Lower liquidity is the new normal
04 November 2016 New York
Image: Shutterstock
Almost half of surveyed institutions believe the current liquidity drought is here to stay, according to State Street.
Thirty percent of the 300 financial institutions, questioned by State Street as part of its 鈥楲et鈥檚 Talk Liquidity: Opportunities in a New Market Environment鈥� study, claimed the liquidity of their portfolio has decreased over the past three years, while 48 percent predicted the new environment to be permanent.
Furthermore, 90 percent of the survey鈥檚 respondents, which involved 150 asset owners and 150 asset managers, included 50 hedge funds, stated that the liquidity reduction has affected their investment strategy.
According to State Street鈥檚 analysis, this primarily involves upgrading liquidity risk measurement frameworks and reporting standards.
At the same time, State Street noted that as banks step back from their traditional financing roles, other players are coming forward to fill the space.
Of the hedge funds surveyed, 43 percent stated they would considering becoming a market maker in certain securities.
The need for investment to tackle both the market鈥檚 liquidity status, along with the new, enhanced reporting requirements featured heavily in the report.
On reporting, 42 percent admitted to facing a 鈥榤oderate to significant challenge鈥� in reporting their liquidity position to their respective boards or regulators, while 47 percent are committed to tackling this issue through investment in external capabilities.
Thirty percent of the 300 financial institutions, questioned by State Street as part of its 鈥楲et鈥檚 Talk Liquidity: Opportunities in a New Market Environment鈥� study, claimed the liquidity of their portfolio has decreased over the past three years, while 48 percent predicted the new environment to be permanent.
Furthermore, 90 percent of the survey鈥檚 respondents, which involved 150 asset owners and 150 asset managers, included 50 hedge funds, stated that the liquidity reduction has affected their investment strategy.
According to State Street鈥檚 analysis, this primarily involves upgrading liquidity risk measurement frameworks and reporting standards.
At the same time, State Street noted that as banks step back from their traditional financing roles, other players are coming forward to fill the space.
Of the hedge funds surveyed, 43 percent stated they would considering becoming a market maker in certain securities.
The need for investment to tackle both the market鈥檚 liquidity status, along with the new, enhanced reporting requirements featured heavily in the report.
On reporting, 42 percent admitted to facing a 鈥榤oderate to significant challenge鈥� in reporting their liquidity position to their respective boards or regulators, while 47 percent are committed to tackling this issue through investment in external capabilities.
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