Market liquidity risk product of the year: Bloomberg

Accurately quantifying liquidity risk remains a significant challenge across the financial industry. As regulators worldwide increasingly focus on market liquidity and liquidity risk frameworks, the ability to generate accurate and defendable metrics is paramount. However, monitoring liquidity risk is more than just a compliance exercise, but an intrinsic part of firms’ risk management frameworks. Bloomberg’s Liquidity Assessment (LQA) solution is a crucial tool that helps resolve these challenges, allowing firms to navigate changing market conditions.

LQA uses sophisticated modelling techniques to fill the gaps where data is not available to accommodate a wider universe of securities. This is especially true in the fixed income market, where making consistent, reliable and defendable liquidity assessments is difficult. LQA uses advanced financial models to capture changing market conditions while removing subjectivity. According to Thierry Ciszewski, senior risk manager at HSBC Asset Management, this approach results in a more robust and defendable liquidity assessment. 

LQA also excels at cross-asset portfolio liquidity assessment by providing a consistent framework that encapsulates the dynamics of different asset classes to support a consolidated view of liquidity at the portfolio level. LQA builds on Bloomberg’s long-standing market experience and access to significant trade data, spanning exchanges, trade repositories (such as the Trade Reporting and Compliance Engine, or Trace), clearing houses (such as Euroclear), and client-contributed data. The solution’s liquidity analytics quickly react to events – especially when market conditions are rapidly changing due to a combination of inflation, recession and other emerging geopolitical risks. 

Notable enhancements Bloomberg has made to its LQA solution include a new suite of fund-level liquidity metrics for exchange-traded and mutual funds, coverage for cryptocurrency futures, and support for the Securities and Futures Commission of Hong Kong’s guidelines on fund data reporting requirements.

Bloomberg also launched a new version of LQA’s fixed income model in 2022, which, among other new features, incorporates significantly more trade and quote data to improve the accuracy of results.

As market conditions constantly evolve, clients rely on LQA for future-looking scenarios to assess the risk of imminent macro events. Bloomberg’s regular market insights, backed by LQA analytics for major fixed income benchmarks such as the Bloomberg Indices, also allow clients to measure how events impact the liquidity of their assets compared to the broader market.
 

Judges said:

• “Bloomberg’s diligence has shone through in this area.”
• “Good examples, which demonstrate improvements.”

Zane Van Dusen, head of risk and investment analytics products at Bloomberg, says:

“This marks the fourth year in a row LQA has been recognised as Market liquidity risk product of the year in the Risk Market Technology Awards. LQA has become an increasingly integral part of our clients’ risk frameworks by providing consistent and reliable analytics for the ongoing challenge of assessing liquidity in the current market environment and under hypothetical scenarios.”

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