What is PriceABS?
SCI PriceABS is a secondary market pricing service, for global securitised products, available through the SCI website and as an App on the Bloomberg Terminal: APPS
SCI PriceABS publishes BWIC (Bids Wanted In Competition) data and market colour for US and European ABS, RMBS, CMBS, CLO and CDO deals.
Recently SCI has significantly upgraded PriceABS by adding proprietary DM, Yield and WAL data points to traded bonds, thereby offering users a valuable and time-saving resource for trading, IPV and pricing purposes.
Q: Why do I need DMs, Yields and WALs?
Calculating a DM (Discount Margin) for floating rate debt tranches, and Yield for equity tranches allows users to see the risk premium that the market has attached to the position and then to use calibrated risk premia to price similar bonds. PriceABS provides these data points for CLO trading globally, and European ABS & RMBS trading.
Q: I often see DMs from broker-dealers, isn’t that enough?
No, relying on dealer DMs is not a thorough pricing solution. You will not be able to speak to the trader that sent them and therefore you cannot find out what assumptions they made; dealers do not back out DMs for all debt tranches, they only do it when they have time since it is not a core activity for them; dealers never publish their calculated yields on CLO equity; we store all our data points in a properly organised relational database that you can refer back to if you want evidence to back up your year-end valuations or if you want to see trends or do further analysis and finally since these DMs/Yields are the fundamental basis on which all trading and valuation takes place it would be safer to see more than one set of numbers.
Other benefits to licensing SCI’s PriceABS:
- This service is core for SCI, we are completely independent of the market. We do not trade the bonds and we do not rely on a trading desk, which could be axed, for colour
- The data is calculated using a market tested methodology; our analysts have years of trading experience to call on when calculating DM & Yields
- You need a reliable and independent source of this data. DMs from dealers should be treated as an extra source; SCI DMs & Yields are reliable and published each day, are archived, and so should be a core part of your pricing processes
- SCI will quickly provide you with our assumptions and discuss any challenges you have
The key functionality of the PriceABS platform:
500,000 prices on 50,000 bonds traded since 2012.
Search for an individual bond using ISIN, CUSIP or deal name to retrieve historical BWIC/market colour or perform a search using specific criteria e.g. by asset type, price type, rating, currency across a specified date range.
Upload a portfolio of securities to return historical pricing information.
An organised and easy to use diary to see bonds scheduled for auction in +/- 5day period.
By hovering over the deal name the user is able to see historical Cover and Talk prices.
All functionality above is fully integrated with the Bloomberg terminal. Right clicking on the deal name in PriceABS shows a menu of Bloomberg functions. Clicking through to Bloomberg will allow the user to see relevant information and perform analysis for the relevant deal.
Who are the PriceABS data sources?
Our data sources will always remain anonymous but we receive intraday BWIC data and market colour from over fifty sources which comprises of both buy and sell side institutions located in the US and Europe.
The processing of data
We receive the data in many different formats but mostly via emails which is how the market sends and receives BWIC lists and dealer runs. Once we receive this information, it feeds directly into purpose built and proprietary owned parsing technology which deciphers the information and publishes it on the PriceABS platform within minutes.
Note: for fields highlighted in red below please also refer to ‘Calculated Data Fields’ section
Attachment Point – the amount of subordination a tranche enjoys as a percentage of the total collateral pool
BWIC – Bid Wanted In Competition is a situation where an institutional investor submits its bid list to various securities dealers. Dealers are then allowed to show bids on the listed securities and the investor decides whether he wants to sell to the highest bid or not
Constant Default Rate (CDR) - the percentage of mortgages or loans in the collateral pool which have defaulted in the period. This rate is usually annualised.
Constant prepayment rate (CPR) - the percentage of mortgages or loans in the pool that have pre-paid i.e. where the borrower has paid back more than the scheduled payment amount
Cover (CVR) – Market convention is that the second-best bid price is communicated and circulated to the market by the seller post-trade
Date Received – the date the price was received by us
Decimal Price – the price decimalised once received by us, parsed and published
Detachment Point – The percentage of the collateral pool that is represented by the subordination to the tranche plus the thickness of the tranche. In an approximate way it tells you the percentage of credit losses in the deal that would result in a complete loss of principal.
Discount Margin (DM) - the average expected return earned in addition to the underlying index, or reference rate of, the floating rate security. The size of the discount margin depends on the price of the floating rate security. Since the benchmark rate gets fixed at different levels throughout the life of the deal the calculation of DM takes into account the forward benchmark rates expected.
Loss Severity - The loss severity rate or loss given default is the amount of losses, including both unpaid interest and principal write-downs, incurred by a defaulted security, as a share of its principal balance.
Net Asset Value (NAV) – this is calculated by taking the market value of the loan collateral pool, adding cash and subtracting the par value CLO debt liabilities and dividing the result by the size of the CLO equity tranche.
Original size – original face value of the tranche being traded
Price Received – actual price circulated in the market and received by us
Price Type – The label attached by the dealers as to what sort of information they are disseminating see Talk, Cover
Talk – Dealer estimates of the likely trading price
Weighted Average Life (WAL) - the average length of time that each $/£/€ of unpaid principal on an amortizing bond remains outstanding. Calculating the WAL shows an investor, an analyst or a portfolio manager how many years it will take to receive half the amount of the outstanding principal
Yield - the expected return to an investor of purchasing CLO equity at the price shown. Alternatively, it is the discount rate when applied to the expected cashflows that gets you back to the traded price.
|Decimal price:||A standardised decimalised version of the price received, derived is as follows:|
|Descriptor||If price is a single number||If price is in a 10s range||If price is in a 100s range|
|xA or xH||x+.00||x+.00||x+.00|
|Example||VL23 = 23.1||VL20s = 21||VL200s = 210|
Alternatively, if the price received contains a '-' to indicate fraction-based bond pricing conventions are being used – ie the price is in 32nds or if a + is shown 32nds plus an additional 64th – then the decimal price is calculated accordingly. For example, a price received of 100-16 generates a decimal price of 100.50 and 100-16+ generates one of 100.515625 rounded to 100.52.
Calculated Data Fields
All the data fields highlighted in red above are calculated by SCI analysts on US and European Cover (CVR) prices only for US and European CLO’s and European ABS and RMBS.
We do not calculate DMs on Talk.
There is often a lot of Talk and these prices are usually not well defined even by a single dealer. Across all the dealers the talk is often in a wide range. Therefore, we wait until the CVR is released and calculate the DM/Yield on this one specific price.
Methodology for Calculated Data Fields
SCI uses a third-party dynamic cashflow modelling platform to generate proprietary DMs, Yields & WAL, and associated assumptions to support these data.
We don’t use simple one-size-fits-all assumptions for pricing, we use a market-calibrated, detailed assumptions which can involve multiple vectors and asset-specific defaults developed over many years of frontline trading and pricing experience.
We employ realistic deep dive cash flow assumptions and constantly update these based upon prevailing market conditions.
If further insight is required into these assumptions please contact an SCI representative.
Tel: +44 (0)20 3911 6440