JPMorgan's Institutional Trust Service (ITS) announced an unusual course of action for a trustee service last week. It will begin to offer independent asset-pricing information pertaining to its U.S. CDO business, providing a bundled information approach to underlying assets in these securities.
Clients of ITS' services will be able to obtain information via third-party price quotes provided through a partnership with Mark-It Partners Ltd. Roughly 10 asset types are included in the initial rollout of the new service, including all syndicated loans, investment-grade bonds, high yield, multisector assets - RMBS, CMBS - and some credit default swaps.
"Collateral managers and investors have been asking us to assist them with third-party pricing information for awhile," said Steve Patterson, senior vice president and head of JPMorgan's CDO business.
Patterson explained that while collateral managers and investors already look to a third party to price these assets to obtain total portfolio value, the enhanced service simply streamlines the process and builds an additional level of efficiency.
"There is demand out there in the market, and we, as a trustee, are already the custodian of the assets in CDOs. It makes sense that the custodian would help to price these assets," Patterson said.
Combining surveillance information with current price quotes could push additional liquidity into the space. For example, collateral managers that receive information from the trustee about underperforming assets would have the ability to eye the price quotes on that asset at the same time. While a trade would have been likely anyway, viewing timely quotes speeds up the transaction time. "They need to get at what's the value of the piece of paper I hold in this particular CDO?'" Patterson said of his clients. "That is exactly what this is aimed at."
JPM does not bear any responsibility for the price quotes. As those quotes are obtained independently, Patterson does not anticipate his clients will equate the new price quotes as being an added level of trustee service, or that the trustee is somehow verifying the price quotes.
"It is clear to the client that Mark-It is really doing the pricing on the collateral," he said of the new setup.
Mark-It Partners is probably best known for its LoanX platform. It is a London-based credit pricing tool that delivers pricing information and related analytics. Patterson explained that there was a lengthy evaluation of third party price providers once the concept of offering a bundled service was drafted. ITS concentrated on how many different types of assets each provider priced, and the ease of communicating that information between the ITS trustee platform and the quote providers.
"They have very extensive coverage of underlying collateral. For us it was an easy decision," he added.
As the CDO market evolves Patterson said the ITS service and partnership with Mark-It would expand to include prices for other asset classes.
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