IMD & IRD Awards 2020: Most Innovative Regulatory Solution—Bloomberg

Liquidity risk has become a particularly hot topic in recent times. Thanks to regulatory pressures, such as the European Securities and Markets Authority’s liquidity stress testing guidelines, high-profile cases of fund managers underestimating liquidity risk, and Covid-19, the subject has garnered significant attention. Bloomberg seeks to address the challenges of managing liquidity through its Liquidity Assessment (LQA) solution, which provides a data-driven framework to assess market liquidity. Its excellence in approach sees it win the Most Innovative Regulatory Solution award.

Although liquidity risk is particularly topical, Bloomberg has been investing in LQA for many years. Brad Foster, head of enterprise content, says: “LQA is a multi-year investment, which is ready for prime time. Our clients are looking for a data-driven approach to managing liquidity that they can stand by. It is no longer enough to have a portfolio manager tell you on a scale of one to five how liquid an instrument is.”

One major recent development is the launch of LQA-as-a-service, which allows users to have programmatic access to LQA through Python, C++ and Java or using Excel. Foster says: “Previously LQA was only available on the terminal or as an end-of-day datafeed through our Data License product. But we had requests from clients about doing on-the-fly calculations and running what-if scenarios. The launch of LQA-as-a-service allows clients to do this. It has been transformational.”

LQA has attracted interest from both the buy and sell sides, and Bloomberg is witnessing an increase in use-cases for liquidity metrics. “Often liquidity is considered in a very narrow sense of unwinding or liquidating a security or portfolio of securities, but it can go much broader,” says Foster. “Most risk managers want to get out ahead of any potential risk. If you think about the most vanilla financing transactions, such as providing balance sheet to a customer in the form of repo financing or securities lending, knowing exactly what haircuts or initial margins you need is incredibly important.”

Bloomberg has seen a significant uptick in demand and usage since Covid-19. “The pandemic highlighted that every crisis is different,” says Foster. “Most institutions were using 2008/09 as their crisis scenario and most of those probably fell short. Now what people are trying to do is understand where these scenarios and their assumptions fell short, and liquidity is probably one aspect.”

Yet while regulation and Covid-19 are shining the spotlight on liquidity risk, for Bloomberg the interest comes down to the need to better manage liquidity. Foster concludes: “While regulation ratchets up the pressure, it is really about people finding better ways to manage liquidity risk. It was a focus last year, it was a focus through Covid, and it will remain a focus going forward. Liquidity risk is not going away, institutions have to manage it.”

Read more about the Inside Market Data & Inside Reference Data Awards 2020 winners