The real-time fair-value adjusted prices help the exchange-traded funds industry by providing an independent opinion of international equity prices that would likely prevail following the close of local markets. The real-time information service for estimating fair values was introduced Monday at the Investment Company Institute's 2011 Mutual Funds and Investment Management Conference in Palm Desert, Calif.
“Investors need a way to assess the fair value of ETFs on an intraday basis, and this has been a challenge for more than a decade,” says Matt Hougan, president of ETF Analytics for
Other market participants, including market makers, authorized participants (APs) and traders, can also utilize real-time fair value information as an additional reference point to support trading activity and risk management.
Launched in 2002, Interactive Data’s fair-value service, allows the vendor to synthetically adjust prices for non-U.S securities to presume a U.S. time zone. Mutual fund companies use Interactive Data’s fair value service to meet regulatory requirements, safeguard investors against market timers, and to reassure their investors that appropriate procedures are in place to reflect the fair value of assets when determining their net asset values.
Mutual funds typically calculate their NAV once a day at 4:00 p.m. EST based on the closing trades of each security in a portfolio. However, those prices are often out of date for funds investing in foreign securities because of time-zone differences. Short-term trading based on those time-zone differences can seriously impact the profit margins of a mutual fund and pose a disadvantage to longer-term investors particularly in Asia-Pacific centric funds whose prices are closely pegged to the U.S. market.
The new real-time fair value information will be available through Internactive Data’s Basket Calculation Service; PlusFeed and Market-Q. The Basket Calculation Service, designed for ETF sponsors, delivers fair-value adjusted intraday indicative valuations for U.S. listed global equity ETFs. PlusFeed, a low-latency consolidated global datafeed, will provide real-time fair value information to financial institutions to integrate into their trading applications. Market-Q, Interactive Data’s browser-based real-time market data desktop terminal will offer streaming access to real-time fair value information for trading, research, charting and data download purposes.
