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.
The EU and US’ shift in accounting standards may bring balance sheet losses and increase credit risk, according to James Elder, director of risk services at Standard & Poor’s (S&P) Global.
Sibos 2017 day two highlights: Brexit and banking, and why ‘data is the new oil’ in financial services
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The US dollar and debt yields falling on the North Korea missile test, treasury being a top target for cyber criminals and why treasurers aren't into real-time payments all hit the latest headlines in the world of treasury this week. Don't miss our ten top news stories from around the world.
Treasurers are being expected to do more work with fewer resources than ever before, so it is little wonder that the automation of day-to-day operations was highly discussed on the second day of EuroFinance, the annual treasury event held in Barcelona this week.