For many years, assets were being recorded on their balance sheet at their actual “historical” cost, and by doing this, critics argued that the method provided investors with stale information that was irrelevant to decision making and advocated for marking assets to their estimated “market price” or “fair price”. And this is when the concept of “Mark To Market” (MTM) comes to be.
On this blog post, we are going to talk about it since it is related to the pricing of securities and other investments. And we want to figure out if technology this days is helping it evolve and if so, is there anybody in the FinTech industry contributing to it?
Those who are not into the field of financial jargons, ‘mark to market’ is the practice of recording a change in the value of an asset (the settling of gains and losses) according to the price it would fetch if sold on the open market, regardless of what you have actually paid for it.
To be more specific, ‘mark to market’ is an accounting method that identifies the value of a company based on the current market price of their assets. These include securities, portfolios and liabilities that change as often as daily.
Also, ‘Mark To Market’ has been a part of the generally accepted accounting principles in the United which try to provide a realistic estimate of a financial situation with the main goal as to come up with the most accurate appraisal of a company’s finances.
But, many people have blamed this accounting rule for many past crises and even have tried to get rid of it. So this is why we decided to approach this topic on this blog post. To ensure our readers that we stay on top of the market trends and the historical incidents that have taken us to be solution providers, and not only stay as followers of whatever trend is happening around the world, or try to find who to blame over economic catastrophes that could have been avoided (like the most recent one on 2008).
We want to take advantage of the technology and knowledge we own today and make it accessible to anyone who can use it. And therefore, this is where I continue talking about this week’s chosen topic, ‘Mark To Market’, because is obviously involved in the practice of valuing level 1 and level 2 assets: level 1 assets are actively traded securities such as stocks, whereas level 2 assets are not actively traded, but it is possible to determine the price based on the cost of other similar assets like corporate and municipal bonds. This classification system of level 1 and level 2 is a result of Financial Accounting Standards Board (FASB) statement 157, which requires public companies to allocate all assets based on the reliability of fair market values.
Even though accounting rules are complicated, their main aim is to provide an accurate picture for a better financial performance of an enterprise. In fact, businesses make decisions based on this information.
The use of the ‘mark to market’ accounting is an attempt to provide the “fair value” of a bank or any other entity, by valuating its assets at their current market price. Which will obviously favor or hinder a portfolio, fund or company depending on the present situation.
As I have mentioned above, with the growing trend of technology and knowledge, PFITR is trying to provide an add-on to the financial institutions and enterprises by supplying transparent current market information especially those who are involved with level 2 assets (in the bond market) are favored with real-market and up-to date data to make better informed investment decisions, every time they purchase a security.
For example: If you are planning to invest in bonds you need to know entire information of the security you are considering (municipal bond, cd, corporate bond, or other) and you can have very affordable access to this data through PFITR’s online solution the Bond Price Validation (BPV) tool.
As a software-as-a-service (SaaS) technology company, PFITR is developing software solutions like the BPV Tool and a reporting tool that aims to provide transparent market information for the moment fiduciaries are choosing their investments, to the moment when they must report it back to comply with auditors, regulators and concerned constituents. This PFITR team will equip you with the tool that gives you access to the required information which an investor needs to look at, in this volatile economy, which includes the quantification of risks to consider before purchasing bonds. This way, you will not have to worry about the changing value of all of your portfolio, when you can rely on the decisions you made, based on accurate data and proper guidance.
To know more about PFITR and BPV tool, please visit https://pfitr.com/bpv-tool/