Regulation

The Fundamental Review of the Trading Book (FRTB) is the market risk component of Basel III, the biggest global sell-side regulatory change in more than two decades. FRTB completely overhauls the regulatory framework for market risk to ensure adequate capital protection against market volatility. Certain jurisdictions (Japan, Canada) have already implemented FRTB as a capital requirement, with the rest of the world poised to follow suit in 2025-26. FRTB will drive market risk regulatory capital in the EU and UK from the start of 2026, and in the US around the same time.

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LIBOR Transition

Inter-bank Offered Rates (IBORs), a series of benchmark interest rates, are undergoing a period of change as the UK Financial Conduct Authority solidified end dates for all 35 London Inter-bank Offered Rate (LIBOR) indices, while official bodies globally have issued clear guidance to the market to replace LIBOR with overnight Risk Free Rates (RFRs). As RFRs are structurally different to IBORs, transitioning to the new rates will be a demanding and complex process. Global regulators also continue to seek consensus from market participants regarding fallback language as they transition from LIBOR to these new rates.

Bloomberg’s Solution

Bloomberg offers a comprehensive suite of data, analytics, and portfolio solutions to help market participants assess the impact of the transition to risk free rates and provides transparency and supports adoption for all products across our industry leading platform.

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Risk Regulation for Funds with Derivatives

Investment managers who use derivatives and are registered with the SEC, including mutual funds, exchange traded funds, closed end funds, and business development companies, must comply with Rule 18f-4. This rule requires fund managers to establish and document a risk management process, and to calculate daily Value-at-Risk as a means of limiting the amount of leverage they can take on.

Bloomberg’s Solution

Bloomberg can help fund management companies comply with all aspects of the rule, including:

• Derivatives Risk Management Program
• Leverage risk: Absolute and relative VaR tests
• Backtesting
• Stress testing
• Index holdings data
• Documentation (where appropriate) of limited use of derivatives
• Daily limit tests and compliance views
• Management reporting
• Data aggregation and end-of-month regulatory reporting

Bloomberg MARS Market Risk is a full-featured market risk management system that covers all instruments modeled on the Bloomberg Terminal. For funds with derivatives, this means industry-standard pricing models for all fund holdings, including the ability to accurately model even the most complex derivatives. This makes MARS an ideal choice for the backbone of a Derivatives Risk Management Program covering the fundamental requirements of Rule 18f-4. MARS Market Risk also calculates the risk measures specified in Rule 18f-4, including absolute and relative VaR tests, backtesting, and stress testing. For limited users of derivatives, MARS Market Risk inlcudes NAV and total derivatives exposure. To help compliance managers, MARS Market Risk provides explicit limit tests for both use cases.

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The European Union’s Benchmarks Regulation ( BMR) applies to administrators, contributors and users of benchmarks. The BMR establishes a common regulatory framework, seeking to ensure benchmarks are produced in a robust and reliable manner, and to minimize conflicts of interest in the benchmark-determination process. The regulation impacts indices across asset class, including fixed income, equity, interest rates, FX and commodities.Despite Brexit, the UK has implemented the BMR into its own regulatory framework, with some changes. These changes give the UK Financial Conduct Authority enhanced powers to manage LIBOR transition.

Bloomberg’s Solution

Bloomberg offers a simple and concise mechanism to identify registered and authorized administrators under ESMA, their index families and the universe of indices within each index family with relevant reference data to understand the type of index.

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To increase transparency in the Securities Financing Transactions market, the European Union introduced the Securities Financing Transactions Regulation (SFTR). The regulation comprises three pillars – all of which are now in force –concerning the re-use of collateral, disclosure obligations for funds, and transaction reporting requirements. SFTR applies to all European ‘counterparties’, including credit institutions, investment firms, fund managers or non-financial counterparties (i.e. corporates).

While the EU regulation has been reflected in UK law following the end of the Brexit transition period, the UK confirmed it won’t implement the reporting obligation for non-financial counterparties.

Bloomberg’s Solution

Bloomberg provides financial institutions impacted by SFTR, whether trading in the repo or securities lending market, with a holistic suite of solutions that both integrate seamlessly and work independently. Building upon our existing data, analytics, order management, transaction and trade reporting solutions, we’ve created a comprehensive solution that covers the entire trade lifecycle and works across both e-trading and voice workflows.

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In July 2014, the International Accounting Standards Board (IASB) issued IFRS 9 Financial Instruments, replacing IAS 39. The standard updates the model for balance sheet classification and measurement of financial instruments, impairment of financial securities, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. Insurance companies which were given a further delay are now fully in scope since January 2023.

Bloomberg’s Solution

Bloomberg’s IFRS 9 SPPI Test solution assists clients in performing the contractual cash flows test required by the updated IFRS 9 classification and measurement model. The Bloomberg solution automates the process of reviewing individual security prospectuses and legal documents by scanning over 70 unique security attributes for each financial instrument and identifying potentially non-SPPI features or cash flows.

Intesa Sanpaolo Selects Bloomberg IFRS 9 SPPI Data to Streamline Adoption of New Accounting Standard. View the press announcement.

In September 2013, the Basel Committee on Banking Supervision (BCBS), together with the Bank of International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO), created a framework establishing global requirements for margining of non-cleared over-the-counter (OTC) derivatives. The framework is designed to reduce systemic risks related to OTC derivatives markets and to provide firms with appropriate incentives for central clearing. The new minimum standards, which took effect in many jurisdictions globally—including the U.S. and Europe— from September 2016, obliged covered firms that engage in non-centrally cleared derivatives to exchange initial margin and variation margin. The regulation goes as far as defining the types of eligible collateral and their respective haircuts for margining. These requirements impact various financial institutions and require front-to-back infrastructure changes.

Due to Covid-19, the final implementation phase (Phase 6) of initial margin requirements for uncleared swaps has been delayed and extended to September 1, 2022.

Bloomberg’s Solution

Bloomberg’s MARS Collateral Management is an end-to-end collateral management and processing hub that provides a straight-through, automated solution to holistically manage and monitor exposures and collateral positions. It is a multi-product, multi-asset collateral and margin management application that delivers a complete range of functionality. Additionally, our Collateral Tagging solution provides customers with an efficient mechanism to determine, classify and comply with the collateral eligibility requirements of the non-centrally cleared OTC derivatives margin rule across various global regimes.

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Compared to the relatively limited scope of the original Markets in Financial Instruments Directive (2007), MiFID II (2018) introduced rules covering virtually every aspect of trading within the EU. MiFID II applies to financial market participants providing investment services in the bloc, including investment banks, portfolio managers and brokers. Both MiFID II and the accompanying regulation, MiFIR, aim to improve the transparency of EU financial markets by creating a single market for investment services that bolsters investor protection and confidence across all asset classes.

With the UK having recently developed proposals to simplify and diverge from the EU MiFID regime, and the EU looking to review its own MiFID regime in late 2021, market participants need to ensure that their choice of supporting vendor reflects the complex and fast-changing investment landscape in Europe.

Bloomberg’s Solution

Bloomberg is continuously working with regulators and market participants to determine the impact of MiFID II and 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), our sell-side trading solution for fixed income and derivative transactions.

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Bloomberg’s team of regulatory experts leverage our deep relationships with regulators and clients across global markets, ensuring our products continue to keep pace with changing rules and regulations of every size and type.

In addition to the regulations mentioned above, Bloomberg offers solutions for a range of existing regulations to help enterprises and organizations comply, including:

• 871(m)
• AIFMD
• ASC 820
• Basel III
• BCBS 239
• Dodd-Frank
• EBA Prudent Valuation
• EMIR
• FATCA
• FORM PF
• FTT
• General Data Protection Regulation (GDPR)
• IFRS 13
• SEC 22e-4
• Solvency II
• Volcker Rule

How we help our clients