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.


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