According to Fitch Ratings, in an event of market stress, it is not determinable whether the focus that asset managers are placing on liquidity management would be sufficient enough to match redemption demands.
With broker dealers now being the provider of liquidity buffers and with the recent decline in liquidity in the fixed income markets, 80% of delegates at Fitch’s “The Changing Landscape of European Credit Markets” event viewed this as a systemic issue. The conclusion that the attendees came to revealed that an industry wide solution is necessary due to the majority of credit funds that let investors gain back their daily fund holdings.
Fitch explains how from September 2015, 96% of Undertakings for the Collective Investment of Transferable Securities (UCITS) corporate credit funds have provided liquidity daily, despite UCITS rules providing a minimum redemption frequency twice a week.
Alongside this, changes in regulatory framework could change how liquidity risk management operates, which is something that is being seen in the US, as the SEC has recently asked for new requirements for retail mutual funds.
The agency has seen a greater focus on making these techniques better because of market conditions that change because of volatility. These techniques may include position sizing and diversification rules limiting, but now fund managers use derivatives as a tool in order to change the profile of a fund.
Today sees the publication of set of global principles of good practice in the foreign exchange market.
The one-notch downgrade by the credit ratings agency is the first for nearly 30 years.
The new rules aim to prevent companies overpaying tax and to increase the competitiveness of the eurozone.
The proposed new tax, announced two weeks ago in the federal budget, is due to be introduced on July 1 and will raise A$6.2bn for the government over the next four years.