GFF: HQLA demand in supply chain to increase 31 January 2019Luxembourg Reporter: Maddie Saghir
Image: Shutterstock
Some 27 percent of delegates said that over the next two years, the demand for high-quality liquid assets (HQLA) in the value chain will significantly increase, it was revealed at this year’s GFF Summit.
A further 56 percent said that it will increase, while some 13 percent predicted that it will remain the same and 3 percent think that it will decrease.
In terms of supply, some 4 percent of delegates said that the supply of HQLA will significantly increase over the next two years. This compares to 44 percent who voted that it would increase, while 31 percent said that it would remain the same, and 19 percent said it would decrease.
Of these results, Paul van de Moosdijk, senior treasury manager, PGGM, said: “HQLA is not a primary concern and it is not a topic that we discuss on a day-to-day basis. The primary concern is the transformation of HQLA to cash especially where mandatory clearing come into play.”
Moosdijk added: “Priority is on clearing and cash variation margining, we still believe that the repo market will become dysfunctional in extreme market conditions. We try to optimise solutions in the market, without having access to central bank money. We have added Eurex pooling and we have an additional tool to transfer high-quality assets into cash.
The moderator then asked panellists what they saw last year specifically in the collateral space, to this one speaker commented: “There is separation by region; in the US we saw more volatility in pricing and supply with the first half of the year starting off with definitively increasing demand compared to other regions.”
“As we move across the globe to Europe we saw a very different story, we saw spread compression. Looking at Japan, there was more supply than there is demand in that space and we are seeing that connectivity between the sourcing and the use. There is plenty of supply but it is about being able to recycle that into processes.”
Meanwhile, another panellist said that their priority is on clearing and cash variation margining, adding that they try to optimise solutions in the market.”
In terms of client trends, one speaker noted: “What I am seeing from my clients is quite interesting. We see clients sitting on the fence of HQLA and asking how they can get value out of it.”
“There is also an increasing amount of focus on monetisation of HQLA. As they have seen the amount of collateral levels increase they have focused very closely on the buy side on their ability on monetisation and how they would abstract the value in stress.”
NO FEE, NO RISK 100% ON RETURNSIf you invest in only one securities finance news source this
year, make sure it is your free subscription to Securities Finance Times
Image: Shutterstock 