ETF Trends: What was Bloomberg’s role in the process?
Ben:
Bloomberg worked with Blackrock and State Street Global Advisors to establish new rules for the standardization of the calculation. Bloomberg has always been noted for its fixed income calculations and our contribution to this effort was significant.
The methodology is comprised of two steps; first, the generation of an aggregated cash flow table from the fund’s holdings and then scaled by the fund’s shares outstanding. The second step deals with the discounting of the cash flows back to the fund’s share price and follows standard bond market conventions.
The initial scope of this methodology is single currency corporate and government (sovereign) ETFs. Rules for standardizing the method for more complex ETFs (multi-currency, EM, MBS and structured debt) will be addressed in a phase two, which should be ready early 2016.
ETF Trends: Separately, how does Bloomberg’s Fixed Income ETF Basket Tool make trading this asset class easier for investors?
Ben:
Since 2008, the number of fixed income ETFs has grown to 260 from just over 60. Unlike equity ETF products, fixed income ETFs are highly customized. The Bloomberg Fixed Income ETF Basket Tool helps the basketing and negotiating process by introducing efficiencies that have not existed for these products. Our solution integrates our pre-existing technology and helps SSGA’s authorized participants and market makers to gain access to the liquidity necessary to create and redeem fixed income ETFs.
- What were the goals in creating the basket tool and ideal outcomes?
Our fixed income ETF basketing tool, launched in December 2014, provides the first comprehensive solution for authorized Participants and Market-Makers of State Street Global Advisors (SSGA) to automate the process of creating and redeeming baskets of fixed income ETFs. Shortly we will launch the next phase which will automate the complete creation/redemption process by connecting the Transfer Agent and Custodian to Bloomberg’s