Back in February this year, buy-side institutions and their bank counterparts were required to start reporting portfolio trade positions under EMIR (European Market Infrastructure Regulation). Bloomberg moved quickly to provide its EMIR reporting solution under this first phase of reporting and is now gearing up to support customers as phase two of EMIR approaches: namely, valuation and collateral reporting, which commences 11 August 2014.
Like the trade reporting requirements introduced back in February, both the fund manager and broker/dealer will be required to report the valuations of all derivative trades to an appointed trade repository at the end of each day. This next phase of reporting is going to place a greater operational burden on fund managers, who will be required to report mark-to-market valuations on all outstanding exposures to their counterparties, as well as reporting on all collateral that has been exchanged.
One of the key benefits to Bloomberg’s EMIR reporting solution, however, is that customers will be able to benefit from using a single integrated workflow to send valuations to trade repositories. Bloomberg can execute the required valuations on behalf of its buy-side customers using Bloomberg’s transparent independent valuation service, BVAL Derivatives. Alternatively, customers can automate the reporting of Bloomberg valuations using the Multi-Asset Risk System, or report their own valuations using Bloomberg's EMIR Excel Uploader.
As Jose Ribas (pictured), Global Head of Derivatives at Bloomberg L.P., says, some of Bloomberg’s customers are choosing to go down the delegation route for trade reporting “although those managers who want more control of the process and prefer to establish one single workflow have chosen one of our solutions".
“We have integrated all electronic trading platforms to our reporting system. We can also report trades from our order management system, Bloomberg AIM,” says Ribas. “Some clients will want their IT team to be able to drop the file directly to us for reporting on their behalf and then provide them with the status (report successfully filed) so they can get on with the day-to-day management of the fund.”
Bloomberg’s EMIR reporting solution is flexible enough to support fund managers’ own workflows. This causes minimal disruption. Any trades executed on Bloomberg or via one of its enterprise solutions (e.g. MARS – Multi-Asset Risk System or BVAL Derivatives managed service) can be independently valued and then reported.
Scope of reporting
One interesting aspect to valuation reporting is that EMIR makes no explicit mention of where this valuation should originate from. Buy-side firms can use their own valuation model, rely on their broker/dealer, or have it performed independently using Bloomberg.
Whatever the option chosen, the central purpose of this next phase of reporting under EMIR is to report valuations on outstanding exchange traded and OTC derivatives positions and the collateral being posted. ESMA will use the reported data to ascertain the extent of counterparty exposure among institutions.
“Knowing the valuation of all derivative positions is not good enough unless you also have the collateral information. It’s important to know if there is enough collateral to compensate for potential losses due to a counterparty default,” says Ribas.
Typically, fund managers will have multiple collateral positions, all of which are linked to a collateral agreement that specifies the level and type of collateral that has to be posted. Based on that agreement, managers will report the collateral portfolio’s aggregated value at the end of each day to the appointed trade repository, adds Ribas.
Bloomberg EMIR Trade Reporting solution
The more integrated a client’s workflows are on Bloomberg’s platform, the easier it will be to perform valuation and collateral reporting. Any data gaps are identified using a range of integration tools to bring all the required valuation and collateral data into the report.
The most important takeaways regarding the solution are the following:
- It is a multi-asset solution (covering interest rates, FX, credit, commodities, inflation products and equities)
- It offers complete independent valuation derived from Bloomberg’s pricing models and high quality market data
- It has full integration capabilities with Bloomberg’s AIM, TOMS and MARS systems
- Scheduling capabilities mean that, for a given portfolio, Bloomberg will report all the standard trade positions and valuations automatically.
“By using Bloomberg’s workflow, clients can take control of reporting. We have user friendly reporting blotters that give them a transparent view of reporting history and underlying valuations. We have the resources in place to fully support our customers and help them comply with complex regulations,” stresses Ribas.
Integrating third party data
Using a variety of integration feeds and upload tools, Bloomberg has the technology in place to manage third-party data and integrate it into the workflow. If a fund manager is receiving data in different formats from their counterparties, they can therefore easily extract and load that data into Bloomberg, creating a single, consolidated data set.
“Suppose clients get statements from multiple prime brokers. They can say to Bloomberg, ‘I would like you to take these different formats and integrate them into your single Bloomberg data format because I don’t have the time and resources’. What we offer is a one-stop-shop solution for the whole workflow.
“Our aim is to act as a consolidation engine, facilitator and, for those who prefer them, to provide independent valuations services that include price dispute support if the valuations are not in line with those provided by counterparties,” comments Ribas.
At a time when institutional investors and regulators are demanding best practices are adopted, especially by hedge fund managers, choosing to use an independent valuation solution is likely to be of high appeal.
“We have the technology to make this reporting process as seamless as possible. We take operational risk away and, at the same time, customers receive world-class, real-time support,” concludes Ribas.
Bloomberg’s valuation and collateral reporting solution is now ready for customers to take advantage of via digital sign in.
