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Dealing with heightened regulation and tightened margins

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By Dan Matthies, Bloomberg – In the space of just five years, the financial services industry has seen remarkable change: the rise of automated trading appliances; a global economic meltdown and subsequent recovery; and now, sweeping financial regulations. No matter the size of your fund, the investment environment has only been getting tougher amid heightened regulation and tightened margins.

With the ASIC Regulatory Guide 240, the glare of greater disclosure requirements is likely to be cast over hedge funds in early 2014. Being ready for these new requirements can complicate your existing workflow and further eat into margins with increased costs.

In order to help hedge funds meet the latest regulations, manage risk and gather market intelligence, Bloomberg delivers technology that meets business needs today and helps them obtain a real competitive advantage for the future.

Below we discuss some of the integrated tools Bloomberg offers, including compliance solutions that benefit stakeholders across the organisation, from front to back office.

See it coming…

Whether you’re a compliance officer at a large fund or an asset manager wearing a variety of hats at a start-up, Bloomberg’s news content offers relevant, timely information to help you get ahead and stay there.

The Bloomberg Professional® service consolidates compliance, legal and market data surveillance requirements into an integrated delivery system. With the latest objective reporting on financial overhaul regulation, such as Basel III, MiFID, Volcker Rule and Dodd-Frank, in addition to our compliance-focused newsletter Bloomberg BRIEF Financial Regulation, you don’t have to be on the look-out for the newest developments – they come directly to you.

…and be ready for it

Bloomberg Vault (BVAULT) archives a broad range of enterprise communications including email, instant messages, mobile, voice, social media and Bloomberg data as a complete and cost-effective managed service for your fund. Integrated real-time policies, analytics, search, and workflows can help your fund meet a broad range of compliance, eDiscovery, and information governance demands.

BVAULT provides scalable real-time ingestion, archiving, search, and analytics on your firm’s communications data across all global locations. To satisfy stringent legal and regulatory requirements, use BVAULT’s powerful analytics platform to support many concurrent real-time investigations that meet legal and regulatory demands globally.

Staying streamlined

Trading and Enterprise Solutions can help integrate existing systems to allow for cost efficiencies and enhanced risk management and data access.

Integrate and commingle your own fund’s proprietary and third-party systems with Bloomberg’s open technology and customised OMS for the buy-side, the Asset and Investment Manager (AIM). AIM is a hosted platform that serves front and back office needs and connects to other enterprise systems using Bloomberg’s open market data solutions and industry-standard protocols. And once you’re set up, minimise investment and operational risk with the Hedge Fund Tool Box (HBOX). Designed for hedge funds with less than USD250million in AUM, yet appropriate for hedge funds of all maturity levels, HBOX is a turnkey, scalable solution that will grow with your business.

With increased market uncertainty, regulation, and investor demand, fund managers are seeking more efficient ways to manage risk. The challenge many funds face is finding a risk solution that can manage multiple asset classes and handle complex instruments. Bloomberg’s Multi-Asset Risk System (MARS) provides a global solution to meet those needs.

The day the Commodity Futures Trading Commission (CFTC) posted its final swap execution facility (SEF) regulation, Bloomberg submitted its SEF application to support clients complying with Dodd-Frank regulation. Bloomberg was subsequently the first provider to gain approval from the CFTC to become a SEF. These achievements are testaments to the organisation’s drive to deliver complete, timely trading solutions for clients in today’s regulatory environment.

The SEF platform, which goes live in October 2013, will leverage Bloomberg’s existing derivative trading platforms, including pricing (ALLQ), multi-dealer rate swaps (BBTI) and foreign exchange quotes (FXGO), which are already used by more than 1,000 firms globally. Clients can trade interest rate swaps, credit default swaps, foreign exchange and commodity derivatives via order book and request-for-quote functionality, offering flexible trading styles across asset classes. Bloomberg offers pre-trade compliance check functionality, straight-through processing and direct connectivity to clearing and swap data repositories to support client workflow needs.

Keeping your house in order

With its complete data, news, research and analysis integration, using the Bloomberg Professional service’s Execution Management System (EMSX) for responsive and informed electronic trading makes sound business sense. But as important is being able to monitor the transactions within your firm. Trade Idea Messaging (TMSG) fosters a transparent trading environment by encouraging internal sharing of trading ideas and the cases behind them. And should regulatory concerns be raised, EMSX’s Suspicious Trade Reporting (STR) functionality gives you even greater control by keeping your fund’s activity trackable and in compliance with current regulations.

Using STR you can track different types of suspicious transactions such as front-running or insider dealing and examine best execution practices in the context of market movements and the ability to quickly identify those transaction outliers requiring greater scrutiny.

The recent influx of global regulation is changing the way hedge funds are valuing semi-liquid and illiquid fixed income assets. Gone are the days of relying on broker quotes, regulators are demanding independent, third-party valuations in disclosure documents, such as Form PF and AIFMD’s Annex IV. Investors are following suit, requiring managers to provide objective, defensible valuations as the basis for monthly performance reports. Both constituents want full transparency and are putting increased pressure on managers to “own” their valuations to ensure accuracy. This means not just accepting a third-party valuation outright, but understanding the nuances of the market data used to derive their prices. Bloomberg Valuation Service, BVAL, is an enterprise solution that addresses all of these issues by providing transparent, defensible evaluated pricing seven times per day.

As the need grows for hedge funds to provide investors and regulators with greater transparency, more extensive compliance measures and tighter management of risk, now is the time to explore how technology can dramatically help your firm address these critical concerns. But remember, the need to do more in this arena needn’t mean soaring costs and response times: if you can find a solution that will manage everything, that will ensure you’re ready for every new change and regulation, not just strategically but operationally too, your hedge fund, whatever its size, is in a good place.

Dan Matthies is the global head of Bloomberg’s Asset & Investment Management (AIM) division. In that capacity, Matthies oversees the division’s product development, sales and client service. AIM is an enterprise trading, compliance and operations platform that serves the investment management community. AIM is part of Bloomberg Professional Services which is the world’s most trusted source for trade execution, real-time and historical pricing, indicative data, reporting, research, estimates and analytics.

Sales of the Bloomberg Professional service exceeded more than 300,000 subscriptions in 2011. The business also launched several financial technology innovations including Launchpad 2010, a leading user interface; a new credit analysis tool that generates independent evaluations of a company’s credit health and a new valuation service for over-the-counter derivatives.

Matthies holds a BS from Trenton State College and an executive MBA from the Wharton School of Business at the University of Pennsylvania. He is a Chartered Financial Analyst and Chartered Alternative Investment Analyst.

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