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The CICF makes the case that as high quality collateral is in increasing demand to support transactions in financial markets, regulatory measures should ensure that it flows efficiently around the market, facilitating the matching of collateral sources and uses. The developments, and their sequencing, that are necessary to improve collateral fluidity are set out in a CICF White Paper published today.
The importance of collateral has grown since the advent of the financial crisis in mid-2007, as both market participants and official policy makers have encouraged its use to ensure that risk in financial markets is better managed. This demand for high quality collateral will increase further following the full introduction of regulatory measures including the Basel liquidity requirements and the shift of standardised OTC derivatives to CCP clearing. Given this increasing demand and in the face of limited supply, the CICF argues that it is essential that high-quality collateral be managed as a scarce resource.
The CICF’s White Paper explains that the 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. The CICF proposes that known problems in European financial market infrastructures need to be fixed, alongside the delivery of the major technological developments to realise both T2S and the shift to a standard T+2 settlement period.
Furthermore, the CICF considers that without the effective phasing of proposed changes, serious adverse consequences for financial markets, and hence the real economy, can be anticipated as a result of inadequate collateral fluidity; and urges that the industry and policymakers should work together to deliver well thought out, suitably phased measures.
See link below for White Paper