DOES LIQUIDITY SCARCITY EXIST, OR DO YOU JUST HAVE TO KNOW WHERE TO LOOK?

Collateral Management Question Series

It certainly exists as UMR represents a regulatory landscape, the likes of which have never been seen before, which has the collateral pool shuddering at the concept of an unprecedented demand for collateral comprised of high-grade assets and an increase in haircut provisions. While it is noted that increased collateral requirement in the market means greater safeguards against default, conversely, the ever-increasing demand for high-grade collateral also has an inherent destabilising market factor. Buy-side institutions have limited access to large inventories of high-grade collateral which gives rise to the phenomenon known as a “collateral scarcity”. However, historically back off domiciled processes are now becoming key drivers of P&L. Sell-side firms can capitalise on the need for transformation and Secured financing services.

Secured finance transactions and post-trade optimisation techniques are fundamental to the provision of an untapped global inventory of high-grade collateral to smaller institutions and buy-side clients, while simultaneously providing sell-side institutions with further profitable business and revenue streams. Therefore, access to high-quality collateral positions via secured finance transactions and post-trade optimisation strategies coupled with competitive edge gained from technological efficiencies, are vital to market liquidity and thus the elimination or easing of the collateral scarcity phenomenon.

RICHARD GOMM
HEAD OF EMEA COLLATERAL MANAGEMENT SOLUTIONS