Markit Group launches liquidity metrics for fixed-income markets

By Susanna Moon

Chicago, March 29 - Markit Group Ltd. said it will provide liquidity metrics for all credit default swaps, evaluated bonds, loans and asset-backed securities included in its pricing services.

The aim is to give market participants a comprehensive view on the liquidity of financial assets across fixed-income markets, according to a press release.

The metrics will be introduced in April for credit default swaps and evaluated bonds with loans, and European asset-backed securities will follow later.

These metrics will include a range of liquidity indicators, such as bid/ask spreads and market depth information as well as liquidity scores calculated by Markit.

Markit said it created these metrics amid increasing demand from financial institutions and regulators for liquidity information in the aftermath of the financial crisis.

The data will be of interest to both sellside and buyside institutions for risk management, product control, compliance and trading purposes. Regulators meanwhile will be able to use the metrics to assist them in monitoring financial markets around the world, the release said.

"This is a significant step forward for transparency in the fixed-income markets, both at the pre-trade level and for observational purposes," Armins Rusis, executive vice president of Markit, said in the release.

"Our aim is to provide an accurate, reliable and transparent set of metrics to enable market participants to assess the liquidity of instruments across the whole asset class."

The liquidity metrics for CDS will consist of bid/ask spread data, market depth information and liquidity scores for CDS companies covered by the firm's end-of-day pricing service. The liquidity scores will be calculated from market depth information, bid/ask spreads and freshness of data contributions, Markit said.

The liquidity metrics for Markit's new evaluated bonds service will consist of bid/ask spreads, type of pricing source and depth of contributions. A rules-based liquidity score will be derived from this information to complement these comprehensive liquidity metrics.

Markit will also provide additional liquidity metrics for all 6,500 syndicated loan facilities included in its loan pricing service. The service currently provides bid/ask pricing and depth of contributions, and Markit said it is in the process of developing liquidity scores based on a number of inputs including type of pricing source, bid/ask spreads, size of quotes, depth of observable quotes and freshness of data contributions.

Finally, a liquidity score is being developed for Markit's European ABS pricing service that covers more than 4,000 securities.

The liquidity scores calculated by Markit will range from 1 to 5, with 1 indicating the highest level of liquidity.

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