BD-08 — Valuation & Pricing

Office: Middle.

Maturity: Provisional · 6 Service Domains across security pricing, independent / model valuation, private-asset valuation, fair-value governance

The valuation capability — the middle-office function that determines what the firm’s positions are worth. Every position the firm holds carries a value, and that value flows into the NAV, the performance numbers, the risk measures, the fee calculation and the financial statements. BD-08 is the capability that produces and governs that value. It sources observable prices, models values where no price exists, values private assets, governs the valuation policy, applies the adjustments that move a raw mark to a prudent one, and independently verifies the result. It sits between the front office that trades and the back office that strikes the official NAV (SD-12.9) from BD-08’s marks.

Each Service Domain below is its own file.

Service Domains

A price the firm sources vs a value the firm models

The line that runs through BD-08: SD-08.1 produces a price the firm sources and validates — it selects, from the prices the outside world supplies, the one the firm will use, and proves it fit. SD-08.2 produces a value the firm models itself — it builds the price from cash flows, curves and option models because no usable external price exists. SD-08.3 is the third case — a private asset valued on a periodic estimate of what it would fetch, neither continuously priced nor model-derived from market data. The three are one capability — putting a value on a holding — split by where the value comes from, not by asset class.

Owns the value, not always the production

BD-08 owns the firm’s valuation, but a firm may not produce every mark itself. An asset manager or fund routinely delegates valuation production to its fund administrator or a valuation agent — the administrator strikes the marks and SD-12.9 the NAV. What is never delegable is the valuation policy and oversight: SEC Rule 2a-5 makes the fund board’s “valuation designee” accountable for oversight of any delegate; AIFMD Article 19 requires the valuation function to be independent and leaves the AIFM responsible.

So BD-08’s Service Domains are active at every firm — but at a firm that delegates production, SD-08.1 / SD-08.2 / SD-08.3 are exercised as oversight of the administrator’s output, while SD-08.4 (policy and committee) and SD-08.6 (independent verification) are exercised in full and in-house. The model is the union; what an implementation produces in-house versus oversees in a delegate is the subset — an implementation choice, not a model split.

Archetype activation

BD-08 is active for every archetype — nothing the firm holds escapes valuation — but the shape of the function varies by who produces the marks and what is held.

The common core, true of every archetype: every firm must put a defensible, independently-verified value on every position, govern how that value is reached, and stand behind it to auditors and investors — whether it produces the marks itself or oversees a delegate that does.

Why the manager-archetype row is split into sub-archetypes. The discriminator the sub-archetype rows divide on in BD-08 is the dominant valuation method — the manager-archetype row is sub-typed because the SD that carries the most weight (SD-08.1 observable-price, SD-08.2 mark-to-model, SD-08.3 manager-mark / appraisal, SD-12.9-feed operated-fund NAV) is what differentiates a BD-08 implementation. A third-party asset manager’s centre of gravity is SD-08.1 / SD-08.6 oversight of administrator output; a hedge fund’s is SD-08.2 model-and-IPV-heavy daily independent valuation; a private-markets manager’s is SD-08.3 quarterly cycle with GP-mark production or review and third-party appraisers; an index / passive manager’s is almost entirely SD-08.1. The valuation-method discriminator is what the sub-typing makes visible; collapsing it would assert one valuation shape across managers that the regulatory frame (SEC Rule 2a-5, AIFMD Article 19) does not contemplate.

Wider-source grounding

Grounded against external industry references:

• IFRS 13 / ASC 820 fair-value measurement and the three-level fair-value hierarchy — the accounting standards that define “fair value” and the Level 1 / 2 / 3 classification.
• SEC Rule 2a-5 (the 2020 fund-valuation rule and the “valuation designee”) and AIFMD Article 19 — the regulatory valuation regimes; the source of the owns-versus-produces distinction.
• The IPEV Valuation Guidelines and IVS / the RICS Red Book — the private-asset and real-asset methodology standards.
• The multi-curve / OIS-discounting framework and the LIBOR-to-risk-free-rate transition; ISDA definitions and option-pricing theory for the derivative-valuation layer.
• The XVA literature and the EU prudent-valuation regime (CRR Article 105, the EBA additional-value-adjustment RTS).
• The Basel Committee’s treatment of independent price verification as a key valuation control.
• The institution-archetype panel and the public / private / delegated-production divide.

Non-overlap — where the boundaries run

• BD-08 vs SD-13.4 Market & Reference Data Management. SD-13.4 delivers raw market data — the feeds, the curves, the reference prices — as a data-management capability. BD-08 turns that data into a governed valuation of the firm’s actual holdings. SD-13.4 owns Price & Market Data (E-08); BD-08 owns Valuation (E-07). A raw vendor price is SD-13.4’s; the firm’s chosen, validated price for a position it holds is SD-08.1’s.
• BD-08 vs SD-12.9 Fund Accounting & NAV. BD-08 values the holdings — it produces the per-instrument marks. SD-12.9 strikes the NAV — it takes BD-08’s marks, adds accruals, fees, expenses and the rest of the fund balance sheet, and produces the official net asset value per share or unit. A BD-08-governed, independently-verified set of marks is a precondition of a struck NAV.
• BD-08 vs BD-07 Investment Risk. BD-08 produces the value; BD-07 measures the risk in that value. They share the curve and market-data inputs but answer different questions — what is it worth versus how much can it move.
• The insurer’s dual basis. BD-08 produces a fair value for every holding. Whether the carrying value on the insurer’s balance sheet is that fair value or an amortised-cost / book-value figure is an accounting-policy determination — IFRS 9 classification, statutory accounting — made in the BD-12 accounting domains, not in BD-08. BD-08 always produces fair value; the accounting domain decides what basis is carried.
• Valuation model governance versus the model itself. SD-08.2 builds, calibrates and uses the valuation models. The enterprise model inventory and the independent model validation are SD-14.4 Model Governance & AI Governance. SD-08.2’s models are in the SD-14.4 inventory; SD-08.2 does not own their independent validation.

Design notes

• SD-08.1 covers evaluated pricing. Most of the fixed-income universe trades but not continuously, and is priced by vendor evaluated (matrix) pricing — a sourced-and-validated price, not a modelled one. The SD-08.1 / SD-08.2 line is “a price the firm sources” versus “a value the firm models”, not “equities versus everything else”.
• SD-08.2 names the quantitative valuation layer — multi-curve construction, OIS / risk-free-rate discounting, volatility-surface calibration and structured-product valuation — the post-2008 quantitative-valuation reality.
• Naming follows capability. SD-08.6 carries Independent Price Verification (IPV) as the recognised industry and regulatory term. SD-08.4 names the Fair-Value Governance capability, not the committee that exercises it; it owns valuation policy, fair-value-level classification and contested-mark adjudication.
• The owns-versus-produces distinction. BD-08’s Service Domains are active at every firm, but at a firm that delegates valuation production to an administrator they are exercised as oversight. This is captured in the README framing above, not by tagging Service Domains — production-versus-oversight is an implementation choice, not a model split.
• No new entities. BD-08 owns Valuation (E-07) and consumes the market-data and instrument entities.
• Panel-substitution rationale — asset-owner collapse. The single “Asset owner (pension / SWF / endowment)” row collapses DBP and SWF-E — BD-08’s discriminating axis is production-versus-oversight of the mark, not the asset-owner sub-archetype. A DB pension, a SWF and an endowment value a multi-asset book on the same pattern — public marks from custodians, a private-markets sleeve reviewed via SD-08.3, and oversight of the production performed by administrators and GPs. The Insurer keeps its own row (Solvency II regulatory balance-sheet feed, accounting-basis integration) — it is not included in the collapse.

How BD-08 relates to the rest of the model

• Consumes the market-data and instrument entities — Price & Market Data (E-08, owned by SD-13.4), Instrument / Asset (E-02), Holding / Position (E-04, book = ibor — BD-08 values the live holdings), Portfolio / Mandate (E-03) — and, for private assets, Fund Investment (PM-09) and LP Commitment (PM-06). SD-08.4 / SD-08.5 / SD-08.6 also consume E-07 Valuation across any method (governance, adjustments and IPV cut across the observable-price, mark-to-model and manager-mark / appraisal producers).
• Owns Valuation (E-07): SD-08.1 owns the observable-price valuations, SD-08.2 the mark-to-model valuations, SD-08.3 the manager-mark and appraisal valuations, SD-08.5 the adjustment and reserve components; SD-08.4 governs E-07 through the valuation policy and the fair-value-level classification. SD-08.6 owns no entity — it is a control that verifies E-07. SD-08.3’s manager_mark valuations and SD-12.9 Fund Accounting & NAV’s operated-fund NAV share the manager_mark method value but are co-equal owners distinguished by producing capability — SD-08.3 records the mark the institution consumes as an investor in an externally-managed interest, where SD-12.9 strikes the NAV of a vehicle the institution operates — a distinction the model carries in prose rather than as a separate method value (the same shape as E-04’s book).
• Feeds SD-12.9 Fund Accounting & NAV (the marks the NAV is struck from), SD-12.2 ABOR (the accounting book), BD-07 Investment Risk and BD-09 Performance & Analytics (which both consume valuations), the fee calculation, and the fair-value disclosures in the BD-13 reporting.