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Why Transparent Consensus Pricing is Critical for Reducing Risk and Optimizing Capital

Reading time: 5 min   |  By Sonia Chopra   |  Published in Articles,

When it comes to independent price verification (IPV), a firm’s confidence in the value of their assets is directly proportionate to the transparency of their consensus pricing methodologies. A lack of visibility into its processes and final price results in uncertainty, affecting decision-making, regulatory risk, and capital allocation.

Current IPV Challenges Due to a Lack of Transparency

Current consensus pricing solutions lack overall transparency in their methodologies, governance, and policies. Participants struggle to understand and predict market conditions, ultimately impacting business resilience and regulatory response.

Lack of Authoritative, External Data Sources
Many IPV tools only incorporate observable data points submitted by market participants. Without an authoritative external source, firms are unable to gather insights into the accuracy of their consensus price and where it lies within the market.

Basic Analytics, Insights, and Reports
Many current tools do not provide detailed statistics, reports, and results, especially when it comes to data quality errors, outlier detection, and anonymous counterparty comparisons. As a result, firms are unsure of their consensus results and their position within the market or amongst other participants.

Opaque Challenge Process
The challenge process continues to be opaque. For example, firms only receive a copy of their original pre-challenge report (a post-challenge report is only shared if they participate in challenging the results). There is little insight or context into why certain participant data points are excluded from consensus calculations altogether. With this limited visibility, participants are unable to evaluate the success of the challenge process and how the final decision was reached.

Effective and accurate IPV and consensus pricing requires both trust and transparency amongst all market participants. Incomplete visibility will result in a lack of confidence in a firm’s valuation of assets and position justification, resulting in excess capital reserves and increased risk.

Solution: ClearConsensus™
Providing a Transparent, High-Fidelity Consensus Network

Through ClearConsensus™, Parameta Solutions and PeerNova provide a transparent, high-fidelity consensus network that solves these independent price verification challenges.

The platform’s consensus methodology, governance, and policies are evident to all participants, helping IPV professionals gain confidence in the valuation of their positions. It continuously provides end-to-end traceability and auditability of data throughout the submission, consensus, and challenge processes to meet regulatory and institutional requirements.

Evidential Price
ClearConsensus’ Evidential Price (EvP) guides and complements the consensus price by incorporating market observable data directly into the consensus computation to reduce outliers in published results. With more observable data points, broker data, and trusted EvP, firms can expect a more accurate consensus price. The EvP provides all participants with transparent and observable pricing for instruments globally.

Comparative Analytics, Insights, and Reports
Through transparent consensus pricing, the solution provides comprehensive analytics capabilities that are detailed, comparative, and timely. Time-series analytics, and high-quality and timely reports highlight data quality errors, outlier classifications, and EvP data. Participants can easily evaluate and understand how a consensus was computed. Comparative analytics add additional insights into submitted and calculated data.

Additionally, participants can view comparative and detailed reports that identify data quality errors and historical trends in comparison to others.

Network-driven Challenge Process
When it comes to the challenge process, ClearConsensus’ policies are network-driven. All participants receive a pre- and post-consensus report to understand the process in its entirety (regardless of their involvement in the challenge process). There is a collective understanding of why decisions are made.

The solution maintains participants’ data anonymity, while still incorporating peer comparisons and authoritative insights.

The entire consensus process is transparent, giving dealers, clients, and regulators confidence that the final price has been calculated with high-quality data and the open, active participation of firms.

As a whole, the solutions’s methodologies, governance, and policies are transparent and available to all market participants. IPV professionals can confidently justify their positions when reporting to regulators and effectively allocate capital for the future.

Contact Us

For more information on the importance of transparent consensus pricing, please visit ClearConsensus to contact us, or request a demo with a member of Parameta Solutions and PeerNova today.

By Sonia Chopra

Sonia Chopra is PeerNova's Product Marketing Manager for the Valuation Risk product line. She has nearly a decade of marketing experience and has been with PeerNova for eight years. She specializes in crafting content and campaigns that address the complexities of product and valuation control, such as market volatility, asset pricing discrepancies, and regulatory compliance issues. Her ability to articulate the intricacies of these challenges, enables her to develop highly effective product marketing strategies that meet the evolving needs of the industry.

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