Steombsrcj 

Discussion on Bloomberg's interest in 

registering as a Swaps Execution 

Facility 

iember 9*. 201 
EXECUTIVE SUMMARY 

• The growth of the usage of derivatives in the financial markets was highlighted by the Financial Crisis 

of 2008 and 2009. The recently enacted "Dodd-Frank Wall Street Reform and Consumer Protection 

Act" mandates better automation and transparency for the markets. 

• There will be an ongoing need in the market for the ability to trade derivatives to manage specific 

cash flow needs, in particular for debt issuance. Due to the manner in which debt is restructured on 

an ongoing basis, there is a continuous need for a mechanism to competitively restructure the 

corresponding swaps. 

B Many of our customers believe that the trading protocols in place today need to exist in the future to 

respond to their ongoing cash flow needs. 

• Bloomberg is the largest independent player in the market in terms of electronic trading and 

processing of OTC derivatives. We have an extensive suite of capabilities, connectivity, and 

customers already on board. 

• Bloomberg is uniquely positioned to support participants and regulators due to our size and 

independence. In some markets, we are the only unbiased independent buy-side sell-side player 

with most entities being owned by the sell-side. We can be an intermediary with the community of 

buy-side and sell-side swap dealers. 

B Bloomberg has both the infrastructure, the expertise, and the desire to register as a Swaps 

Execution Facility (SEF) under the financial reform legislation. 
Our understanding of the CFTG objective 

snts for swap exchange fee 

Existing capabi 

i^BlliffiA<^° d^ii 

Overview of Bloomberc 

.5)U(g)(o)UYllLQ)(i 

CONTENTS 

communitv TO .s.. 
DODD-FRANK AND CFTC DERIVATIVES 

REGULATORY GOALS 

Bloomberg 

Prevent market manipulation and price distortion 

Monitor terms and conditions of swaps trade orders to ensure 

their financial integrity 

Mandate that all swaps subject to mandatory clearing be tradec 

on a SEF 

Enforce trading and trade processing rules that will deter abuse 

Price 

Transparency 

Establish a regulatory framework for position limits on SEFs, 

and for aggregating those positions across exchanges at 

markets 

Limit setting for contracts that perform a significant price 

discovery function 

Obtain relevant and timely information from traders as 

requested by the CFTC 

Comply with recordkeeping and reporting requirements 
r SBVIS TO REACH THESE OBJECTIVES 

INCLUDE SEVERAL MODIFICATIONS TO THE 

MARKET 

iiio>@mloi@rg 

\^^ IIBH 

^i^m^ H 

c 

o 

Q. 

• a 

CO 

O 

-t—> 

(D 

QI 

03 

RESPQE^SBBBLiTnES Q¥ A SEF 

Monitor swap trading and trade processing 

Avoid anticompetitive trade environment and 

conflicts of interest 

Maintain the adequate financial resources to run 

the SEF 

Uphold system safeguards and emergency 

authority 

Ensure proper governance through a Chief 

Compliance Officer 

D Verify the financial integrity of transactions 

n Enforce position limits regulations 

• Provide full transaction accountability 

Obtain all necessary regulatory information 

Maintain comprehensive record keeping 

Have the ability for timely publication of trading 

information 

Provide Regulatory/ Public Reporting 

Provide reporting to Participants 

:HAW^ ;© ^UE SWAP iiARKET 

Currently there is no industrywide imposed trading 

protocol, or mandatory multi-dealer platforms 

The buy side does not want to limit the number of 

places they can transact, regardless of execution 

platform ownership they want choice and competition 

to ensure fair pricing 

It is also important to have several venues in case 

one of them shuts down 

The market does not have counterparty 

transparency: no information is publically available 

on who the parties are in a swap trade 

No visibility into positions within same exchange or 

across markets 

All major platform providers currently maintain an 

audit trail of all trade transactions 

New regulations will create consistency of 

reporting and disclosure across the industry 
AS AN INDEPENDENT PROVIDER OF 

TRANSPARENCY AND LIQUIDITY IN THE SWAPS 

MARKET, WE SHARE SIMILAR OBJECTIVES 

Bloomberg 

TRANSPARENCY 

Ou tfil^UilJI^^biiiateaiiiali^ti r trai 

""'" |hensive real time price J 

between buyers and sell^Tf; 

iiabling fair pricing r~ 

:s'^-:#;;> ....;,^iijf'.i,.,:.ji.fe' 

RELBABILiTY 

We maintain a highly avaitable, rciBust 

and resilient technology infrastructure 

with the capacity and flexibility toi 

support large trade volumes includim 

electronic trading M 

SAFETY 

. automatu 

jntrol of all access point 

platform (e-trading and v 

connectivity to central clearing, and a 

complete audit trail of all activities 

^ithin our pli^Bns 

OF ESS 

Wm.mu .•integrated with all majbr 

' dealers, providing a central point pf 

connectivity to both buy and sell s\M 
OUR CAPABILITIES EXTEND ACROSS 

FUNCTIONS AND SERVE ALL PARTICIPANTS 

Btom\ \i-\\iQ)(wm. 

AR^tET FLOWS 

Buy-si) 

*rice tall 

Allocations, 

Orders 

.ecutJon Methods 

Electronic Trading 

Single Dealer 

Multi Dealer 

Inventory 

Voice Trading 

Voice Trading 

Inventory 

STP Tools 

Allocations 

Sell-side 

(Price maker 
EXISTING CAPABILITIES ON BLOOMBERG'S 

SWAP PLATFORM 

Bloomberg 

ransparent 

Transaction 

Protocol 

ikTiEiassis layers 

Bloomberg provides an open and transparent protocol to trade swaps 

• Competitive multi-dealer trading platform with ability to view depth of market (IRS) 

• Single-dealer trading platform with price benchmark reference composite with a 

recognized protocol (CDS and IRS) 

• Voice trading platform with integration with straight-through-processing capabilities (OTC 

Equity derivatives, CDS, and IRS) 

• Fully auditable trail for both the executing and non-executing parties 

Post-trade reconciliation platform that prompts the user if the trade is going to be cleared 

• Users can monitor live the entire clearing cycle for their products as the systems are 

speaking directly to exchanges (CMEs, ICE, etc) and show cleared trades back to the sell 

desks in addition to the buy side 

• Solution for unwinding trades for both voice and electronic trading 

Provides access to clearing venues and legal confirmation platforms: connectivity to central 

clearing facilities, as well as to legal execution facilities for non-cleared transactions 

• Bloomberg's advantage is to give the user the choice of clearing houses (market norm is to 

impose the preferred clearing house) 

Each step in the transaction protocol is recorded, including product selection, dealer 

communication over instant messaging or email (Bloomberg has full compliance for email/ 

messaging storage), and agreed pricing. 

Bloomberg is unique in offering the same rigor of protocol for voice trades with its voice trading 

platform VCON that captures voice trades and direct them seamlessly into a STP environment. 

There are no barriers to entry into the Bloomberg platform: it is open to any party offering liquidity 

and taking liquidity 

The trading capability is available to all 285,000 Bloomberg terminal users, with 16,000 active 

fixed income users trading on the system globally 

7 
EXISTING CAPABILITIES ON BLOOMBERG'S 

SWAP PLATFORM 

iBooryiberg 

:apacity to 

record, report 

and analyze all 

rade data 

Bloomberg has a unique blotter and reporting suite with a complete audit trail of all order and 

trade activity performed through its platform 

• Includes records for both electronic and voice trading and data is non-alterable 

• Full information on pre-trade, trade, and post-trade actions including all associated time 

stamps (e.g.: time when a price was requested, how long it took to get receive phce quote) 

a Ability to store other market data (e.g. benchmark price and competing quotes) at the time 

of the trade 

• Secure system with only appropriate parties having access to the information 

Data is easy to use and queries can be run to analyze the data 

• A full suite of compliance and risk management tools that can be leveraged to monitor 

position limits 

The System is highly flexible and a direct trade data feed could be established from the blotter to 

the CFTC 

• Bloomberg can offer multiple levels of data transparency we have the capacity to make 

trade information both public and confidential, as need be 

Advanced voice trading platform VCON that takes manual trade and digitalizes them in real time 

Provide pretrade price 

transparency 

B Bloomberg has the capability to provide pricing request information in real time, crucial to the 

market to access the best liquidity and ensure full price transparency 

• Competitive price discovery process where users can send price inquiry to up to 3 dealers, 

and we have the tools to further customize the price discovery process 

• Users are given all the tools to choose who can trade with them, as well as parameters 

within which the trade can be done (e.g. 20 seconds to accept price) 
EXISTING CAPABILITIES ON BLOOMBERG'S 

SWAP PLATFORM 

Bloomberg 

Bloomberg controls the access to the trading platform in real time, giving complete instrument 

control and security for both side of participants 

• Access to the platform can be blocked instantly 

• Client access and products can be removed automatically if necessary 

Access to clearing houses is allowed or denied through an automatic product eligibility verification 

System is fully customizable and specific criteria can be defined to authorize trading 

• Pattern that Bloomberg looks out for: multiple price requests without executing 

• Ability to limit amounts on trades according to specific position limitations 

Governance & 

Compliance 

Bloomberg LP has a Chief Compliance Officer and a wortdwide compliance staff dedicated to 

understanding and enforcing regulatory rules that effect all of our products. 

Bloomberg subsidiaries are currently registered as brokers in eight countries around the wortd 

(including the SEC and CFTC in the US as Bloomberg Tradebook LLC) and sell equities, futures, 

options and foreign exchange contracts in these and other markets. These subsidiaries perform 

real time monitoring and reporting of trades, periodic regulatory examinations, and yearly self 

assessment reports, among other regulatory obligations. 

Bloomberg has the integrity and the experience to assume SEF regulatory responsibilities 

Technology 

Capacity & 

Security 

Bloomberg's systems and process can be scaled for higher volume 

Bloomberg has a comprehensive security, business continuity, and disaster recovery processes 

We have the technology and offer the transparency to be a facilitator to provide information and 

implement the rules that the CFTC establishes, as all buy-side and sell-side participants cannot 

implement all complex regulatory requirements by themselves (e.g. calculation of aggregate 

position limit) 
BLOOMBERG CONNECTS A LARGE COMMUNITYTM"®'"*'®'"^ 

OF BUYSIDE AND SELLSIDE 

• We are a major independent player in the swap market with all the major dealers, 

some of which are fully integrated with our platform via the Bloomberg API 

• Over 600 firms use us for IRS and CDS trading 

Central 

Connectivity 

H We provide a central point of connectivity to both buy and sell side, offering 

connectivity to multiple clearing houses, legal execution facilities, and DCMs 

• Our voice trading capture system has over --400 customers using it per d ay 

We cover all spectrum of liquidity market types from illiquid CDSs to highly liquid 

exchange markets. We have the tools to support and monitor transactions in either 

• There are currently over 16,000 Fixed Income users with Bloomberg 

We have a well established culture of dialog with the buy side and sell side 

promoting continuous innovation and process improvements through direct feedback 

forms. 

Due to Bloomberg's unique independent status, we can be an intermediary with the 

market community of buy side and sell side swap dealers without bias for either side 

10 
OVERVIEW OF OUR ORGANIZATION 

• Bloomberg's core business is the delivery of analytics and data on approximately 5 million securities as 

well as information and news on almost every publically traded company through the Bloomberg 

Professional Service. The Service provides comprehensive coverage on all major asset classes and 

currencies, including all varieties of mortgage-related securities. Approximately 285,000 professionals in 

the Financial Community across 150 countries are connected via Bloomberg's proprietary network. 

• Virtually all major Central Banks, Investment Institutions, Commercial Banks, Government Agencies and 

Money Managers with a regional or global presence are clients of Bloomberg giving us extraordinary 

and unparalleled global reach of all relevant financial institutions that might be involved in swap trading. 

• Overall, 10,100 employees support Bloomberg's business from 10 global offices including New York, 

San Francisco, London, Sao Paulo, Singapore, Sydney, and Tokyo. In addition, Bloomberg has 

information and data gathering presence in 125 bureaus located throughout North and South America, 

Europe, Africa, and Asia Pacific. 

• Bloomberg offers real-time, 24-hr technical and product support, as well as dedicated account 

managers to all of its customers. 

11 
Bloomberg 

OVERVIEW OF OUR ORGANIZATION 

OPERATIONAL CAPACITY 

Our Technology platform gives us an immediate access to large user community: 

^ We are already on the desktop for 285,000 financial services professionals globally, with particular strength in fixed 

income and OTC products. 

• We have a dedicated trading system division that already provides a fully functional order management system to more 

than 1000 financial institutions wortd-wide, across all major asset classes and market segments. 

• This system is supported by market standard analytics (risk and price discovery), news and data 

• We have been able to bring new major, tier 1 financial institutions on-line with this system within days. 

• We have connectivity to every major financial institutions and every major exchange. We have more than 1000 dealer 

connections for electronic trading. 

Bloomberg maintains a highly available, robust and resilient technology infrastructure : 

• We maintain contractual service level agreements against outages and we universally meet these service 

commitments 

• We have two redundant Class A data centers that we own, running in hot-hot configuration to maximize availability 

• We have 6400 servers and 3 petabytes of storage 

• We perform all of our technology development, management, operations and support internally with a staff of 4,000 

technology professionals 

• We perform disaster recovery testing between our data centers on a weekly basis 

• We have a great organizational agility roll out implementations in very short timeframes 

• We have a global, follow-the-sun support staff dedicated to trading systems 

• Our OMS has received industry-standard SysTrust certification for its security, availability and processing integrity 

Given the services we currently provide, Bloomberg has the capacity and flexibility to support increased 

trade volumes: 

n We are the world's largest trading system and we maintain the world's largest private network, currently reaching 

60,000 sites 

• We have an easily-scalable architecture, and we can add new capacity on demand 

12 
ito(o)0'ui[Q)#[j^g 

OVERVIEW OF OUR ORGANIZATION 

PUBLIC TRANSPARENCY 

• Bloomberg maintains a publicly available website that currently displays millions of components of 

market data on a delayed basis. More than 6+ million unique users per month view Bloomberg's website. 

This translates to about 400 million page views per month. 

CONFLICTS OF INTEREST 

B Bloomberg LP is a Delaware, USA based Limited Partnership that provides market data, analytics, and 

electronic trading, order routing and trade management capabilities to more than 300,000 users 

worldwide. Because Bloomberg LP is not a "Financial Institution", it is uniquely positioned in the 

marketplace as a global, independent, reliable provider of exactly the types of information and support 

services required by the CFTC, without the potential self interest and conflicts that would potentially be 

inherent in any "Financial Institution". 

Q Bloomberg LP does own and operate an entirely electronic agency brokerage firm - Bloomberg 

Tradebook LLC - but Bloomberg LP does not provide custodial or investment advisory functions, and 

does not hold customer funds or trade as principal. 

13 
Bloomberg 

APPENDIX 

14 
EXISTING TRADING OPTIONS ON 

BLOOMBERG 

iBooBTiufcoerg 

Name 

Overview 

Protocol 

Products 

Dealers 

Usage 

Multi-Dealer 

BBTKGO 

End-users request a 

price from 3 

participating dealers 

• Request-ForQuote (RFQ) 

• User will selects 

dealers in swaps 

or 5 in cash 

• Dealer specify 

time their price is 

'firm' 

Cash and 

Derivatives 

Dealers: 27 in cash, 

13 in Derivatives 

• Heavy usage in 

cash (1000+ 

users) 

• Low usage in 

derivatives (30 

users) 

Single-Dealer 

IFIT<GO> 

End-users see and 

trade on a live 

streaming dealer 

price on a dealers 

dedicated page. 

• Dealers stream 

live prices to their 

dedicated page 

• An end user can 

visit multiple 

dealer pages and 

select the level 

that best suits 

Cash and 

Derivatives 

Dealers: 100+in 

cash, 22 in 

Derivatives 

• Low usage in cash 

• Heavy usage in 

derivatives (300 

users) 

Attributed 

ALLQ<GO> 

End-Users can 

compare & trade live 

streaming prices 

from multiple 

dealers 

• An end user 

selects a particular 

bond 

• Bloomberg 

compares all the 

executable prices 

that are available 

for that bond 

Cash Bonds Only 

Dealers: 100+in 

cash, 0 in 

derivatives 

• Heavy usage in 

cash (3600 users) 

• Not available for 

derivatives 

Unsolicited 

Multiple 

End-users can 

launch a price 

request on various 

graphing, charting or 

data pages 

• An end user visits 

a general market 

information page 

• An RFQ ticket is 

launched on a 

particular security 

on page 

Cash Bonds Only 

Dealers: 100+ in 

cash, 0 in 

derivatives 

• Frequent Usage 

Voice 

VCON<GO> 

A dealer can recap a 

trade done over the 

phone by sending a 

Bloomberg ticket 

• Not an electronic 

trade 

• Digitizes the 

information on a 

phone trade 

• User can 

confirm/affirm the 

trade 

Cash and 

Derivatives 

Dealers: All Dealers 

in cash or 

derivatives 

• Heavy Usage in 

cash (11,000 

users) 

• Heavy usage in 

derivatives (300 

users) 

15 
©to@mlo)erg 

ADHERENCE TO SEF REGULATION. . -.Jk^CIPALS 

1. 

II. 

III. 

IV. 

V. 

VI. 

VII. 

VIII. 

IX. 

x. 

XI. 

XII, 

XIII. 

XIV 

XV. 

^iiM^^ ' • • : m^^m^^ 

Compliance with core principals 

Compliance with rules 

Swaps not readily susceptible to manipulation 

Monitor of swap trading and trade processing 

Ability to obtain all necessary regulatory information 

Enforce position limits or Accountability 

Ensure the financial integrity of transactions 

Emergency authority 

Have the ability for timely publication of trading information 

Recordkeeping and reporting 

Antitrust considerations: Avoid anticompetitive trade environment 

Avoid conflicts of Interest 

Financial resources to run the SEF 

Uphold system safeguards 

Governance through a Chief Compliance Officer 

,/ 

,/ 

y 

V 

,/ 

^ 

• / 

/ 

• / 

• / 

•/ 

^ 

• / 

•/ 

-/ 

Bloomberg can and will adhere to all core principals 

Bloomberg can and will adhere to all rules 

Bloomberg will ensure that trading occurs only with Swaps not 

readily susceptible to manipulation 

Bloomberg has complete capabilities to monitor trading and trade 

processing for IRS, CDS and OTC Equity derivatives 

Bloomberg has a complete trade log and extensive data analytics 

that can provide all data requested 

Bloomberg has the ability to provide position and risk analytics on its 

trade blotter 

Bloomberg can ensure the financial integrity of all trades going 

through its systems 

Bloomberg has all the systems stops in place to adhere to enforce 

emergency authority 

Bloomberg has a complete audit trail and extensive data feed 

capabilities 

Bloomberg has extensive recordkeeping and reporting capabilities 

Bloomberg is an independent entity, unbiased to the sell or buy side 

As an unbiased party, Bloomberg strive to maintain an environment 

without conflicts of interest 

Bloomberg has the adequate financial resources to run a SEF 

Bloomberg has emergency and recovery protocols for all systems 

Bloomberg has a dedicated Chief Compliance Officer leading an 

internal compliance team 

16 
Title VII Rulemaking - CFTC/Bloomberg Meeting 

Bloomberg is uniquely positioned to act as a Swap Execution Facility ("SEF"). Bloomberg is currently the 

largest independent platform for electronic trading and processing of OTC derivatives. Bloomberg's position 

in the market, its independence and its infrastructure are compelling factors positioning the company to be a 

key player in the newly regulated swaps market in a manner that will enhance the CFTC's efforts to bring new 

competition, transparency and accountability to the U.S. over-the-counter derivates market. 

Key recommendations and considerations: 

I. Centralized Utility for Certain "SRO" Core Principles 

Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act") mandates that SEFs comply 

with certain "core principles" designed to bring greater oversight and structure to the swaps market. Bloomberg is 

in a position to satisfy the SEF core principles with the possible exceptions noted below. However, public policy 

would be better served if certain SEF core principles relating to self-regulatory organization functions could be 

satisfied through the use of a centralized, independent utility. Bloomberg supports extending the role the National 

Futures Association ("NFA") has played in futures market regulation to certain SEF swap activities reflected in the 

elevant core principles as follows 

Compliance with Rules: Enforcement of certain SEF trading rules, such as block order rules, to deter trading 

abuses (Section 5h(2)) 

Monitoring of Trading and Trade Processing: Monitoring SEF trading to prevent manipulation and price 

distortions (Section 5h(4)) 

Ability to Obtain Information: Obtaining information from the SEF and/or participants to provide to the CFTC 

upon request or for information-sharing (Section 5h(5)) 

Position Limits and Accountability: Monitoring participant swap positions for compliance with the limits set by 

the CFTC (Section 5h(6)) 

As done in the futures exchange environment, the NFA should have direct authority with regard to those specific 

core principle functions over SEF participants as a condition of their use of an SEF. We believe this structure 

provides the desirable level of independent regulatory oversight necessary for objective and consistent 

interpretation and enforcement of the Act's requirements across the SEF sector (including swap platforms operated 

by DCMs). 

II. Oversight for Remaining Core Principles 

Aside from the "SRO" core principles handled by NFA, Bloomberg proposes that each SEF should retain primary 

responsibility the remaining core principles: Registration; Swaps Not Readily Susceptible to Manipulation; Financial 

Integrity; Emergency Authority; Timely Publication of Trading Information; Recordkeeping and Reporting; Antitrust 

Considerations; Conflict of Interests; Financial Resources; Systems Safeguards and Designation of Chief Compliance 

Officer. In that regard, several clarifications would be useful: 

• Would the CFTC review and determine which standardized contracts would not be susceptible to manipulation? 

• What expectations does the CFTC have regarding rules designed to ensure "the financial integrity of swaps" and 

the role an SEF would play in ensuring such integrity? 

• How would the CFTC envision an SEF establishing the authority to "liquidate or transfer" a participant's open 

position? 
III. Uniformity/Consistency in Standards 

While CFTC should be open to innovation and healthy competition of business models between and among SEFs, it 

is critical that the CFTC review and assess SEF proposed rules with the goal of ensuring an appropriate degree of 

uniformity of minimum standards across the SEF sector to insure a "fair playing field" and to avoid regulatory 

arbitrage inconsistent with the purposes of the Act. It is also imperative that both the CFTC and the SEC coordinate 

effectively to the extent possible with regard to their respective and joint oversight for different swap and security 

based swap products to facilitate regulatory consistency across instruments and markets. 

IV. Extraterritoriality and Non-US SEF Participants: 

The provisions of the Act relating to CFTC regulated swaps do not relate to "activities outside the United 

States" unless those activities have a "direct and significant connection with activities in, or effect, on US 

commerce" or contravene the CFTC's rules and regulations designed to prevent evasion of the Act. See Section 

722(d). 

• What would constitute an activity "outside the US", i.e., is it dependent on where the swaps are 

executed/cleared, where the participants are located, or some other variables? 

• What constitutes "direct and significant" activities with regards to swap executions on a SEF by a non-US 

participant?