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Major global firms launch Liquidity Alliance to tackle collateral crunch

A consortium of five central securities depositories (CSDs) have established a Liquidity Alliance to resolve the global collateral shortage incited by the 2007-08 financial crisis and successive new legislation including Dodd-Frank Act, EMIR and CRD IV.

Initial members of the alliance include Australia’s ASX, Brazil’s Cetip, Germany’s Clearstream, Spain’s Iberclear and South Africa’s Strate, who will co-operate each other for information exchange, identify common needs and to extend global collateral solution.

The alliance will be promoted as a neutral source of pan-industry information, ideas and opinions, while encouraging the development of informed research.

ASX Group deputy CEO Peter Hiom said, "Different markets have different needs and a truly global liquidity management solution needs to factor in these differences while still catering to the globally operating banks."

"It is our objective that the Liquidity Alliance will deliver an efficient value proposition for the worldwide industry enriched by local know-how and experience," Hiom added.

The members will organize a meeting every quarter to discuss partnership plans, key developments, and commercial opportunities in collateral management and to share individual market news while also investing resources in studies and industry research.

Banks in Europe are facing a collective shortage of stable funding of €2.78 trillion in fulfilling the additional liquidity requirements of Basel III, according to April 2012 estimates by the Basel Committee on Banking Supervision.

The IMF said in April 2012 that sovereign downgrades would decrease the supply of general collateral by $9 trillion by 2016, making sourcing collateral difficult for global financial firms.