Derivia Middle East 2024: Bloomberg - foundations to continue expanding the market are in place

The company has won the SRP Best Technology Solution award at the SRP Middle East Awards 2024 at the Derivia Intelligence conference in Dubai on 20 November.

“This award is seen as an acknowledgment that our pricing services and risk management solutions are highly valued by clients in the region,” Chase van Der Rhoer (pictured), head of structured products & derivatives at Bloomberg, told SRP.

Van Der Rhoer sees opportunity with significant scope for growth in structured product volumes in the Middle Eastern markets, particularly in the the United Arab Emirates (UAE).

“Our integrated solution for structuring, pricing, lifecycle management, risk management, and evaluation of structured products is much needed in this growing market,” he said, adding that product development “efforts will continue to focus on client needs as we continue  to enhance our offerings and solutions”.

“We have seen increasing demand in the region for capabilities such as pre-trade scenario analysis, which allows clients to assess the impact of various market events and corrections on their structured investments. This is valuable for clients to be able to assess how their investments could perform relative to their economic and political views,” said Van Der Rhoer.

Bloomberg is also “actively exploring” the use of artificial intelligence and machine learning to enhance their tools and “make it easier and faster for clients to get the insights they need”.

“We see strong potential for continued growth in the Middle East structured products market, driven by factors like financial stability, controlled inflation, and government policies supporting development,” said Van Der Rhoer.

“Our focus remains on providing robust, client-centric solutions to enable and support this growth.”

Key trends

Chase van Der Rhoer: We have seen significant growth in structured product volumes, particularly in the UAE, with a nearly 40% year-over-year increase in 2024.

Increasing interest and activity from sovereign wealth funds and high net worth individuals in the region, especially in global structured product issuances, is also driving further growth.

Overall, the financial stability of the region, with equity markets performing well and inflation largely under control, are providing a good foundation for the market to develop and bring in new players and investors.

Government policies and fiscal measures helping with economic growth and development are supporting this trend.

Market strategy

Chase van Der Rhoer: The foundations are in place to continue expanding the market in the region.

The majority of the structured product activity in the Middle East revolves around global issuers, as the local markets remain in a development stage. This has allowed the markets in the region to rapidly access advanced tools and technology without going through a slower market maturation process.

Our client-led approach, relying on insights and feedback from clients in the region, will be utilised to guide our product development and enhancements. The goal is to deliver solutions that directly meet the needs of Middle East investors and institutions.

A key area of focus for Bloomberg is pre-trade scenario analysis, which allows clients to assess the potential impact of various market events and crises on the value of their structured investments. This is seen as highly valuable in the region.

Overall, we want to position ourselves as a unifying solution that can provide standardised information, portfolio analysis capabilities, and lifecycle management tools to support the growth of the structured products market in the Middle East.

Pre-trade scenario analysis

Chase van Der Rhoer: Pre-trade scenario analysis has been earmarked as a key differentiator and focus area for Bloomberg's offerings in the Middle Eastern structured products market.

We are able to offer this analysis because of the extensive data our Derivatives Library, DLIB, stores on volatility, equity, rates, and other market factors that drive structured product valuations.

Clients can use this to answer "what-if" questions and understand how their structured investments would perform under different market conditions or crisis scenarios. Clients have many options including the ability to define their own explicit shocks, use an extensive menu of pre-canned scenarios or define their own historical scenarios using a start and end date. These shocks can be performed for an instantaneous single date or horizon shocks over multiple dates.

The feedback we’re getting from Middle East investors is very positive, particularly sovereign wealth funds and private banks representing high net worth individuals who are increasingly active in the structured products space.

Our focus on delivering robust scenario analysis capabilities is a key part of Bloomberg’s strategy to provide a comprehensive, integrated solution for structuring, pricing, and risk management of structured products in the Middle East market.

The ability to stress test and understand the potential downside risks of structured investments before executing trades is a critical tool that helps clients make more informed investment decisions.

AI & machine learning

Chase van Der Rhoer: Bloomberg continues to  explore how artificial intelligence (AI) technologies can be applied to enhance its offerings to deliver more impact for clients, including in the structured products space.

The company has been building and deploying AI for more than 15 years, starting with sentiment analysis of news stories back in 2009. Today, it employs AI, including machine learning (ML), natural language processing (NLP), information retrieval (IR), time-series analysis, and generative models, to help process and organise the ever-increasing volume of structured and unstructured information needed to make informed decisions.

For example, by employing natural language processing (NLP) algorithms to extract semantic meaning from unstructured documents, the Bloomberg Terminal can present insights to users drawn from documents and datasets in response to questions asked in natural language.

Another example is the company’s AI-Powered Earnings Call Summaries, which helps analysts save time during their research process. Through the pragmatic application of generative AI, this solution summarises earnings calls and provides bullet points that quickly address the most common categories of questions by topic categories discussed by management during the call (e.g., guidance, new products, supply chain). As part of the company’s commitment to transparent attribution, every summary point can be verified by the user simply by clicking on them, as they are linked to the relevant source passage in the underlying document from where it was extracted.

The goal is to continue using these new technologies to deliver more impactful, client-centric solutions that streamline workflows and provide deeper, more actionable insights. Artificial intelligence and machine learning can enhance the efficiency and accessibility of structured product research and decision-making.

AI-enhanced capabilities are a major focus for Bloomberg as they look to stay at the forefront of innovation in the structured products space, especially in growth markets like the Middle East.

Opportunities

Chase van Der Rhoer: There is scope to increase education among private banks on the value of structured products, as they can play a key role in introducing these instruments to their clients.

Leveraging industry bodies and associations, such as SRP and ISDA, to provide educational resources and information on structured products for the regional market will also be key to make this market mainstream in the region.

Vendors like us that can provide standardized data, analysis tools, and lifecycle management capabilities to streamline structured product workflows can also help push the market forward.

Our focus will continue to be on increasing coverage and capabilities and raising awareness of Bloomberg’s portfolio stress testing capabilities to help clients better understand and manage the risks of their structured investments.

Challenges & outlook

Chase van Der Rhoer: Regulatory frameworks and approaches vary across different countries in the region, making it difficult to have a one-size-fits-all solution.

There is a need for greater education and awareness among investors, a role that private banks and others can play on the benefits and risks of structured products.

You can only have a sustainable market by developing a cohesive industry voice and framework to engage with regulators and promote safe, efficient, and transparent trading practices.

We have a positive outlook about the future growth potential of the Middle East structured products market, but realizing this potential will require a concerted effort to address regulatory, educational, and technological challenges in the structured products space.