EXCLUSIVE: Unlocking collateral key to curbing shortage, says Elixium
28 November 2016 London
Image: Shutterstock
Greater diversification of counterparties in the repo market can halt the decline in liquidity, according to Roberto Verrillo of trading platform Elixium.
Verrillo analysed the various regulatory and market trends putting a squeeze on the availability of collateral in a new whitepaper that positions the Elixium marketplace as alternative liquidity route for repo participants.
According to Verrillo, who cited multiples sources including the Bank of England, illiquidity in secured and unsecured markets is reported across the spectrum, causing capacity to stretch and fragmented pricing.
There is more than ample liquidity in the form of cash as a result of global quantitative easing, collateral providers have significant reserves of previously un-lent and unencumbered inventory, and there is an increasing need for capacity on the back of new margining rules for over-the-counter products.
“The transmission mechanism for collateral transformation to be executed is severely impaired,” Verrillo wrote, concluding that there is “potential for more serious market dislocations where collateral provision/transformation can be severely affected in stressed environments”.
Elixium, which recently partnered with Pirum Systems to provide post-trade connectivity to their respective clients, aims to provide repo participants with liquidity on a fair, transparent, inexpensive and equitable basis.
“Via intelligent trading tools and analytics, Elixium enables institutions to qualify for credit slippage, view depth and liquidity across tenors and collateral baskets, and offer varied execution functionality,” Verrillo wrote.
“Following mandatory margining of uncleared OTC products, demand for efficient initial and variation margin collateral transformation is set to increase dramatically. Elixium facilitates this process and will provide a marketplace through which cash or collateral can be sourced from a much more diverse counterparty base than is currently the norm.”
“Over the coming months, Elixium will expand its initial offering to more than 40 collateral baskets covering fixed income and equities in GBP, EUR, USD, CAD, JPY and emerging markets.”
To read more please download the PDF
Verrillo analysed the various regulatory and market trends putting a squeeze on the availability of collateral in a new whitepaper that positions the Elixium marketplace as alternative liquidity route for repo participants.
According to Verrillo, who cited multiples sources including the Bank of England, illiquidity in secured and unsecured markets is reported across the spectrum, causing capacity to stretch and fragmented pricing.
There is more than ample liquidity in the form of cash as a result of global quantitative easing, collateral providers have significant reserves of previously un-lent and unencumbered inventory, and there is an increasing need for capacity on the back of new margining rules for over-the-counter products.
“The transmission mechanism for collateral transformation to be executed is severely impaired,” Verrillo wrote, concluding that there is “potential for more serious market dislocations where collateral provision/transformation can be severely affected in stressed environments”.
Elixium, which recently partnered with Pirum Systems to provide post-trade connectivity to their respective clients, aims to provide repo participants with liquidity on a fair, transparent, inexpensive and equitable basis.
“Via intelligent trading tools and analytics, Elixium enables institutions to qualify for credit slippage, view depth and liquidity across tenors and collateral baskets, and offer varied execution functionality,” Verrillo wrote.
“Following mandatory margining of uncleared OTC products, demand for efficient initial and variation margin collateral transformation is set to increase dramatically. Elixium facilitates this process and will provide a marketplace through which cash or collateral can be sourced from a much more diverse counterparty base than is currently the norm.”
“Over the coming months, Elixium will expand its initial offering to more than 40 collateral baskets covering fixed income and equities in GBP, EUR, USD, CAD, JPY and emerging markets.”
To read more please download the PDF
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