Bloomberg News

Derivatives Data Firm Mark-It Partners to Buy Totem

May 05, 2004

Mark-It Partners, which sells derivatives data to banks including J.P. Morgan Chase & Co. and Deutsche Bank AG, will buy Totem Market Valuations to expand the range of securities it offers prices for.

The combined company will compile prices for contracts based on stocks, interest rates, foreign exchange and commodities, as well as credit derivatives, St. Albans, England-based Mark-it said in an e-mailed statement. Financial terms of the deal weren't disclosed.

International accounting standards will next year require companies to report derivative contracts' current market value rather than their value at the time they expire. This means companies will need independent valuations of transactions negotiated privately in the so-called over-the-counter market.

``The move toward independent valuations is a valuable and desirable trend,'' said Tony Clifford, a partner in the banking and capital markets group at Ernst & Young, the world's No. 4 accounting firm, in London. ``It's reducing our workload and providing banks with a solution to sleeping better at night.''

Derivatives are financial obligations whose value is derived from debt and equity securities, currencies or commodities.

Buying independent price data also gives banks' risk managers information to check the prices their traders are using, which can help guard against traders concealing losses.

Unauthorized Trades

In January, National Australia Bank Ltd., reported a loss of A$252 million ($184 million) from unauthorized currency options deals. Last year, former Allied Irish Banks Plc foreign-currency trader John Rusnak was sentenced to 7 1/2 years in prison by a U.S. court for hiding $691 million of losses in the biggest U.S. bank fraud in a decade.

``There's a lot of pressure from regulators and auditors to use independent composite pricing for valuations,'' said Lance Uggla, chief executive and founder of Mark-It, in an interview.

Totem chief executive officer Tim Barker, who founded the company in 1997, will become executive vice president at Mark-It. The combined company will provide data to 160 global customers.

Totem, a private company based in London, prices as many as 1,500 derivatives data groups. Its users provide data that Totem translates into valuations for contracts linked to interest rates, equities and bonds. It also provides data on options, volatility, and other measures of market risk.

RED

Mark-It's services include a database of reference names for credit-default swaps, used to insure against non-payment of debt. The service, known as the Reference Entity Database, uses a system of code numbers to ensure that the buyers and sellers of default swaps are in agreement about which company or unit of a company the derivatives contracts refer to.

UBS AG sued Deutsche Bank in 2001 over a credit derivative on Armstrong World Industries Inc., the biggest U.S. vinyl- flooring maker, after Armstrong filed for bankruptcy protection. The two banks disagreed on whether the contract referred to Armstrong World Industries or parent Armstrong Holdings Inc. The two banks settled the dispute out of court.

The global market for derivatives traded outside exchanges, in the over-the-counter market, grew 20 percent to a record $170 trillion in the first half of 2003, according to the Bank for International Settlements.

Mark-it's owners include 13 banks including Deutsche Bank AG, Morgan Stanley and J.P. Morgan Chase & Co.

Bloomberg LP competes with Mark-It in providing pricing for credit derivatives.

To contact the reporter on this story: Hamish Risk in London hrisk@bloomberg.net

To contact the editor of this story: Joe Maguire at jmaguire1@bloomberg.net.


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