Finance Strategies: Liquidity Management For Corporations

Liquidity management deals with the ability to sell an asset (such as a bond or a stock) at its best current market price.  Another form of liquidity management applies to the availability of liquid assets held by large organizations or financial institutions.  In the present era, the regulatory environment is getting tougher by the day, so the optimal and efficient use of liquid assets (as well as capital reserves) is vitally important when it comes to conforming to the Basel III, EMIR and other related requirements.  

The practice of liquidity management is crucial in improving daily financing requirements, accessing the right range of counterparties, mobilizing collaterals in an effective manner, and reporting daily liquidity needs while keeping borrowing costs at the minimum and lowering the consumption of credit.  

Key factors that are all dependent on efficient liquidity management include controlling the balance sheet, T2S auto-collateralization, automatic inventory optimization, netting of securities financing across multiple markets, and managing OTC derivatives that are related increasing margin call volumes.   

Efficient and optimal liquidity management services are provided by Euroclear, which enables access to €28 trillion worth of assets held in Europe’s largest liquidity pool.  Euroclear has funding relationships with over 2,000 international and domestic counterparties, as its clients can access one of the world’s largest asset pools (which currently holds close to €1 trillion outstanding on the Collateral Highway).   Clients are serviced with multiple trading venues and clearinghouse flows, with integrated ICSD and CSD financing.  

The biggest challenge being faced by clients these days is that it is becoming difficult for most business organizations to manage liquidity effectively, due to the nature of the cross-border transactions, different local banking practices, and concerned regulations.  Solutions to such challenges include the integration of secure technology with cash concentration structures and notional pooling, which results in day-to-day automation.  Thus, the firm can focus on long-term goals more effectively.  

Solutions need to include multiple-currency based solutions that reflect the structure and goals of the firms involved.  Liquidity management solutions that have been tested along with full automation in terms of the processing that needs to be utilized. This allows the client to free the funds that had been allocated to software and related technologies.  

Liquidity management solutions aimed at financial institutions should also cater to white-labeling and outsourcing needs. Real-time information about the company’s cash position and transparency needs to be part and parcel of the solution. This allows to a company to ascertain the balance positions quickly and investments can then be channeled more strategically across various investment options. All of this needs to be enabled during the business day to maximize capital earnings around the world.

It is worthwhile to mention that while the companies with a high level of liquidity are distinctively different from the ones with low liquidity, the challenges being faced by them are very similar in terms of the regulation they have to face, the interest rates and the rapidly changing technology.  They are both under the same stress to actively pursue efficient and optimal liquidity management strategies and solutions.

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