Model portfolios
Model portfolios, and the market prices they are built on
Moraph develops investment model portfolios that independent broker-dealers, registered investment advisers (RIAs) and family offices use for their clients. A model portfolio is only as sound as the prices behind it. This page covers the interest-rate, inflation and currency data the portfolios depend on, where each price comes from and what it decides in a portfolio. It also explains how the same prices support Moraph's best-execution and stress-testing software.
At a glance
The short answers
| Question | Answer |
|---|---|
| Who uses the portfolios | Independent broker-dealers, RIAs and family offices, including multi-family offices, for their own clients. Each firm remains responsible for the advice it gives. |
| What they depend on | Accurate prices for interest rates, inflation and currencies. |
| Where those prices come from | The data businesses of two of the largest interdealer brokers: Fenics Market Data, part of BGC Group, and Parameta, part of TP ICAP. Moraph licenses both directly. |
| What Moraph buys from the brokers | Data only. Moraph does not use BGC Group's or TP ICAP's brokerage or trading services. |
| Where the data is kept | Moraph's Snowflake account, where it feeds the portfolios and the history used for back-testing. |
| What this page leaves out | Performance figures, holdings and recommendations. It explains the inputs, not the results. |
Why broker data
These markets trade between banks, not on an exchange
Most interest-rate, inflation and currency markets trade between banks through brokers rather than on an exchange. There is no single exchange price to look up. The brokers sit in the middle of the trading, so much of the most reliable price data comes from them.
Interdealer brokers
BGC Group and TP ICAP are two of the largest brokers that arrange trades between banks in rates, inflation and currency markets.
Their data businesses
Fenics Market Data is BGC Group's data business. Parameta is TP ICAP's. Moraph holds a direct license with each.
Data, not trading
Moraph buys only data from BGC Group and TP ICAP. It does not route trades through them or use their brokerage services.
What each price decides
From market price to portfolio decision
Each row is a kind of market data the model portfolios use, where it comes from and what it decides. New to a term? See Terms below or the glossary.
| Market data | Source | What it decides in the portfolios |
|---|---|---|
| US Treasury prices, with Treasury-to-swap spreads | Fenics Market Data | How much interest-rate risk the bond holdings take. |
| US, euro and UK swap curves | Parameta | The interest-rate curves for the dollar, the euro and sterling that the portfolios are built on. |
| Inflation-swap prices | Parameta | The rate of inflation the market is pricing in, as an input to the portfolios. |
| Major-currency forward prices | Parameta | The cost of hedging currency exposure. These come from the same source as the rate curves, for the reason below. |
| Emerging-market currency prices, including non-deliverable forwards | Fenics Market Data | Prices for emerging-market currencies, many of which are hedged with non-deliverable forwards because the currency can't be freely delivered offshore. |
| Currency-option volatility | Fenics Market Data | The currency-risk limits in the portfolios' rebalancing rules. |
| Level 2 order and trade history | Fenics Market Data | Back-testing: how the portfolios' rules would have behaved in past markets. |
Fenics Market Data supplies the US Treasury and emerging-market currency work. Parameta supplies the swap curves, inflation and major-currency forwards.
Currency hedges
Why currency forwards come from the same source as the rate curves
What a hedge costs
A currency forward fixes the exchange rate for a future date. Its price depends mainly on the gap between the two currencies' interest rates. When dollar rates are well above euro rates, for example, the forward price reflects that gap, and the gap is what a portfolio pays or earns to hedge.
Keeping the inputs consistent
If the forward prices and the rate curves came from different sources, the hedge cost a portfolio sees could disagree with the rates it uses everywhere else. Moraph takes major-currency forwards and the US, euro and UK swap curves from the same source, Parameta, so the two match.
How the data arrives
Licensed directly, delivered into Snowflake
Parameta
Swap curves, inflation-swap data and major-currency forward prices are delivered directly into Moraph's Snowflake account, under Moraph's direct license.
Fenics Market Data
Licensed directly for the US Treasury and currency work. Its Level 2 order and trade history is loaded into Snowflake for back-testing.
Moraph Fusion Center
Moraph's in-house engineering team builds on the same data. It uses Parameta's historical rates data to build the rate-shock scenarios in Stress Testing & Capital Planning.
The same prices elsewhere
Other Moraph products that use the same prices
The prices behind the model portfolios also support Moraph software that broker-dealers and banks use.
Best-execution reviews
Parameta's independent, trade-backed prices sit inside the Trade Reconstruction Repository. When a best-execution committee reviews a rates or currency trade, it can see the market price at the moment the trade was done. Clients pay for that data within their Moraph subscription, under Moraph's own application license.
A Treasury fair-price benchmark (pilot)
Moraph has piloted Fenics Market Data's US Treasury trade history in the Trade Reconstruction Repository, as a fair-price benchmark for US broker-dealer clients' best-execution reviews. It is a pilot. Ask us about its status before relying on it.
Rate-shock scenarios
The Fusion Center builds the rate-shock scenarios in Stress Testing & Capital Planning from Parameta's historical rates data. The historical moves come from the same source as the portfolios' swap curves.
Terms
Terms used on this page
| Term | Meaning |
|---|---|
| Interdealer broker | A firm that arranges trades between banks and other dealers, especially in markets that don't trade on an exchange, such as government bonds, swaps and currencies. |
| Swap curve | The fixed interest rates at which interest-rate swaps trade across different terms, from months to decades. It is a standard reference for what borrowing costs at each term. |
| Treasury-to-swap spread | The difference between a US Treasury yield and the swap rate for the same term. It shows how government bond prices compare with the wider rates market. |
| Inflation swap | A contract that exchanges a fixed rate for actual inflation over a period. Its price shows the rate of inflation the market expects. |
| Currency forward | An agreement to exchange two currencies at a set rate on a future date, commonly used to hedge currency exposure. |
| Non-deliverable forward (NDF) | A currency forward settled in cash, usually in US dollars, instead of by delivering the currency. It is used for currencies that can't be freely traded offshore, which includes many emerging-market currencies. |
| Currency-option volatility | How much the market expects an exchange rate to move, read from the prices of currency options. |
| Level 2 data | Market data that goes beyond the best price to show the orders at each price level, along with trade history. |
| Back-testing | Running a portfolio's rules over past market data to see how they would have behaved. |
| Best execution | A broker-dealer's duty to seek the most favorable terms reasonably available for a client's order, which its best-execution committee reviews. |
Questions
Frequently asked questions
Who is responsible for the advice our clients receive?
Your firm. Moraph develops the model portfolios. Each firm decides whether and how to use them, and remains responsible for the advice it gives its clients.
Can we see performance figures or holdings?
Not on this public page, which explains the inputs only. To discuss model portfolios, get in touch.
Does Moraph trade through BGC Group or TP ICAP?
No. Moraph buys data only from Fenics Market Data (BGC Group) and Parameta (TP ICAP), and does not use either firm's brokerage or trading services.
Why use broker data instead of exchange prices?
Most interest-rate, inflation and currency markets trade between banks through brokers rather than on an exchange, so the brokers see much of the trading. Their data businesses publish prices that come from that activity.
Why two data providers?
They cover different needs. Fenics Market Data is the source for US Treasuries, emerging-market currencies, currency-option volatility and the order and trade history used in back-testing. Parameta is the source for the US, euro and UK swap curves, inflation swaps and major-currency forwards.
Do Trade Reconstruction Repository clients pay separately for the market prices?
The Parameta prices in the repository are paid for within the client's Moraph subscription, under Moraph's own application license.
Not a solicitation. Information only. This page is not an offer to sell, or a solicitation of an offer to buy, any security or investment advisory service, and it is not investment advice. Each firm remains responsible for the advice it gives its clients. Fenics Market Data, BGC Group, Parameta and TP ICAP are named as Moraph's data suppliers; this page is not endorsed by them.