Last week Bloomberg announced that they had carried out the first electronic SOFR versus Effective Federal Funds Rate (“EFFR”) basis swap compression trade was executed on the Bloomberg SEF (“BSEF”). The participants successfully executed a 10-year cleared swap to unwind (equal and opposite to an original cleared position), using request-for-quote through Bloomberg’s list trading tool, BOLT, to achieve compression of the original position at CME, where the swap was cleared.

Bloomberg supports trading on the coupon, basis spread and Net Present Value (NPV), allowing clients to rebalance portfolios from LIBOR to Risk-Free Rates. These workflows are complemented by portfolio analytics to calculate margin costs, analyze key rate risk and evaluate what-if scenarios all seamlessly integrated with BOLT.

LIBOR transition services

“The Libor transition requires a synchronized effort, which is essential to a sound and resilient financial system,” said Steven Doherty, director, public investments, Northwestern Mutual. “Executing the first electronic trade using this new enhanced functionality creates efficiencies and supports our goal of maximizing long-term investment returns for our policy owners while maintaining our unsurpassed financial strength.”

“Being the first to market with our SOFR compression trading offering is a clear demonstration of Bloomberg’s commitment to support market participants looking to manage their IBOR exposure,” said Nicholas Bean, Head of Electronic Trading Solutions at Bloomberg. “Clients who trade on Bloomberg continue to have access to deep liquidity alongside the post-trade efficiencies that come with electronic execution.”

“Compression is a crucial tool for cleared market participants, and the ability to compress SOFR versus EFFR trades is of particular significance for our clearing members who are looking to boost operational and capital efficiency,” said Sunil Cutinho, President, CME Clearing. “We are pleased to provide this service to clients through services such as Bloomberg SEF and BOLT.”

BSEF provides its participants with electronic trading for CDS, IRS, and FX derivatives built on the core technology behind Bloomberg’s trading platforms, which are used by more than 1,000 global institutions today.

How corporates can use this approach/technology in their migration from LIBOR

Firms of all types and sizes, including corporates, who are looking for ways to rebalance their portfolios from LIBOR to risk-free rates (RFRs) such as SOFR. Using our swap execution facility, BSEF enables clients to take advantage of an electronic workflow through Bloomberg to efficiently move out of trades with LIBOR exposure to SOFR. Also, clients have access to portfolio analytics on Bloomberg to calculate margin costs, analyse key rate risk and evaluate what-if scenarios. These workflows are seamlessly integrated to BOLT, our list trading tool, and deliver an optimized way for clients to get their trades done quickly.

Bloomberg clients have been able to trade products such as USD SOFR and basis products on BSEF since 2018. Besides, Bloomberg also supports a full suite of RFR products, along with SARON and TONAR to complement Bloomberg’s existing franchise in SONIA.