Global Head of Risk Analytics and Portfolio Valuations at Markit, said: “We recognise that the choice of funding curve can have a significant impact on trade valuations and we have been working with our clients and partners to reflect the change in market standard in our valuation methodologies. This enhanced functionality will allow our clients to select discount curves that most closely reflect the funding and collateral terms underlying their specific trades.”

Markit’s industry-leading work in incorporating OIS discounting methodologies into its valuation services was an important factor in Markit being named Best Buy-Side Pricing and Valuation Service at the Buy-Side Technology Awards 2011, presented by Incisive Media.

The Bank for International Settlements estimates that at the end of 2011 $1.8 trillion of collateral was posted against counterparty credit exposures. The amount of collateral fluctuates daily with the value of the associated derivatives transactions.

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