Bloomberg
Regulatory
Solutions
March 2016

BLOOMBERG REGULATORY TEAM INITIATIVES RAAP<GO>
Bloomberg’s Regulatory Team• Bloomberg Enterprise Regulatory Solutions response to the ever changing regulatory landscape• Tasked with working with clients, regulators and industry associations to develop solutions to meet
regulatory needs

Solutions Currently in Production• Regulatory Transparency Fields• Fair Value Hierarchy Leveling (FVHL) Tool
• Simplified Supervisory Formula Approach (SSFA) Calculator• High Quality Liquid Assets (HQLA)• Central Bank Eligibility (CBE)• Liquidity Assessment Tool (LQA)• Covered Funds• Solvency II

Solutions Currently in Development• Affiliated Transactions• Margin Period of Risk (MPR) – Basel III• Collateral Tagging••

Look throughForm PF••FRTBMiFID II

Solutions under Research• IFRS 9 - SPPI• RENTD – Volcker Rule
• Investor Protection

2

BLOOMBERG REGULATORY THEMESIntroduction to Regulatory Themes• Each of Bloomberg’s Enterprise Regulatory Solutions make up components of our overall portfolio of
products. Our strategy is to create products which directly address or cut across the key regulatory
themes facing market participants today.

Regulatory Themes

Risk & CapitalManagement

Trading•••

Covered Funds
Identification
Collateral Tagging
Volcker RENTD

Regulatory &Accounting Reporting•

Liquidity Assessment•

High Quality Liquid
Assets•Regulatory
Transparency Fields•

Central Bank
Eligibility•

Fair Value Levelling
Tool•

Fundamental Reviewof the Trading Book•

Solvency II••

IFRS 9 – SPPI

Simplified
Supervisory Formula
Approach•Form PF

Compliance•

MiFID II•

Look ThroughTechnology•

AffiliatedTransaction
Identification•

Investor Protection* The above themes contain products in development & research phases as of Feb 2016
3

SOLUTIONS IN PRODUCTION

FAIR VALUE LEVELING AND ACCOUNTING DISCLOSURE
ASC820 and IFRS 13• Reporting entities subject to IFRS or US GAAP have the obligation to understand and to disclose thepricing methodologies that drive the valuations used for their portfolios.
• Regulation explicitly requires a market-based price where available rather than an entity-specificprice.
• It further refines the ‘three level’ valuation hierarchy originally specified in FAS 157, placing anemphasis on observability and valuation techniques.

Regulatory Transparency Fields• Assist clients in responding to the accounting requirements set forth by ASC 820 and IFRS 13.
• Provides an objective, consistent and defensible data solution for many of the regulatory andaccounting issues facing our clients today, such as accounting disclosure and valuation control, by
exposing the underlying market data used in the Bloomberg Valuation Service (BVAL) pricing models.

Fair Value Hierarchy Leveling Tool
• Allows clients to customize and store their own rules to determine fair value leveling results, either 1,
2 or 3, at a certain point in time, while aligning with BVAL’s high quality, independent price.
• Saves considerable effort by allowing fair value leveling decisions to be made consistently anddefensibly using the same customized rules over time.
5

FAIR VALUE HIERARCHY LEVELING TOOL6SIMPLIFIED SUPERVISORY FORMULA APPROACH (SSFA)
Brief SSFA Calculator Overview• The Simplified Supervisory Formula Approach (SSFA) is a tool that calculates the risk weights
required on private label securitized exposures in compliance with U.S. Basel III requirements.
• Consistent with the requirements of the Dodd-Frank Act, the “Final Rules” under U.S. Basel III
eliminate the ratings-based methods currently utilized under Basel II and replaces them with ameasure of the combination of the collateral performance and structural integrity of private label
securitizations to calculate the appropriate risk-weighting.
• Please note that SSFA only addresses the U.S. Basel III requirements for the risk weighting on private
label structured products.

Implementation1• Effective from January 1, 2015, all US banking organizations regardless of the size of their assets
have to adopt the SSFA to calculate the risk-weighting and the capital adequacy ratio. Currently only
US banking organizations with more than $50 billion in total assets are required to use SSFA. Foreignbanking organizations (FBOs) with U.S. non-branch assets of $50 billion or more will be required toadopt the SSFA as effective from July 1, 2016.

Bloomberg Coverage• Bloomberg offers SSFA analytics on more than 50,000 structured products across US andInternational RMBS, CMBS and some consumer ABS. At this point in time, Bloomberg does notsupport Student Loan ABS, Credit Card ABS or CLO/CDO.
1.

“Regulatory Capital Rules” : Timelines - http://www.fdic.gov/news/board/2013/2013-07-09_notice_dis_a_res.pdf

7

SSFA: RISK-WEIGHT FACTOR CALCULATION

CollateralComponents

Structural
Components

CapitalRequirements

1 http://www.fdic.gov/news/board/2013/2013-07-09_notice_dis_a_res.pdf

SSFA calculates capital requirements
for securitization exposures based on
the risk-weights and performance of
the underlying exposures and therelative position of the exposure in
the capital structure. Bloomberg hasaccess to collateral transparency data
and analytics leading to clear
advantages with our SSFA solution interms of quality and coverage.
This solution also enables efficiency
gains for clients by saving time andmoney by automating the process of
calculating a complex risk weighting
formula consistently.
The calculations and formulas used in
SSFA are taken directly from theFederal Register documentation1.

Page 96/260
8BASEL III: LIQUIDITY COVERAGE RATIO (LCR)
What is the International Framework for Liquidity Risk Measurement1?
• As a response to the 2008 financial crises the G20 launched an overhaul of banking regulation,
known as Basel III. In addition to changes in capital requirements and the introduction of aleverage ratio, Basel III introduces new liquidity requirements: the Net Stable Funding Ratio(NSFR) and the Liquidity Coverage Ratio (LCR).

What is the purpose of the LCR2?
• The LCR promotes the short-term resilience of the liquidity risk profile of banks by ensuringbanks have an adequate stock of unencumbered High-Quality Liquid Assets (HQLA) that can beconverted easily and immediately in private markets into cash with limited loss of value to meettheir liquidity needs for a 30 calendar day liquidity stress scenario.
LCR Calculation = (HQLAs / Total Net Cash Outflows 30-Day Stress Period) >= 100%
• LCR was introduced on 1 January 2015 in most juristictions3 with a gradual phase of theminimum requirements.

Bloomberg’s HQLA Solution• Robust data set consisting of new HQLA fields and existing reference data defines the universeof HQLA eligible securities (we cover both fixed income and equities).
• Sophisticated rules engine employed to determine the applicable level of HQLA eligibility.
• New HQLA specific fields provide relevant and valuable data points intended to assist clients inmaking an informed determination of HQLA eligibility.
1. “Basel III: International framework for liquidity risk measurement, standards and monitoring” - http://www.bis.org/publ/bcbs188.pdf
2. “Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools”, Part 1, Sections I and II - http://www.bis.org/publ/bcbs238.htm
3. Japan LCR reporting starts on 1 Apr 2015
9

HQLA: BLOOMBERG’S COMPREHENSIVE SOLUTION••

Provides data fields to assist our clients with LCR reporting and HQLA identification
The offering consists of 3 modules:

HQLA Classification

Liquid & ReadilyMarketable

Central Bank Eligibility• 18 HQLA specific fields that
help determine US, EU, CA,
JP, AU and Basel III HQLA
eligibility and FR2052a/C72
asset category• Includes 30 day stressperiod price metrics, OECDclassifications, and risk
weighting• 31 Security Master,
Derived, Pricing and Credit
Risk Fields• 6 fields that help
determine liquid andreadily marketablesecurities• Weighted count of market
participants based on
executable and indicative
quotes• Weighted age of quotes• 3 new Bulk Central Banks
Eligibility Fields• Covering 10 Central Banks• Providing haircuts at therespective discountwindow facilities

Asset coverage
Equities, GSAC*, Mortgage
Pools, Structured andConsumer ABS, US
Municipals

Asset coverage
GSAC*, Mortgage Pools(TBA), Structured andConsumer ABS (TBA), US
Municipals (TBA)

Asset coverage
Equities, GSAC*, Mortgage
Pools, Structured andConsumer ABS, US
Municipals* GSAC = Governments, Supra-Nationals, Agencies, Corporates

10

HQLA: COVERAGE

All

All

Munis

All

ABS

Asia

Pools

EMEA

GSAC

Americas

FieldsEquityApplicable
Jurisdictions

US HQLA US Eligible Asset Class Designation

9

9

9

9

9

HQLA FR2052A Eligible Asset Class Designation

9

9

9

9

9

HQLA Canada Eligible Asset Class Designation

9

9

9

9

9

HQLA EU Eligible Asset Class Designation

9

9

9

9

9

HQLA Japan Eligible Asset Class Designation

9

9

9

9

9

HQLA Australia Eligible Asset Class Designation

9

9

9

9

9

HQLA Basel III Eligible Asset Class Designation

9

9

9

9

9

HQLA Major Index Flag

9

N/A

N/A

N/A

N/A

HQLA 30-day Price Drop Fields (3)

9

9

9

9

9

Current OECD Member Country

9

9

9

9

9

Current OECD Country of Risk Classification

9

9

9

9

9

Liquid and Readily Marketable Fields (6)

-

9

-

-

-

Explicit Central Bank Eligibility

N/A

9

9

9

9

Implicit Central Bank Eligibility

N/A

9

9

9

9

Eligible Central Bank Haircuts

N/A

9

9

9

9

11

CENTRAL BANK ELIGIBILITY

Bloomberg has developed logic to identify selected Central Banks’ discount windows forwhich a security is eligible, and the corresponding haircuts
Central Banks provide explicit lists of eligible securities and/or implicit guidance of eligible
securities as shown below

Covered Central Bank

Explicit

Implicit

Haircut991

United States Federal Reserve (FRB)

2

European Central Bank (ECB)

93Bank of England (BOE)94

Swiss National Bank (SNB)

9

5

Riksbank (RIKS)

96

Bank of Canada (BOC)

9

9

7

Bank of Japan (BOJ)

9

9

8

Bank of Korea (BOK)

9

9

9

Hong Kong Monetary Authority (HKMA)

9

9

10

Reserve Bank of Australia (RBA)

9

9

9

9
9

9

9

12

LIQUIDITY ASSESSMENT TOOL (LQA)
Liquidity has become omnipresent in regulatory requirements: liquidity is now
an input as well as an output of many regulatory requirements.

LCR requires “liquid and readily marketable”
determination in addition to HQLA
classification

MIFID
MarginPeriodof Risk

VolckerRule

FRTB

SEC Liquidity Risk Management Program
requires relative liquidity classification bytime to liquidation bucketing
Liquidity

SEC
22e-4

LCR

CLAR
RRP

Firms need a holistic approach toliquidity, using a methodology
across jurisdictions, regulations
and asset classes to produce
consistent and reproducible
outcomes across the firm

13

LQA MODEL OVERVIEW
The overall model is based on three components:
Market Impact model•We estimate price shift from a fair value given a specific volume•Calibration can be extended to every asset class

Machine Learning Engine•Problem : A lack of trade data gives < 100% coverage•Solution : Cluster Analysis is used to identify comparable assets

Rich Market Data + Sophisticated Analytics•Reactive to market conditions•Leverage multiple sources of transaction data

14

LQA: TERMINAL FUNCTION LQA<GO>

15

MODEL INPUTS AND OUTPUTSOUTPUTSINPUTSCLIENT INPUTS1:•••

Security Identifiers
V = Simulated Volume (Quantity to sell)‫ = ݔ ܽܯܫ‬User Accepted Market Impact

BLOOMBERG INPUT ASSUMPTIONS 2:••••

P = Reference (fair value) Price
S = Bid/Ask Spread
σ = Price Volatility over period ΔT (i.e. 2 months for Corp)
F2 = Turn over in period ΔT (i.e. 2 months for Corp)

•
•
•
•
•

F3 = Average daily volume*
N = Average daily number of trades *R = Participation Rate *Fixed Days to Liquidate *Confidence *ASSET CLASS SPECIFIC BLOOMBERG INPUTS•••

Fixed Income : Duration (D),. Coupon (C), AMT (M), etc.
Equity : Quantitative and Fundamental information
Other asset classes will have own unique inputs

LIQUIDITY ASSESSMENT (LQA)• Ф = Probability of Selling volume (V) at Price (P) or better• ୚ = Market Impact selling custom volume (V)• ୑୅ଡ଼ = Given max Market Impact ( ୫ୟ୶), max Volume
can be sold
• T = Given max Market Impact ( ୫ୟ୶), days to liquidate
custom volume (V)• L = Liquidity Score• Г = Cluster Quality Index• ϴ = Cluster Migration Rate
PRUDENT VALUATION (PRUVAL)• ୑୔୙= Market Prudent Price• ο୅୚୅ = Close Out cost AVA• ο୅୚୅= Market Price Uncertainty AVA• ο୅୚୅= Concentrated position AVA• ο୅୚୅= Combined AVA
UNDER DEVELOPMENT• MARGIN PERIOD OF RISK (MPR)• SEC Rule 22e-4• HQLA : Active and sizable market• Volcker : RENTD

OTHER MODEL INPUTS•••News Sentiment Index
Accessibility Index (holder type)
Other specific features for different asset classes
I.e., Central Bank Eligibility

1

BBG will use default values when client chooses not to supply overrides
Can be overridden by client for stress-testing* Override capability being developed for certain asset classes

2

16

RECOVERY AND RESOLUTION PLAN
What is the Recovery and Resolution Plan
• Since the financial crisis, there has been much focus from legislative and regulatory authorities on reducing riskof bank failure and bank bailouts• One of the key requirements of the new regulation is that of preparing and implementing a so-called “Living Will
/ Recovery and Resolution Plan”, the deadline for which was by the end of 2012

What is the challenge?
• Recovery and Resolution plans can be complex and wide ranging, as they need to perform analysis that estimatesthe impact of the potential actions the institution would take under each scenario as well as the consequences tocapital, funding and liquidity; to the various affected business lines, legal entities and material branches and by
jurisdiction• The Plan should also include survival strategies and measures for those businesses/functions which, if disrupted,
would threaten stability of the financial system. In particular, financial firms are required to demonstrate thatthey have a good understanding of funding sources and liquidity risk, and how these are affected by stress• In addition, there are extensive information requirements associated with the plan, which may be difficult forfirms to meet from an information gathering and format/presentation perspective

Bloomberg Proposed RRP Solution• The Bloomberg Liquidity Assessment Solution (LQA) provides clients with an innovative, quantitative and mostimportantly consistent methodology for estimating liquidity of securities. This is based on providing theestimated market impact and time to liquidation for a particular holding size at the security level or alternatively
aggregated at the portfolio level• Both the input and output data can be customized by the client, in addition to parameters relating to theunderlying methodology. This functionality enable the firms to develop a wide-ranging trigger framework withearly warning indicators. This could also improve the firm’s ability to provide a forward-looking view of stressbefore and after management actions
17

MARGIN PERIOD OF RISK
Requirements• This is a requirement in the Counterparty Credit Risk calculation (new in Basel III). With respect to a netting set
subject to a collateral agreement, this refers to:• The time period from the most recent exchange of collateral with a counterparty until the next required
exchange of collateral.
• The period of time required to sell and realize the proceeds of the least liquid collateral that can be delivered
under the terms of the collateral agreement.
• Where applicable, the period of time required to re-hedge the resulting market risk, upon the default of thecounterparty.

Bloomberg Solution• The Bloomberg Liquidity Assessment Solution (LQA) provides clients with the practical data required to calculate
Margin period of Risk.
In practice the operationalization of MPOR boils down to quantify the following two questions for relevant
positions:- Calculate the Market Impact ($) to Sell a Volume of X millions (e.g. $50mn) in Y days (e.g. 2d, 20d) withZ%of confidence (e.g. 90%)?
- Calculate the Volume that can be traded with a Market Impact smaller than X percent of price (e.g. 2%)
inY days (e.g. 2d, 20d) with Z% of confidence (e.g. 90%)?

Assumptions to calculate MPOR
For this case study we are basically using a linear assumption wrt. time:1.
Selling 50mn in 20 days is equivalent to selling 2,5 mm. per day
2.
Knowing the volume we can trade on one day can be linearly scaled to n days

18

VOLCKER RULE: COVERED FUNDS
What is a covered fund?

• Under the Volcker rule, a banking entity is prohibited from owning or sponsoring a“covered fund” which includes:• hedge and private equity funds that rely on Section 3(c)(1) or Section 3(c)(7)
exemptions from Investment Company Act• similar funds defined as “commodity pools” and foreign funds that would meet thedefinition of hedge or private equity fundBloomberg Covered Funds solution• Bloomberg’s Covered Fund Tool has coverage of Securitizations (including Non-Agency
RMBS, CMBS, Consumer ABS, and CDOs), Collateralized Loan Obligations, Covered
Bonds and Foreign Listed Securities.
• For all above product types a dedicated Bloomberg terminal screen is developed whichdisplays key information most relevant to Front Office personal for Pre-Trade screening.
In addition, a Daily File is distributed including additional fields most relevant to Back
Office personal for the purposes of monitoring compliance and risk reporting.

19

COVERED FUNDS: TERMINAL SCREEN VCF<GO>20

SOLVENCY II
Background• Solvency II is an EU Directive designed to regulate the capital of insurance companies and reduce therisk of insolvency.
• Solvency II aims to introduce a harmonized regulatory regime for the insurance market. The
regulation impacts capital calculations, governance and reporting, creating obligations for insurersthat operate in the EU, as well as their asset managers and custodians.

The challenge• One of the most demanding aspects of Solvency II is the Transparency and Disclosure requirement,
also known as Pillar III reporting.
• Pillar III requires quarterly or annual reporting of risk and capital adequacy details.
• To prepare these reports in-house, firms must invest in large-scale programs to develop proprietaryalgorithms and related technology—a costly approach that is further complicated by Solvency II
onerous data requirements and tight deadlines for compliance.

Bloomberg Solution• The Bloomberg Solvency II Solution combines high-quality reference data with proven expertise in
Solvency II taxonomy, giving insurers a faster, easier and more cost-effective solution for complying
with Pillar III reporting requirements.
• In addition, Bloomberg monitors changes to reporting requirements, carrying out extensive due
diligence to ensure that our product continues to deliver the most accurate and comprehensive
Solvency II reporting solutions.
21

BLOOMBERG SOLVENCY II SOLUTIONBLOOMBERG’S SOLVENCY II REPORTING PACKAGE• Bloomberg’s Solvency II package covers the full suite of Pillar III reporting requirements.
We provide approximately 130 data fields that are mapped to the European Insurance
and Occupational Pensions Authority’s (EIOPA) Quantitative Reporting Templates (QRT)
for insurers. The solution maps these fields to the Asset Managers’ Tripartite templateso that insurers’ asset managers can also provide data for Pillar III reporting.
• Bloomberg’s Solvency II Reporting package comprises comprehensive and granular
reporting data, and field transparency to provide additional assurance.

Key features include:• Detailed guidance on how Bloomberg fields align to the Asset Managers’ Tripartite
template, and EIOPA’s QRTs.
• Comprehensive coverage of EIOPA’s Complementary Identification Codes (CIC) across all
asset classes and maintenance of codes in line with EIOPA changes.
• Comprehensive coverage of entity-level European Statistical Classification of Economic
Activities (NACE) Codes and Legal Entity Identifiers (LEI ).

22

SOLUTIONS IN DEVELOPMENTAffiliated Transactions: Introduction
Background• Affiliate Transaction related regulations were originally established over 10 years ago.
However, there has recently been a renewed focus on these regulations based on a new pushto protect depository institutions, and increase transparency with regards to intercompany
transactions and legal entity management.
• Regulation W, Section 23A and 23B of the Federal Reserve Act and Rule 10f-3 under theInvestment Company Act of 1940 impose restrictions on transactions between affiliates,
which are defined as covered transactions under the regulations.
• These regulations are expected to reduce the transactional risks between an institution and its
affiliates.

Industry Considerations• Given the obligations of these various regulations, it has been challenging for institutions tomeet their requirements for a number of reasons. Banks need to:• Initially identify their entire affiliate network• Identify affiliate transactions by silo across the organization• Identify transactions covered by the various statutes• Incorporate the quantitative limitations with a single affiliate and combined across allaffiliates• Meet the requirements of transacting at arm’s length with an affiliate• Lacking an independent and easily assessable reference point to benchmark against, mostinstitutions have had to embark on a manual and labor intensive compliance process to gather
all this information on a periodic basis
24What can Bloomberg offer for Reg W and 10(f)-3?
Solutions

Reg W/23B and 10(f)-3•

REG W/23B
Restricts/excludes certain types of asset purchasessuch as- Purchases of a security or other assets from a covered
affiliates as a fiduciary- Purchases of a security underwritten by an affiliate•

10(f)-3
It provides “Exemption for the acquisition of
securities during the existence of an underwriting or
selling syndicate” that otherwise would violate
section 10(f) if, among other things, following typesof security is included:(i) Part of an issue registered under the Securities Act of1933 that is being offered to the public;(ii) Part of an issue of government securities(iii) Eligible Municipal Securities;(iv) Securities sold in an Eligible Foreign Offering; or(v) Securities sold in an Eligible Rule 144A Offerings•

Bloomberg's global data team
updates new issues for fixedincome, equities, municipals
and mortgages with
underwriting and fiduciary
information.

•

We can leverage this data andprovide all the transactions ina machine readable format.

•

Bloomberg’s AffiliatedTransaction solution provides
the full list of securities which
exist within the Bloomberg
databases along with key
related fields.

25

COLLATERAL TAGGING
What is Collateral Tagging•Risk mitigation and capital adequacy in the financial system has been one of the primary objectives of the global
regulators, following the 2008 financial crisis, with a focus on reducing risk of failure and bank bailouts.
•As a result of the crisis, regulators across the globe began imposing margin and collateral requirements on OTC
Derivative transactions, and have mandated the development of standards that set out the levels and types of collateral
as well as segregation arrangements required to ensure timely and accurate separation of such collateral.
•US and Europe have been at the forefront of this initiative with the finalisation of initial and variation margin
requirements (finalised in December 2015 and expected in early summer 2016)

What is the challenge?
•Maintenance of multiple rules based on the different national regulatory frameworks the client operates under, i.e.
Europe, US, Japan, etc.
•Margin and collateral frameworks have evolved significantly in the past few years with an expectation this willcontinue into the future as various regulators (re)align their thinking which will require continued maintenance andmonitoring.
•Existing regulations highlights the need for a level of standardized interpretation to produce an accurate andconsistent classifications of collateral.

Bloomberg Proposed Collateral Tagging Solution•The Bloomberg Collateral Tagging Solution will provide clients with an efficient channel to determine collateraleligibility for non centrally cleared OTC derivatives across various global regimes.
•It provides the market place with a consistent methodology for collateral valuation and estimation eliminating someguess work from the Firm’s capital management•Flexible infrastructure that leverages Bloomberg’s extensive data coverage to provide up to date and precise tagging of
securities (~3mln)

Bloomberg Proposed Regimes in Focus
•
•
•
•
•

United States
EuropeJapan
Switzerland
Hong Kong

•
•
•
•
•

Singapore
CanadaAustralia
TaiwanSouth Africa

26

LOOK THROUGH
What is look through?
• Financial institutions have the regulatory obligation to perform a ‘look through’ in investments
in funds for compliance and risk purposes.
• Under the Solvency II regulation for example (in force as of 1 January 2016) insurancecompanies must perform a look through in determining their Pillar 1 minimum Solvency
Capital Requirement (SCR) for different asset risks (e.g. spread risk).
• Capital and liquidity regulations require banks to perform look through to the ultimate
underlying of investment funds to determine their credit and market risk exposure.

What is the challenge?
• Performing a look through is a complex exercise as funds can invest in multiple other funds(fund of funds) in more than one layer of reinvestments, funds can be synthetic in nature
creating potentially counterparty risk.
• For financial companies, even if the data can be obtained with sufficient granularity andquality, the amount of data can grow exponentially with fund of funds in play, creating
significant challenges in terms of control of data and data management in general.

Bloomberg Proposed Look Through Solution• The solution will determine, after multiple look troughs until the ultimate underlying security
is identified, a bulk field that contains the constituents of the ultimate underlying’s of the fundand the reference data of those holdings.
• The Bloomberg solution will provide extensive coverage for fund look through with timely andextensive reference data.
27

FORM PF
What is FORM PF•Amendment of Investment Advisers Act of 1940, requiring that the FSOC to collect data that enables it to better monitor
systemic risks in the U.S. financial markets.
•Mandate allowing for the Securities Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to
use information on FORM PF for investor protection, examination, and investigation purposes.

What is the challenge?
•With its litany of questions spread over more than 50 pages, Form PF is proving to be a formidable undertaking forinvestment advisers. Depending on the size and type of private fund, data required can include:•A fund’s gross and net asset values;•Aggregate value of derivative positions;•Percentage of fund ownerships;•Gross and net performance information;•Financing information (including secured and unsecured borrowing);•Valuation and methodology, and liquidity of holdings; and•Portfolio company information.

Bloomberg Proposed Form PF Solution•Bloomberg’s data-centric approach and proven expertise allow firms to efficiently update Form PF documentation tomeet filing deadlines in a cost-effective manner.
•Our solution will provide specific data fields that make it easier for firms to report information regarding:•Trading and clearing mechanisms;•Percentage of the reporting fund’s net asset value;•Turnover by asset class;•Aggregated hedge fund exposures;•Turnover value of advised hedge funds; and•Geographical breakdown of investments.

28

SOLUTIONS UNDER RESEARCHVOLCKER RULE: RENTD
The Requirement• Volcker Rule Regulatory Compliance program must be in place by July 2015
• Justification of Market Making & Underwriting desks’ activities must be demonstrable. RENTD
requires evidence that the positions of a desk taking the market making exemption are tied tocustomer activity.
• OCC estimates almost 90% of compliance costs of Volcker associated with RENTD

The Problem• Market data may not be readily available within a Bank to assess the liquidity of a trading desks
portfolio (e.g. BVAL market observations & Holdings)• Liquidity, Maturity and Depth of a particular market is difficult to estimate and quantify consistently
at portfolio level• Several approaches in the market merely center on bid-ask spread

The Solution• Our solution will offer unique analytics to enhance the information and data used in RENTD
calculations• Using the tool to calculate Liquidity, Maturity & Depth of the market will improve accuracy andconsistency of RENTD & Customer Demand estimates• Inputs and outputs can be tailored for ANY of your market making or underwriting trading desks• Scoring methodologies to measure liquidity, maturity and depth of the market, along with a RENTD
Calculation Formula are available for compliance purposes
Source: OCC - http://www.occ.gov/topics/laws-regulations/legislation-of-interest/volcker-analysis.pdf

30

VOLCKER RULE: RENTD
Analyzing Market Information• One proposal is to provide Bloomberg clients with specific indices focused on relevant RENTD
market information.
• These indices can be used by Bloomberg clients as inputs / factors within their RENTD limit
calculations to document and evidence the linkages between the institutions market making
limits and the liquidity, maturity and depth of the market.
• Currently, the tool is capable of aggregating and referencing data for the following indices:
Asset Class
Fixed Income

Macro Class
Corporates

Governments

Convertibles
Agencies

Micro ClassHigh Yield Asia
High Yield Europe
High Yield North America
Investment Grade Asia
Investment Grade Switzerland
Investment Grade Europe
Investment Grade Great Britain
Investment Grade United States
Investment Grade Scandinavia
Asia
High Grade Europe
Low Grade Europe
United States and Canada
Other
Converts
AfricaAmerica othersHigh Grade Asia and Oceania
Low Grade Asia
High Grade Europe
Low Grade Europe and Russia
United States and Canada

31

VOLCKER RULE: RENTD
Example – Market Impact by Sector
The Market Impact model estimates price shifts based on a specified volume for a product and important data point for a desk’s
inventory level consideration

Assumptions•
Weighted average market Impact of each bucket are aggregated by amount outstanding•
Simulated volume for the market impact of each bonds are 10 year duration equivalent
32

IFRS 9: SPPI TESTING
New accounting classification and measurement standard• On July 24, 2014 the IASB issued IFRS 9, Financial Instruments1, replacing IAS 39 ‘Financial
Instruments: Recognition and Measurement’ accounting standard.
• IFRS 9 consist of three main themes: I) Classification and Measurement, II) Impairment and III) Hedge
accounting for financial instruments.
• IFRS 9 is effective for annual periods beginning on or after 1 January 2018 with early adoption
permitted.

The challenge: classification of assets at amortized cost
• A financial asset is measured at amortized cost if both of the following criteria are met:
• The asset is held to collect its contractual cash flows: the entity’s business model is for managing thefinancial assets.
• The asset’s contractual cash flows represent ‘solely payments of principal and interest (“SPPI”).

Bloomberg Solution• Bloomberg will utilize all available data in its global securities database to identify SPPI features andreturn the result for each unique security.
• Two new fields will assist clients to determine if a security passes the SPPI test Bloomberg will take
into consideration the following significant security features in SPPI testing.
Source: OCC - http://www.occ.gov/topics/laws-regulations/legislation-of-interest/volcker-analysis.pdf

33

IFRS 9: CLASSIFICATION & MEASUREMENT APPROACH1
Steps for determining the classification and measurement of financial assets

SPPI

Instruments within thescope of IFRS 9

Contractual cash flows are solely
principal and interest?

No

Business
model

Yes

Held to collect contractual cash
flows only?

No
o

Yes

Held to collect contractual
cash flows and for sale?

Fair value option?
on?

Fair value option
N
No

Amortized
cost

Yes
Y

No

Yes
Y

Yes

Fair value
ue thrthroughgh
profit or loss*

No
N

Fair value through othercomprehensive income* Presentation option for equity investment is to present fair value change in OCI

1. http://www.ifrs.org/current-projects/iasb-projects/financial-instruments-a-replacement-of-ias-39-financial-instruments-recognitio/documents/ifrs-9-projectsummary-july-2014.pdf

34

BLOOMBERG IFRS9 SPPI SOLUTION
Two new fields will assist clients to determine if a security passes the SPPI Test:
1.
2.

IFRS 9 - SPPI Test : This field will return “Pass”, “Fail”, or “Further Review Required” on a security level
IFRS 9 - SPPI Attribute : This field will return SPPI attribute to better explain the reason why it passes/fails or
further review required.
Bloomberg SPPI Rules Engine••••

Coupon typeCalculation Type
Index
CouponFrequency• Redemption
Type• Currency• Re-fixFrequency• ResetFrequency• Redemption
price• And manyothers…

Generate SPPI Test Result –Pass, Fail, Further Review Required• Provide more features on SPPI Test
Result• This attribute can help clients tocheck why the security passes / fails
the SPPI Test or need further review
required

Return SPPI Attribute35

FUNDAMENTAL REVIEW OF THE TRADING BOOK (FRTB)
Background• FRTB, a Basel regulation that impacts all sell-side banks globally with a trading book, aims to tackle a numberof structural flaws in the market risk framework not addressed by the Basel 2.5 revisions.
• It seeks to better align the capital outcomes and consistent application of the standardised and internal
model approaches to market risk across banks and jurisdictions.
• The regulation is more risk sensitive than the prior market risk rules, thereby impacting more functions
within the bank across market risk, valuation, product control and regulatory teams covering capital andstress calculations, governance, reporting and other obligations.

The challenge• One of the most demanding aspects of FRTB is the requirement to demonstrate the eligibility of trading
activities for the internal models-based approach. Firms have to prove that there are adequate “real” trades
for any given position (24 observations in any calendar year with no more than one month between any two
observations) in order to be allowed to use the relevant prices as inputs into the approved capital models.
• Firms do not have sufficient “real” trade data (either individually or as a consortium of firms) to be able todemonstrate that all their trading book positions feeding internal models trade sufficiently frequently. Failure
to demonstrate trading activity would involve additional capital charges.

Bloomberg Solution• Bloomberg is currently hosting various working groups with banks, regulators and consultants to better
understand the information that firms require, in what format and for which product types.
• Our proposed solution will be to provide firms with a definitive flag (where possible) for any given security
that states whether it is modellable or not. This flag will be backed up by actual trade data and executable
quotes obtained from various sources, including trades flowing through Bloomberg’s various trading
platforms and external contributed data.
• We are also looking to provide further transparency into the FRTB classifications by providing a view point on
trade date for each observation, and possible aggregated & anonymous volume and price information.

36

MiFID II: TRANSPARENCY AND REPORTING REQUIREMENTS
Background• MiFID II sets new objectives and regulations for the EU financial markets by establishing aharmonised regulatory framework and consist of 5 main areas: Market Transparency, Investor
Protection, Market Structure, Organisational Requirements and Product Intervention.
• The (extended) implementation deadline for MiFID II is January 2018.

The challenge•Pre and post trade transparency requirements close to real time (+15m) and transaction reporting (81fields) requirements (T+1) covering all liquid markets and asset classes including non-equity.
•The updated directive applies to a broader range of financial industry players providing investment
services including: Investment Banks, Portfolio Managers, Brokers, Market Makers, Trading Venues(MTFs, OTFs, RMs, SI).

Bloomberg Solutions• Deliver reference data for pre and post transparency, including MiFID II liquidity thresholds (LIS and
SSTI) and data for transaction reporting• Automated transaction reporting: This data will allow Bloomberg clients to drive systematic
compliance processes (e.g. Internal Trade Reporting systems) and personnel driven procedures (e.g.
pre-trade disclosure requirements) in an efficient manner based on an individual securities data
fields.

37

MiFID II: TRANSPARENCY AND REPORTING REQUIREMENTS

MarketTransparency
Pre trade and post
trade transparency
beyond equities

Increased
reportingrequirements toregulators

Pre-trade and post –tradetransparency

Transparency requirements aim toensure that investors have reliable
and timely information about thelevel of trading interest in financial
instruments.

Transaction reporting

Transaction reporting byinvestment firms to authorities will
be used for market abusesurveillance and for monitoringmarket integrity.

Reference data

Reference data is essential
information that enables
authorities to fulfil theirsupervisory duties. Reference datais also essential to validate the data
received in transaction reports.

38

INVESTOR PROTECTION: MiFID II, PRIIPs & SSPs
Background• Regulators around the globe have a renewed focus on protecting retail investors from investing insecurities where the structures & risks associated with these instruments may not be fully
understood by the end investor.
• To protect these investors, regulatory bodies have put in place numerous obligations on financial
firms to ensure these protects are either not offered to certain types of investors, or if they are,appropriate disclosures are made to investors.

The challenge Investor Protection• In today’s complex regulatory environment, financial institutions who sell and offer securities todifferent types of investors must keep up with multiple regulatory regimes & geographicalrequirements to ensure they are fulfilling mandatory disclosure and suitability requirements.
• Selling complex products (or equivalents) to retail investors without proper advice and an
appropriateness test can lead to financial fines by the regulator.
• Identifying complex products (or equivalents) requires a significant level of due diligence and creates
an ongoing operational burden.

Bloomberg Solution• The investor protection data package will enable clients to identify complex financial securities thatare subject to additional appropriateness due diligence tests, or restrictions across regulatory
regimes.
• Bloomberg will determine the classification of securities into complex or non-complex (or equivalentdefinition under other regulations) based on the final Guidelines from EU (ESMA, EBA and EIOPA) andUS (SEC) regulatory bodies.
• The Bloomberg investor protection solution will provide clients with data points which provide
classifications in each regime for individual instruments, which will limit the need for an institution to
conduct manual assessments of instruments in their portfolios against multiple regulatory
requirements.

39

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