RAJAN CHIARI: Your question is a good one since it is a fundamental one since it is a fundamental one. I’m an accountant by background, and I always first look at the accounting literature. If you’re somebody that needs to follow generally accepted accounting principles (GAAP) in the United States, you have to incorporate observable data into your pricing. The accounting standards codified in U.S. GAAP ASC 820 is the codification standard that really deems them to be more reliable than unobservable inputs. In fact, first you have to actually have a price you call it “exchange shared price identical asset”—that’s the price you use but then you go through a hierarchy and you are required to use a methodology that maximizes the use of observable data and minimizes the use of unobservable data so you are essentially required to do that under GAAP. It is not only GAAP that requires it, but also the Security Exchange Commission (“SEC”). In June 2019, there was an administrative proceeding against an investment advisor hedge fund manager. The SEC made the same comment about that entity choosing methodology that failed to use observable inputs, in fact, saying “the traders developed and approached evaluation that in certain instances failed to ensure that observable inputs were maximized.” If you have the choice of also using your own methodology or say a single broker quote that may not have any support behind it or using observable market data, you’re essentially compelled at least under the standards to use observable data.

PIERCE LORD: Between Rajan and I, we are coming from slightly different angles. There is the accounting, and the regulation angle, which is something we care about in the valuations business of course. There is also the practical angle which is, in terms of evaluated pricing services at ICE, our clients need to follow regulations and accounting and things like that but frank also have a fiduciary duty to their investors those coming in and those going out and that means their assets need to be priced as accurately as possible so for us accuracy is key so to not use observable data that’s good data um is strange and probably it’s going to lead to less accuracy so I think it’s neat to hear both sides.

Listen to the recording starting at minute 9:34  of the Valuations Webinar

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