The Collateral Initiatives Coordination Forum (CICF) has warned European regulators over the "scarcity" of collateral at a time when the new EMIR regulation is expected to increase the collateral burden for pension funds.
The CICF – a group of European trade associations – stressed that the importance of collateral had grown in recent years, particularly since mid-2007. It also pointed out that the demand for high-quality collateral would increase over time following the implementation of new regulations, such as the Basel liquidity requirements, and the shift of standardised OTC derivatives to central clearing.
Godfried De Vidts, CICF's independent chairman, said: "Too much haste in implementing multiple regulatory changes impacting collateral will lead to adverse consequences, which are already visible through the fear of a collateral squeeze". CIFC's white paper argues that collateral should be seen as a "scarce" resource, and offers a number of ways regulators could better support the matching of collateral 'sources' and 'uses'.
The CICF claims the "real challenge" is to mobilise efficiently the flow of collateral inside and between organisations, by eliminating barriers to collateral flows and the development of an efficient market infrastructure.
It says "known problems" in European financial market infrastructures need to be fixed, alongside the delivery of the major technological developments to realise both the post-trading infrastructure called TARGET2-Securities (TS2) and the shift to a standard T+2 settlement period.
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