The global buy-side community finds itself under intense liquidity and funding pressures in 2017. Across the world, financial institutions face new mandates to collateralize OTC derivatives trades, requiring them to source large volumes of highly-rated securities and cash to post as margin. At the same time, bank counterparties – the traditional liquidity providers – are grappling with balance sheet constraints. The pull of these two opposing regulatory forces is making it increasingly challenging for buy-side entities to locate and access the funding and collateral they now need.
So how is the industry responding to these unprecedented stresses? This landmark BNY Mellon global buy-side research study – conducted in association with PwC – seeks to definitively answer that question.
This paper provides insights on the demand-supply imbalances that are being experienced by buy-side firms as a result of regulations, such as uncleared margin requirements as well as the possible solutions financial end users are exploring to source liquidity. A major concern among many buy-side firms is not so much a lack of collateral in the system but rather the inaccessibility of this collateral. This is requiring firms to re-evaluate their collateralized trading portfolios, recalibrate asset allocation strategies and in some cases review the investment products offered to end clients.
“There are people putting the same liquidity in multiple places. If you take it from one place, it will dry up in the other. I don’t think there’s going to be that much exclusive liquidity.”Head of Money Markets & Foreign Exchange, Large UK-based Asset Manager
The report presents the findings from BNY Mellon–PwC outreach to senior buy-side executives from over 120 global firms. The research encompassed both qualitative interviews and quantitative surveys across North America, Europe and Asia-Pacific. Interviewees included leaders from trading, finance, treasury and collateral management functions.
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