Following the launch yesterday of the BBVA partnership with Bloomberg, SRP spoke to Juan Ramón Dominguez (pictured), head of equity structured products sales Europe at BBVA, and Karim Faraj, head of front-office derivatives products at Bloomberg about the real-time integration between Bloomberg's Terminal and BBVA's valuation system, and how the bank's institutional clients will benefit from the new set up.

"With our technology, BBVA can now streamline the sales process from idea generation to pricing and execution," says Faraj. "On top of the functionalities around product creation, BBVA's clients can also access Bloomberg's analytics such as valuation, life cycle, back-testing, scenario analysis and stress testing."

According to Faraj, Bloomberg's derivatives library (DLIB) offers a technology solution that adds flexibility and unlimited coverage for structured products and enables product providers to shorten their time to market and deliver real time tradable prices to their clients, but it doesn't stop there.

"[In addition,] Bloomberg's wealth of data and analytics can also help the buy side generate trade ideas, relative value analysis, understand the risk reward profile throughout the life cycle of the product, and optimize the time of execution," says Faraj. "The real time integration of tradable prices minimizes operational risk since both the buy side and the sell side see the exact same trade, and quotes are provided without human intervention. It also saves them time and effort spent on emails, chats and phone calls."

BBVA's criteria to select Bloomberg was dictated by the need "to gain an edge" and to offer "something different, with better usability, more features and better access", according to Dominguez who points that as part of the shift towards digitalisation, BBVA is also developing automated post-trade services to generate product documentation and internal booking services.

"When we started the project we had to compete with other service delivery platforms (SDP) that are well established in the market," says Dominguez. "Partnering with Bloomberg was the answer, as the Bloomberg Terminal service is used by most of BBVA's clients (both current and prospects). This would allow us to provide an SDP with firm prices."

According to Dominguez, the "seamless workflow integration" is a value-added to BBVA's clients because they can now see the bank's prices on the Bloomberg Terminal, which is connected to other tools, such as, trading platforms, risk management solutions, Value at Risk (VaR) and stress testing analytics, as well as tools that offer regulatory compliance regulatory compliance with Priips and counterparty and credit risk solutions (e.g. value adjustment calculations).

"BBVA created an automated price discovery service for equity derivatives (Equity Derivatives Exotic Platform) that uses the Bloomberg Terminal as an interface for structuring the deals," says Dominguez, adding that the platform was developed in concert with Bloomberg. "The Bloomberg Terminal also serves as a distribution platform that enables BBVA's buy side customers to build structured products, which BBVA then prices using its valuation system."

The Spanish bank, the first European bank to provide an integrated solution with Bloomberg for structured products, believes customer experience will be enhanced in many ways in relation to speed (from 1 hour to several seconds to get a price); autonomy (clients drive product design, choosing from +150 underlyings); execution (prices are firm and real time) and access/multi-channelling (clients can use any electronic device such as computer, smartphone, tablet, etc. to send the request.)

"Clients can price baskets of all these underlying offering hundreds of possible combinations to customize their products," says Dominguez, highlighting that by accessing a unique platform, clients don't need to deal with multiple different platforms.

"These templates make it easier for the customer to build a product with the desired attributes," says Dominguez. "Bloomberg then sends the customer's pricing request to BBVA. We process the request, retrieve all the real-time market data and relevant information to deliver a valuation. Then, almost instantaneously, BBVA returns a price to the customer and it is displayed in the customer's Bloomberg Terminal screen."

According to Dominguez, the internal value of the new platform is that provides access to a new wallet of revenues (fast market); automates post-trade processes (autobooking, termsheet generation, etc.) enabling calibration of the parameters used to calculate a price, as well as increasing operational efficiency for the sales and trading model through business automation.

The need for speeding up the work flow, as well as simplifying the process of sales and execution is not exclusive of issuers in the structured products market as the buy side can also use the Bloomberg platform to research product variations and analyse the different features (capital protection, participation, coupons, barriers, time horizons, etc.) when developing a product, according to Karim.

"Bloomberg's technology increases awareness and transparency around structured products," says Karim, adding that in the case of BBVA it will help to gain new efficiencies in the sales and execution process, "which certainly increases the value of the high touch sales process BBVA has with its clients".

Despite a clear shift towards automating and streamlining banking functions over the last few years, the shift towards automation is not in full swing yet, according to Karim. "The overall market is somehow fragmented with some segments being ahead in terms of automation, and the shift is happening at different speeds," he says. "However, regulation in the US and Europe is accelerating the transition to electronic trading. The convergence of regional regulatory frameworks to minimize cross border arbitrage is pushing all markets towards more automation. We believe it is only a matter of time before we see this shift in full swing across all products and regions."

Karim also underscores Bloomberg's commitment to provide technology solutions to the structured products market. "We saw how the market started with the automation of simple structures and is now moving on to do the same with more complex, less liquid products," says Karim. "Our technology was designed to be flexible and is ready to accommodate that change."

This is also helping to address risk management issues, says Karim, adding that more and more clients are approaching Bloomberg "which suggests they see value in our enterprise products and services".

However, he notes that although Bloomberg has the full capabilities to support the shift towards automation, it has built the technology that anticipates future needs such as the firm's suite of Mifid 2 solutions, "we're not front-running the agenda".

"We simply respond to what the market needs," says Karim. "We would like the shift towards automation to happen faster, but we remain committed to serve our clients' requests first. We are optimistic that introducing products like DLIB along with more and better data, analytics and functionality for derivatives will encourage growth in the structured products market, and we are in talks with a number of structured products players on the buy-side and sell-side about what their needs are."

Related stories:
BBVA partners with Bloomberg in latest structured products automation push

Bloomberg boosts new DLIB with Lexifi technology

BBVA global markets appoints global head of regulation

BBVA to leverage new cross-asset private banking structure, accelerates digital transformation

Increasing regulation has benefited all participants in the market, BBVA