The Financial Times' Lex addresses the issue of secondary market transparency today - a natural subject, given that Ellington Management Group LLC has halted redemptions on two of its mortgage-backed funds due to "opaque" pricing issues. From Lex:
... a hedge fund can get valuations from dealers on its positions. The issue is: do these valuations mean much? They are not executable – the dealer is not committed to buying at the price he is quoting. Furthermore, the fund that is using valuations from a dealer may have no reliable way of knowing if that same dealer has actually traded similar securities at that price and in those volumes in recent times. The lack of widely disseminated trading information makes it hard for a fund manager to check whether his marks look accurate.
Add in a whole bunch of uncertainty over the assigned ratings, and you get a hedge fund frozen in time such as those at Ellington. You also get one heck of a market opportunity -- one that pricing and valuations provider SuperDerivatives is hoping to exploit. The company put out a press release yesterday touting a new release of its online credit derivatives platform, SD-CD. "The sub-prime crisis has made it clear that many investors do not have the tools for pricing and risk management of the structured credit instruments. SuperDerivatives is stepping in to fill this gap, improving the transparency and liquidity of credit derivatives as it has done in other asset classes," said Sasha Rozenberg, product manager for credit derivatives at the company. "We're giving credit derivatives market practitioners a one-stop-shop experience where they can access all asset classes from the same familiar, intuitive user interface - resulting in a single, powerful derivatives platform that allows a combined view of all traded asset classes, supporting hybrid structures and strategies." I'm sure SuperDerivatives won't be alone in targeting this market. But I also know that investors have heard all of this sort of talk before -- here's a JPMorgan Chase press release from way back in 2003 touting CDO market transparency.