Regulation

Bloomberg’s founding principle is around the value of creating transparency in the markets, and as a partner to both the buy-side and the sell-side, with a deep history in providing electronic trading platforms and efficient workflows; we are in a unique position to help clients navigate the regulatory maze.

As regulations are implemented country by country, the environment grows increasingly complex for firms to stay both up to date on the latest information and stay compliant with their market activities. Bloomberg supports clients’ with up to date news and analysis, and the tools needed to remain compliant.

News & Analysis

Be alerted to the latest in regulatory changes, and understand the impact on business with Bloomberg news and analysis, and our dedicated Bloomberg Brief: Financial Regulation.

Execution

Electronic trading platforms are built into the Bloomberg Professional service, and we are registered as a SEF.

Clearing

Bloomberg Professional service seamlessly integrates with central counterparties to clear trades.

Reporting

Bloomberg’s trade reporting solution seamlessly connects with trade repositories, and can facilitate trades executed both on and off the Bloomberg Professional service.

Following the financial crisis in 2008, European policymakers began to review and update the Markets in Financial Instruments Directive (MiFID), seeking to increase market stability and confidence, and bolster consumer protections. The MiFID II proposals consist of revisions to the original MiFID (Directive) implemented by the European Commission in 2007 as well as a proposal for a new Regulation (MiFIR). The directive applies to financial industry players providing investment services, such as investment banks, portfolio managers and brokers.

New Requirements

MiFID:

• Specific requirements regarding the provision and sustainability of investment services
• Organizational conduct of business requirements for investment firms and trading venues
• The authorization and ongoing obligations applicable to providers of data services
• Powers and sanctions available to competent authorities
• Rules applicable to third country firms operating in the EU via a branch

MiFIR:

• Disclosure of trade transparency data to the public and competent authorities
• Removing barriers to non-discretionary access to clearing facilities
• Mandatory trading of derivatives on organised venues
• Specific supervisory action regarding financial instruments and positions in derivatives
• Provision of services by a third country

Compliance Support

Bloomberg is continuously working with regulators and market participants to determine the effect of MiFID II/MiFIR on the execution of derivatives trades. Bloomberg provides entity and customer classifications data as part of its Reference Data Services as well as independent, third-party valuation of derivatives instruments through BVAL Derivatives. Execution platforms that fully comply with the MIFID II/MiFIR requirements are under development. The Bloomberg transaction reporting service is available as part of the Bloomberg’s Trade Order Management Solutions (TOMS) – a sell-side trading solution for fixed income and derivative transactions.

New Requirements

Dodd-Frank mandates new requirements that cover three key areas of an institution’s workflow:

• Execution
• Clearing
• Reporting

Compliance Support

Bloomberg has put solutions in place for each of these important components. And as result, Bloomberg is in an ideal situation to better serve customers and continue to champion the idea of responsible transparency and effective trading.

• Execution: The Dodd-Frank Act mandates that the execution and trading of swaps takes place within a Swap Execution Facility. Bloomberg SEF LLC (“Bloomberg SEF”) was the first Swap Execution Facility provisionally approved by the CFTC. It was launched on October 2, 2013 and supports Credit Default Swaps (CDS), Interest Rate Swaps (IRS), Foreign Exchanges (FX) and Commodity Derivatives. Bloomberg SEF is the market-leading Swap Execution Facility with participants actively trading Permitted Transactions.
  • Order book: Bloomberg SEF provides an Order Book where all participants can post both firm and indicative bids and offers that are transparent to all other participants.
  • Request for Quote: Bloomberg SEF allows participants to initiate a request for quote (“RFQ”) to a mandatory minimum of two other participants.
• Clearing: Bloomberg supports the Clearing workflow process as mandated by Dodd Frank. Our progressive infrastructure supports both electronic trading as well as voiced based execution via our VCON platform. Bloomberg will continue to support relevant instruments such as FX and others.
• Reporting: Bloomberg helps facilitate the generation and transmission of unique swap identifiers (USIs) for applicable transactions executed or affirmed through Bloomberg. In particular, for users that manual ticket voice executed CDS, IRS and FX clients can use either CDXT <GO> or SWXT <GO> to cut and paste an initial USI into a free text field.

For transactions that occur on the Bloomberg SEF, BSEF LLC will report the initial trade and any allocations to an SDR as provided for under CFTC rules.

The Fundamental Review of the Trading Book (FRTB) is the biggest global sell-side regulatory change in more than two decades, completely overhauling the framework for market risk. The pressure is on for hundreds of banks to decide on an FRTB solution in 2017 in order to gain regulatory approval before the 2019 deadline.

Bloomberg is pleased to present a comprehensive suite of solutions to meet all aspects of the FRTB requirements, ranging from calculation engines to “real price” data repositories.

Bloomberg’s comprehensive FRTB solution:

Whether you require FRTB-ready data, a reliable risk analytics engine, or a full end-to-end workflow, Bloomberg can customize a package to meet your needs. The new capabilities will include regulatory capital calculations for both standardized and internal model approaches, risk factor mapping and modellable risk factor determination—all powered by Bloomberg pricing and market data.

Contact us to learn more: [email protected]

New Requirements

• Clearing: Standardized derivative contracts should be cleared through central counter parties in order to reduce the risk in the financial system
• Margin and capital: Clearing counterparty shall have permanent, available and separate initial and variation margins in the form of highly liquid collateral
• Reporting: All OTC derivative contracts should be reported to trade repositories

Trade Reporting

Bloomberg’s STP solutions allow clients to comply with reporting requirements for OTC and Exchange Traded Derivatives around the globe, connect with key exchanges, clearing houses and trade repositories for all asset classes.

Key benefits specific to EMIR reporting are:

• Multi-Asset — Bloomberg’s solution is multi-asset, covering IRS, CDS, FX, Equities and Commodities
• Voice & Electronic Trades — Trades initiated via Bloomberg voice and electronic execution platforms can seamlessly flow to the preferred Trade Repository as part of the execution process.
• Uploading and Back-loading Trades — Clients have the option to upload trades, including intra-group trades, initiated outside of Bloomberg in order to ensure that all trades are reported through a single solution.
• Monitoring Reporting Status — Bloomberg provides a Central Reporting Blotter to monitor the reporting status of your trades.
• Connectivity — Bloomberg connects to DTCC and Regis-TR.

Valuation Reporting Solution

Bloomberg’s EMIR collateral and valuation reporting solutions allow clients to seamlessly send valuations (Bloomberg’s or your own) to trade repositories using a single workflow.

Bloomberg offers valuation reporting solutions with coverage across multiple asset and product types. Bloomberg Derivatives offers valuations for derivatives linked to all asset classes, including interest rates, FX, equity, commodity, credit and inflation. Extended product coverage includes vanilla options, hybrid instruments, exotic options, and structured notes, which can be priced using Bloomberg derivative calculators, industry-standard pricing models, and high quality data. Pricing models include the local volatility model, stochastic local volatility model, Hull & White, and more.

Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision (BCBS) after the 2008 financial crisis. Basel III aims to promote stability in the international financial system by strengthening regulation, supervision and risk management in the banking sector. Compliance with new Basel III standards began Jan 2013 and will be progressively phased in through 2019.

The three objectives of Basel III:

• Improve the banking sector’s ability to absorb shocks arising from financial stress
• Improve risk management and governance
• Strengthen banks’ transparency and disclosures

Coverage Areas

Regulatory capital

• Banks shall progressively reach a minimum capital ratio of 10.5% and a minimum common equity tier 1 capital ratio of 7% as of 2019
• Tighter definitions of the Regulatory Capital, and higher risk weights for risk-weighted assets (RWA) calculations
• Introduction of a ‘Leverage ratio’ such as amounts of assets and commitments should not represent more than 33 times the regulatory capital
• Minimum solvency ratio shall be 9% for the EU banks (instead of 7%)

Liquidity
Banks should comply with two new ratios:

• Liquidity Coverage ratio (LCR) – unencumbered, high-quality liquid assets (HQLA) must exceed the net cash outflows over a 30-days stress scenario (defined by supervisors)
• Net stable funding ratio (NSFR) – long-term financial resources must exceed long-term commitments (equal or more than 1 year)

Compliance Support

Bloomberg has developed comprehensive solutions to assist firms in calculating and managing capital and liquidity adequacy requirements mandated by Basel III:

HQLA (High Quality Liquid Assets) solution
A comprehensive solution that offers a robust reference data to define the universe of HQLA eligible securities, covering both fixed income and equities. A sophisticated rules engine is employed to determine the applicable level of HQLA eligibility. HQLA eligibility is assessed against US, EU, Canada, Japan, Australia, Basel III rules. The tool also assesses securities against FR2052a (5G) asset categories for US liquidity reporting

LQA (Liquidity Assessment) tool
This tool measures a security’s market liquidity to helps clients to manage liquidity risk more effectively, and improve pre/post trade analysis. The tool systematically evaluates a number of security features to provide a price estimate, the probability that that price will be achieved, and how long it would take to sell a specified volume of the security at that price, for various asset classes

Central Bank Eligibility
Used for efficient collateral management, this tool identifies securities accepted by central banks and provides corresponding haircuts

SSFA (Simplified Supervisory Formula Approach) solution
This end-to-end solution allows clients to calculate capital requirements for securitization exposures based on the risk-weights prescribed by regulators. The solution includes eleven fields that banks can use to fulfil the SSFA requirements, including the five input data requirements, five interim-step calculations and the final securitization risk weight factor (SRWF) for each securitized product, eliminating the need to divert resources to producing this data-intensive calculation.

The Volcker rule was signed into law as part of the Dodd–Frank Act of 2010. It was included at the behest of former Federal Reserve Chair Paul Volcker to help reduce the short-term and long-term trading risk of deposit-taking institutions.

Coverage Areas

Proprietary Trading
Banks are prohibiting banks from engaging in proprietary trading, with some exceptions for market-making, hedging and underwriting

Covered Funds
Banks must divest their ownership interest in ‘covered funds’ such as hedge funds, private equity funds, most collateralized loan obligations (CLOs), and some other types of securitizations.

Almost all US deposit taking institutions, their affiliates, and foreign banks with a significant US presence will be impacted by the Volcker rule in some way. For example, a large market-making bank has the same prohibitions as a pure broker-dealer affiliated with an insured bank. However, trading desks bear the brunt of compliance.

New Requirements

By July 21st, 2015, any in-scope bank must cease its investments in covered funds, and implement a comprehensive compliance program to monitor its activities. However, determining whether a fund is covered can be challenging. While the primary rule is straightforward, there are numerous exceptions. In most cases, making the right determination involves manual review of prospectuses and deal documents, many of which are not readily available. Some deals, especially those that originate in other nations, may require a full legal analysis before a determination can be made. Banks then have to verify findings across dozens of trading desks that often lack a common reporting process. Finally, banks must create a compliance program to ensure covered funds are not reacquired.

Compliance Support

Working directly with industry stakeholders, Bloomberg for Enterprise developed a way to help banks identify covered funds quickly and efficiently with minimal manual effort. The Covered Funds solution uses nearly 30 data fields to automatically extract pertinent details from securitization and CLO deal documents to identify covered funds, as well as provide details about ownership structure, deal type, tranche and collateral. When a clear determination cannot be made, the solution indicates the need for further legal review. The Covered Funds solution enables banks to focus resources on the most complex evaluations. It not only helps banks track sponsorship of covered funds, but also helps them to calculate Tier 1 capital limits that are associated with ownership interests. The solution also allows buy-side institutions to identify market liquidity and price discrepancies, and drive demand for non-covered funds.

Solvency II is a fundamental review of the capital adequacy regime for the European insurance industry. The rules standardize reporting and valuation of assets and liabilities for the insurance industry and implement minimum capital requirements for insurers that take market risk and liability management into consideration. The project remains one of the European Insurance and Occupational Pensions Authority’s (EIOPA’s) major work streams. The Omnibus II Directive sets the scope of the technical standards to be drafted by EIOPA to support the implementation of the new regime. EIOPA will also draft guidelines to support the consistent application of the Solvency II Directive.

The objective of Solvency is to establish a revised set of EU-wide capital requirements and risk management standards with the aim of increasing protection for policyholders:

• Provide freedom for companies to choose their own risk profile and match it with an appropriate level of capital
• By better aligning risk and capital management, encourage an improvement in the identification of risks and their mitigation
• Establish an early warning system for deterioration in solvency by active capital management

Coverage Areas

Solvency II is structured in a similar fashion as Basel, the proposed Solvency II framework has three main pillars:

• Pillar 1 covers quantitative requirements. This pillar ensures the capability of an insurer to demonstrate that it is adequately capitalized to meet all its liabilities.
• Pillar 2 imposes higher standards of risk management and governance within a firm. It also gives supervisors greater powers to challenge firms on risk management issues.
• Pillar 3 focuses on disclosure, reporting and transparency requirements around these risks and capital requirements.

Compliance Support

Bloomberg solution for Solvency II provides high-quality reference and pricing data to help firms meet the Pillar I and Pillar III requirements of the regulation. The Solvency II data package provides the mandatory Complimentary Identification Codes (CIC) and European Statistical Classifications of Economic Activities (NACE) codes required in Solvency II’s Quantitative Reporting Templates (QRT). The package also includes the Legal Entity Identifier (LEI), ultimate parent, security IDs, duration, ratings and security types. To address Pillar 1 requirements, BVAL, Bloomberg Valuation Service, delivers transparent, defensible prices for fixed income and derivative securities.

Unlike in Europe or the U.S., the diverse economies and jurisdictions of Asia Pacific do not adhere to a single regulatory approach. While select global regulation, such as Basel III, is being widely implemented, the regional trend is toward greater diffusion and fragmentation—and thus greater localization in APAC regulation.

Compliance Support

Bloomberg’s APAC Regulation (AREG) provides information about the regulations governing Asia/Pacific markets and the region’s evolving over-the-counter (OTC) derivative and capital markets.

There are four key touch-points which drive the still-fluid and fragmented nature of regulatory development across the Asia-Pacific region and which Bloomberg seeks to address:

• Risk Management: AREG links and aggregates tradable instruments to users and helps Risk Managers, Compliance Officers and the like to identify immediate parents, ultimate parents and obligors in any of the some 35 million trades Bloomberg maps. Issues involving counter-party risk and concentration risk can be monitored—¬as can regional risk issues from a macro- or micro- perspective.
• Due Diligence: Bloomberg helps firms understand exactly who they do business with and the types of transactions that are permitted, and provides solutions that can best help govern your firm’s transactional activity.
• Regulatory Reporting: This embraces the five “necessaries” that dominate OTC derivative reporting in the Asia-Pacific region: Trade Reporting, Central Clearing, Mandatory Trading (E-Trading), collateral management and idea generation. Beyond Basel-dictated capital requirements, the country overviews illuminate where each market stands in terms of development and attendant requirements.
• Trade Compliance: Bloomberg provides both pre-trade and post-trade surveillance. It covers areas where financial policy can become foreign policy as regulators move to police capital movement and market performance via their wide array of oversight programs. Bloomberg helps customers reduce the risk of unintentionally violating sanctions.