Industry report

Liquidity – Bringing it all Together

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Cash and liquidity management systems are becoming increasingly sophisticated, with firms prioritizing projects that can help meet regulatory requirements and deliver improved efficiencies for the business. In a bid to optimize liquidity management, the market has seen firms move towards intraday models and global liquidity engines

After the fall of Lehman Brothers in 2008, it took some firms days—or even weeks—to identify holdings and positions and, in some cases, liquidity dried up in the process. To avoid this happening again, the changes made in the past years have been profound—new regulation has forced firms to hold more liquid assets such as cash or government bonds, and there has been innovation in the market. Regulators have been busy bringing out new requirements designed to protect the financial system from future crisis, and firms have responded by making substantial investments in initiatives crafted to meet new requirements and create a more robust financial system.

Regulations such as the Dodd-Frank Enhanced Prudential Standards, the Basel Committee on Banking Supervision’s (BCBS) Principles for Sound Liquidity Risk Management and Supervision, the International Organization of Securities Commissions’ (Iosco) Principles of Liquidity Risk Management for Collective Investment Schemes and Federal Reserve CFR 249 Liquidity Risk Measurement Standards are all raising liquidity thresholds and further narrowing the neck of the collateral bottle.

To justify large reform programs—investments that, in some cases, could impede businesses’ ability to exploit other opportunities—firms are increasingly focused on achieving greater value from the work that goes into upgrading systems and processes. This has resulted in projects aimed at meeting regulatory requirements, as well as improved operational efficiencies and more effective control of cash and liquidity management.

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