Ice creates daily credit risk monitoring tool

Ice is launching a tool for investors to measure the creditworthiness of bonds on a daily basis, further bulking out its burgeoning credit franchise and pitting itself against Bloomberg.

The exchange and data service provider has set up the new suite of analytics, dubbed Ice Credit Risk, within its Ice Data Services division, which the firm says will provide investors with “faster signals for monitoring early deterioration or improvement of credit”.

Launching today (May 8), it combines a daily credit analysis of 40,000 individual publicly rated and non-publicly rated bonds with a monthly report on credit fundamentals by Credit Benchmark, a third-party, consensus-based credit analytics company.

“This is another core set of analytics that we’re bringing to market to really increase transparency around the fixed income universe,” says Lynn Martin, president and chief operating officer at Ice Data Services.

The hope for Ice is that this product will stand out based on its ability to analyse underlying securities versus just giving a credit overview of the company issuer.

“The relative liquidity of debt underneath an issuer is going to have a different profile. That’s why we think taking the metrics alongside our liquidity scores will really give someone a comprehensive view of the risk and liquidity profile of an individual security,” says Martin.

Aimed at investors, Ice Credit Risk hopes to attract those dissatisfied with the timeliness and coverage of credit analysis currently available in underlying bonds.

The relative liquidity of debt underneath an issuer is going to have a different profile. That’s why we think taking the metrics alongside our liquidity scores will really give someone a comprehensive view of the risk and liquidity profile of an individual security

Lynn Martin, Ice Data Services

Today, many investors rely on fundamental research of particular securities via credit rating agencies, credit default swap spreads, trade information or internal analysis to scrutinise securities, Ice executives say.

Mike Nappi, an investment grade corporate bond trader at Eaton Vance, says Ice’s new tool could prove useful so long as the securities included within the service are not just focused on the most easily digestible names.

“We spend a lot of time doing credit analysis ad hoc, and to think we can look at something and get an answer quickly is welcomed,” he says. “But it’s not so much about the number of Cusips a service may have, and really more about having a really wide net. If 95% of the names in an index are covered, then that’s more important than the Cusip number.”

Ice Credit Risk will also be incorporating its own Liquidity Indicators product which provides information about the level of liquidity in bonds and analyses investors’ ability to exit those positions in the marketplace.

By aggregating these fixed income data sources, including the fundamental analysis from Credit Benchmark, some believe it will put Ice in direct competition with Bloomberg’s BVAL credit monitoring tool, which currently spans more than 200,000 government, supranational, agency and corporate bonds, as well as one million municipal bonds.

“This product is very similar to what Bloomberg’s current product offerings already include,” says Zack Ellison, a former credit trader at Deutsche Bank and Sun Life Investment Management, and currently a fintech-focused consultant and venture capitalist at Applied Real Intelligence in Los Angeles.

With Ice pulling together a number of different systems to create its new offering, Ellison says it’s important for all of the parts to be up to scratch.

“The value-add for most traders would be as an aggregation tool that enhances efficiency - but in this context it’s only really going to be useful if every component is good. What’s the point of having an aggregation tool if only some of the components are helpful? So in that sense it’s all or nothing,” he says.

The decision to aggregate these credit data services builds on Ice’s recent moves in the fixed income space. It purchased Virtu BondPoint – an electronic bond trading platform – in January 2018, for $400 million, adding it to its portfolio of credit trading products that include Creditex, Ice Credit Trade, NYSE Bonds, and BondEdge.

Ice also acquired Standard & Poor’s Securities Evaluations and Credit Market Analysis businesses in 2016.

Executives at the company hope that Ice Credit Risk will also prove useful for asset managers juggling requirements around the US Securities and Exchange Commission’s liquidity rule and the new International Financial Reporting Standard 9.

The latter requires pension and insurance firms to understand the expected loss of an investment over time rather than just at the point of loss, while the SEC requires mutual funds and exchange-traded funds to enact a programme to manage and report liquidity-limit breaches to the regulator and the fund board.

“Credit analytics, such as the ones that we are creating, will be able to help firms meet those needs as well,” says Anthony Belcher, head of Ice Data Services for Europe, the Middle East and Africa.