SmartStream Technologies
With the shockwaves of 2008 still reverberating, many providers are tailoring their solutions to help clients maximise liquidity, according to product manager for SmartStream Technologies, Nick Noble
Why are intraday liquidity reporting requirements at the forefront of many people’s minds at the moment?
What we hear from our clients is management and visibility of intraday liquidity have always been a key interest for banks. They are continually striving to gain greater visibility and control of their intraday liquidity. Since the financial crisis, everyone is acutely aware of the risk of mismanaging intraday liquidity and this caused the regulators to look at it with more scrutiny.
This culminated in a publication in April 2013 by the Basel Committee on Banking Supervision, which documented explicit monitoring requirements around intraday liquidity. Although the regulations have driven the impetus behind banks initiating intraday liquidity management programmes, they have been at the forefront of peoples’ minds for a few years.
Monitoring changes to intraday liquidity exposures can be used as a strategic tool. What are the benefits of this for banks?
When a firm is using intraday liquidity, it has to gain that liquidity by using credit lines or collateral, and they come with a cost. Often, firms are not fully aware of their utilisation of those credit lines, etc. By being able to understand and profile what liquidity they are using and at what cost it comes, they have the opportunity to rationalise those uses of liquidity. There is a return on the investment from that perspective. There is also the improved customer service and reputation they gain through reducing the risk of not being able to meet settlement obligations.
If mismanagement of intraday liquidity caused a settlement to fail or credit line to be breached, this could result in cost and reputational issues. The goal is to have access to liquidity when it is required at minimal cost. There is also a case for getting ahead of the curve and being able to react to any potential stress situations. The control over intraday liquidity and gaining an understanding of what the typical liquidity profile is for a day enables clients to identify stresses early and avoid any potential issues further down the line.
Also, if you are able to demonstrate to your local regulator that you have decent controls and models in order to manage your intraday liquidity more efficiently, any liquidity that you need to hold could be reduced because you can mobilise it to where it is needed.
With the T+2 settlement cycle still not in effect until 2015, why is T+0 already an issue? Is there any chance of the transition being sped up?
T+0 is not necessarily to do with the full trade lifecycle but the settlement cycle and is about being able to manage liquidity in real time. It is about being able to reconcile positions and therefore have a more detailed and clear understanding of the uses, business lines and drivers of liquidity, which can only be understood by tying back to the original booked trades within the organisation versus the settlement advises.
How are you helping clients with relation to the T+ requirements?
Smartstream has a cash liquidity management solution that has been live since 2005 and we have many top-tier clients that are using this. Our reaction on behalf of our clients and to service the market, is to meet the demands of the regulators but also to support them in integrating intraday liquidity management practices into their operations. We have introduced an Intraday Liquidity Management module to specifically help our clients in this space. We continually work with top-tier clients in order to fine-tune the exact mechanisms of this module, which seamlessly integrates with our Cash and Liquidity Management solution.
How is intraday liquidity supported by regulations and are there any changes coming to the legislation in the near future?
Banks need to consider how they manage their liquidity with different participants having varying degrees of insight based on how they have approached the requirements and how strategically they have looked at implementing these tools. In the next couple of years there will be proactive operational change in cash and liquidity management as they react and deal with new levels of detail.
The value of credit lines will be assessed and the timings of when payments are initiated through correspondent banks is likely to come under scrutiny. The regulators are also going to be getting much more visibility on how intraday liquidity is being consumed and offered in their local jurisdictions. This could initiate further market-wide controls or individual audits with banks in terms of how they manage liquidity. The first step is providing visibility, which is severely lacking in many organisations today.
In terms of assisting with reporting requirements, what solutions does Smartstream provide for its clients?
Our solution enables clients to gain deep insight and proactively manage their intraday liquidity across multiple perspectives, as well as producing all the metrics and tools in order to meet regulatory compliance.
