Best support for Libor reform: Bloomberg – Risk.net

Steffan Tsilimos, Bloomberg

The acceleration of the Libor transition before its partial phase-out at the end of 2021 has generated huge demand for tools to help companies make a smooth transition. Since announcing the end of Libor in 2017, Bloomberg has worked to develop a host of pricing tools, analytics, and indices to support businesses through reform.

Bloomberg’s extensive product offerings include risk-free rate analysis (RFRs) on individual securities, pricing and risk management tools for RFRs such as the guaranteed overnight rate (SOFR) swaps, electronic trading of overnight index swaps and new indices.

Using Bloomberg’s Multi-Asset Risk Management System (MARCH) Clients can perform what-if analysis to understand profit and loss implications and risk impacts on portfolios under different scenarios and discounting assumptions. In 2021, Bloomberg added support for pricing RFRbased on structured notes.

On the Bloomberg terminal, live interest rate curves for RFRs are integrated with structuring and pricing analysis to enable support for derivatives pricing and fixed income referencing RFRs. Market participants can also trade RFRderivatives using Bloomberg Global Trading Venues: Bloomberg swap execution facility (BSEF), from Bloomberg EU multilateral trading system (BTFE) and Bloomberg UK multilateral trading system (BMTF).

There is also a dedicated product that allows clients to assess the impact of the downturn on the securities in their portfolios. Bloomberg created it by manually reviewing final documentation on over 196,000 cash fixed income securities to identify the applicable fallback language. The product indicates whether a title’s fallback provisions are inadequate under New York State law, is subject to such provisions, or adheres to the fallback language recommended by the Alternative Reference Rates Committee (ARRC). The dataset captures the entire ARRC-Recommended benchmark waterfall, which includes forward fallbacks SOFR and ARRC spread adjustment.

In January 2021, Bloomberg launched the Bloomberg Short Term Bank Yield Index (BSBY), a set of forward-looking credit-sensitive indices constructed using aggregated and anonymized transaction data. The following April, an independent assurance review of BSBY confirmed that it is a member of the International Organization of Securities Commissions Principles of financial benchmarks. Several instruments, including floating rate banknotes, swaps, bonds and loans linked to BSBY have now been issued and traded, and BSBY futures contracts were launched by CME Group in August 2021.

The selection of the euro short-term rate (€STR) and SOFR like the new RFRs for euros and we dollars, respectively, raised the issue of credit support annexes (CSAs) with different interest rates on variation margin in sharper focus. To support this transition, Bloomberg has strengthened its CSA curve analysis to allow the user to select CSA– appropriate guarantee curve.

The judges said:

  • “Bloomberg offers strong support for the move from Libor to RFRs with a huge range of products on its platforms.
  • “The fallback language product is impressive, capturing the full ARRC-Recommended reference waterfall.”

Steffan Tsilimos, global head of interest rate products at Bloomberg, says:

“There is no single benchmark or solution for the Libor transition, and Bloomberg continues to develop products to address the different scenarios that could potentially arise. Our clients depend on our analytics and portfolio solutions to provide risk and financial analysis on derivatives, loans and other fixed income instruments due to legacy systems that lack the capacity to properly manage RFRs. In addition, Bloomberg is one of the only vendors to extract cash documentation on more than 196,000 cash fixed income securities, including floating rate notes, municipal securities, preferred securities, mortgages and syndicated loans, to localize fallback language.

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