Best FX analytics award – Bloomberg

Satisfying diverse market needs in Asia has proven a challenge, as firms demand efficient workflows and greater access to international markets. Bloomberg explores how its analytics offerings can meet the needs of clients, increase transparency in the marketplace and offer confidence during times of volatility

Asia is a fast-growing market for foreign exchange, and professionals across the region are continually looking to adopt new solutions to address their clients’ needs. The diversity of market needs in Asia has proven a challenge for solutions providers, whose clients demand efficient workflows and greater access to international markets. 

Today’s FX market participants face a multitude of factors that make managing their business extremely challenging. Liquidity is fragmented, lowering appetite for risk and making price discovery a potentially costly and unproductive exercise. In the past year, Bloomberg’s FX analytics team has developed new tools to improve productivity, offering quality data and analytics to address price discovery workflow challenges for clients in the region.

 

FX forwards analytics

Forwards desks worldwide face the burden of developing pricing for non-standard tenors quickly and accurately. “Getting the right price is a complex process and a straight-line interpolation is just not good enough these days when the marketplace has more kinks in the curve than ever,” said Colin Gallagher, global product head for FX data and analytics at Bloomberg, adding that “solid analytics tools are needed now to develop correct month- and quarter-end issues”. 

One of the most widely used FX forward analytics tools on the Bloomberg Terminal is {FXFA<GO>}.

“We developed a new ability – for clients to input their own predictions of what is priced into central bank policy moves, and to see how FX swaps and the underlying overnight index swap interest rate curves would move,” Gallagher said.

This capability has been particularly useful for sell-side short-term interest rate trading and forwards traders, who benefit from being able to model FX forwards based on their own perception of the market. The new analytics tools are also helpful for buy-side analysts and corporate treasurers seeking more clarification on cashflow hedging.

The most pronounced pricing in forwards and currencies are seen with the Japanese yen, which shows a month-end jump in US dollar yield effect. Pricing forwards when such deviations occur around non-standard tenors is a challenge for every firm, and automating such pricing is extremely hard.

To tackle this, Bloomberg FX core engineers developed a pricing engine that exposes the intelligence around pricing, such as a pillar date with forwards functionality across Group of Eight currencies. This engine accurately prices quarter-end tenors on Bloomberg’s widely used FX forward calculator function {FRD<GO>} on the Bloomberg Terminal. “This was a groundbreaking development in FX forwards that has traditionally been hard to produce on‑screen as a standard tenor. We are proud that our forwards analytics offer a high-calibre solution,”
Gallagher said.

Another very popular Bloomberg service in Asia and worldwide is its FX Toolkit, which includes an application programming interface (API) service for Excel spreadsheets.

Getting the right price is a complex process and a straight-line interpolation is just not good enough these days when the marketplace has more kinks in thecurve than ever

Colin Gallagher, Bloomberg

“We encourage our clients to adopt electronic practices, but recognise that spreadsheets are widely used for workflows and analysis,” Gallagher said.

The Bloomberg FX Toolkit allows live monitoring of FX forwards and instant broken date calculation on sheets that are lighter, as they utilise fewer tickers. Any user configuration performed on the Terminal in Bloomberg’s Forward calculator {FRD<GO>} flows straight through to the Excel toolkit. The FX Toolkit functions are also designed to produce FX pricing output with the bare minimum of user inputs. Many clients on forwards and asset-liability management desks are enjoying the benefits and efficiencies the FX Toolkit has brought them.

 

Benchmark calculation agent

The Philippines is one of the fastest-growing economies in the world, and its central bank has an ambitious reform plan to organise and strengthen its bond and FX markets.

Bloomberg was appointed as the calculation agent for the Bankers Association of the Philippines (BAP) in 2018. In this role, Bloomberg is calculating the US dollar/Philippine peso spot reference rate – an important benchmark as onshore and offshore banks, corporations and asset managers use it for trade execution, valuation and benchmarking portfolios. Results are published on BAP’s website as well as on the Bloomberg Terminal.

In addition, BAP member banks will conduct US dollar/Philippine peso spot trading on FXGO, Bloomberg’s electronic trading and communication platform. This is important, as it brings total transparency and greater oversight of the FX market, as everyone, including regulators, will have real-time visibility of trading activity. FX traders can also tap into the Terminal to get news, data and analytics to monitor markets, analyse trends and generate trading ideas.

Bloomberg is also the official calculation agent of the Philippine interbank reference rate, more commonly known as the ‘Phiref’, while the Bloomberg Philippine Local Sovereign Index is a benchmark index used by the domestic bond market.

 

FX pricing source – Bloomberg Generic Executable (BGNE) 

The FX market is the largest and most actively traded market in the world with more than $5 trillion traded on average every day. However, its decentralisation makes it difficult for market participants to conduct robust price discovery. To increase transparency, Bloomberg uses its BGNE rate, which is derived from executable bid and ask quotes as a spot pricing source.

BGNE has around 100 currency pairs available with executable sizes. While clients can view the BGNE in Launchpad monitors, the vendor also developed an FX grid analytic in a trading style format that highlights the trading figure. Bloomberg’s Launchpad component also allows clients to compare a variety of sources, and has been well received by clients globally who now have more depth to screen prices.

 

FX benchmarking – BFIX

Bloomberg helps clients navigate the FX orders market with its BFIX family of benchmarks, which covers spot, forwards and non-deliverable forward rates for a comprehensive global coverage of currencies.

“In 2016, BFIX became compliant with the International Organization of Securities Commissions’ Principles for financial benchmarks, and since then we have seen the benchmark become widely adopted across the globe,” Gallagher said.

Market participants use the benchmark as a fix for portfolio benchmarking, derivatives valuation, index construction and trade execution. Banks use the rates as a benchmark in contracts, including for the settlement of financial derivatives. Buy-side firms trade at benchmark rates when they make changes to a portfolio benchmarked against an index to minimise reconciliation differences from FX. Corporates use it to value currency holdings held globally at a common rate and to swap them at a benchmark rate.

Having confidence in analytics is helpful when markets continue to be volatile due to rapid and erratic geopolitical movements. “Bloomberg will continue to work with market players in Asia and around the world to provide the FX analytics needed to increase transparency in the marketplace,” said Gallagher.  

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