SD-08.6 — Independent Price Verification & Price Challenge

Business Domain: BD-08 Valuation & Pricing (Middle office) · Applies: BOTH

Purpose

Independently verifies that the prices and valuations the firm is using are right — by checking them against sources independent of the desk and the model that produced them — and runs the formal challenge of contested marks. Independent Price Verification (IPV) is a recognised control: a periodic, independent check that the front-office or model marks agree with externally sourced prices, distinct from the daily price-tolerance checks inside SD-08.1. SD-08.6 is the independent verification layer — it does not produce valuations, it tests the ones the other Service Domains produce, and it escalates unresolved differences to the SD-08.4 pricing committee. It is not the daily price-tolerance check of SD-08.1 (which is the producer checking its own input) and it is not records reconciliation (SD-12.10, which reconciles positions and cash, not prices).

Service Operations

Run independent price verification — periodically verify the firm’s marks against independent price sources — a second vendor, broker quotes, consensus-pricing services — and quantify and explain the differences.
Verify model valuations independently — test SD-08.2’s model marks against independent prices and independent model recalculation, the valuation side of model control.
Challenge counterparty and broker marks — compare the firm’s valuations against counterparty statements and margin-call valuations, and run the formal dispute where they differ — the collateral-dispute path SD-11.4 also touches.
Run consensus-pricing comparison — submit to and consume consensus-pricing services (Markit Totem and equivalents) to benchmark hard-to-value marks against the market’s mid.
Produce the IPV report and exception log — report the verification coverage, the exceptions found and the unresolved differences, and escalate the material ones to SD-08.4.

Inputs and outputs

Inputs: the firm’s valuations from SD-08.1, SD-08.2 and SD-08.3; independent price sources, broker quotes and consensus-pricing data; counterparty and margin valuations; the IPV policy and thresholds from SD-08.4.
Outputs: IPV results, the verification exception log and price-challenge / dispute outcomes — consumed by SD-08.4 (the pricing committee), SD-12.9 Fund Accounting & NAV, SD-14.8 Internal Audit and SD-14.7 Internal Control & Assurance.

Entities

Consumes: E-07 Valuation (any method — IPV runs across the observable-price, mark-to-model and manager-mark / appraisal valuations), E-08 Price & Market Data, E-02 Instrument / Asset, and the counterparty-collateral entity DR-04 Margin & Collateral Balance; the SD-08.1 firm’s valuations; the SD-08.2 firm’s valuations; the SD-08.3 firm’s valuations; the SD-08.4 IPV policy and thresholds.
Owns: none — IPV is a control over valuations other Service Domains own; it produces verification findings, not a master valuation.
Open question: whether a Price-Verification Exception entity is warranted — a recorded, aged verification difference with a resolution lifecycle, parallel in shape to the Reconciliation Break candidate (SD-12.10) and to E-18 Limit Breach. An exception that carries provenance, ageing and a resolution trail is auditable in a way a transient finding is not.

Standards

Independent price verification as a recognised control — the Basel Committee’s prudent-valuation guidance names independent price verification as a key valuation control, distinct from daily marking.
The EU prudent-valuation regime and IFRS 13, which assume an independent verification process behind a reported fair value.
Consensus-pricing services (Markit Totem and equivalents) as the external benchmark for hard-to-value instruments.

Open extensions

The Price-Verification Exception entity — the open question above.
The IPV coverage and threshold sub-model — which instruments are verified, how often, and against what tolerance.
The Service-Operation-level input/output contracts.