Advertisements

Regulation Could Weigh on Buoyant Markit

Regulation Could Weigh on Buoyant Markit

PAUL J. DAVIES

June 19, 2014 3:15 p.m. ET

When a group of well-informed insiders decide to sell, it pays to be careful about what is on offer. This is doubly true when those insiders are running the sale process.

So it is with Markit Group, the financial data and services firm whose stock debuted in New York Thursday. Most of the shares sold came from investment banks that not only owned almost half the company, but are among its key customers and suppliers.

image001-1

Markit was a smart idea in a different time. It was set up to provide much-needed transparency to a world of over-the-counter derivatives and securities trading. Since the financial crisis, though, much of that world is being forced into the light of centralized clearing, trade reporting and even futures exchanges. About 44% of all over-the-counter derivatives, or swaps, were being centrally cleared by the end of 2012, up from just over one-tenth in 2007, according to Aite, an independent group.

That has kept rising, according to the Financial Stability Board, much of it driven by interest-rate swaps, which are less important for Markit’s business. However, almost 20% of credit-default swaps are now centrally cleared, up from 8% in 2010. More could migrate to central clearing.

This could have a big effect on Markit’s pricing and information services, which make up about half its revenue. Centralized clearing also could hit trade processing, which makes up another 28% of sales.

So far, though, Markit has done well out of the regulatory changes. Banks and investors still want to use Markit’s data to sanity-check the pricing clearing houses supply. In processing, too, as more trade goes electronic, much of the hard work of settling trades is more easily handled. But regulatory demands for intraday portfolio reconciliation create new requirements companies like Markit can help meet.

The next few years will see over-the-counter markets evolve further. It is tough to predict how behavior will change in terms of standardization, clearing and even use of exchange-traded futures. That makes a big chunk of Markit’s business hard to assess—and the timing of its listing another reason for caution.

 

Advertisements

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: