Northern Trust is enhancing its collateral management and liquidity solutions to help clients meet the requirements of implementing multiple, inconsistent regulations.
The US Dodd-Frank Act and European Market Infrastructure Regulation will require market participants to hold greater amounts of eligible collateral, which many believe will increase demand for liquidity.
But Basel III “may limit the levels of collateral and liquidity available in the market, thereby creating challenges for investors”, according to Northern Trust.
“The intersection of these regulations will impact institutional investors in a number of ways, particularly increasing the need for liquidity and, over the longer term, creating a collateral squeeze,” said Fiona Horsewill, head of product and strategy for Europe, Middle East and Africa at Northern Trust.
Northern Trust is modifying its collateral management and liquidity solutions to enable clients to hold their assets within a transparent account structure, even when being used for collateral for clearing derivative positions.
Through the enhancements, Northern Trust clients will be able to view their entire asset inventory and track each asset’s location for assets held in custody with and outside of the bank, access eligible collateral for initial margin requirements, review and evaluate counterparty exposure, and monitor potential future liquidity needs.
“By expanding our liquidity access solutions, we can help support our clients’ short-term liquidity needs so that they are not required to liquidate assets unnecessarily in order to meet the variation margin demands,” said Horsewill.
“We will continue to work closely with our clients and the wider market to create solutions that will ensure access to eligible collateral through a variety of sources to meet regulatory driven collateral requirements.”
