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A-Team Insight Blogs

Interactive Data Extends North American Liquidity Indicators Service to Europe

Interactive Data has extended its North American Liquidity Indicators Service to cover European and Asia-Pacific corporate and sovereign securities. It has also expanded coverage of the service by adding TBA-eligible mortgage-backed securities pass-throughs and agency debentures to US corporates, Latin American corporates and municipal bonds.

The Liquidity Indicators Service was introduced to the US market in 2015 and is based on Interactive Data’s fixed income evaluated pricing, which evaluates over 2.5 million securities every day, and reference data that supports pricing and trading functions.

The European Liquidity Indicators Service is designed to support firms’ liquidity risk management across a range of market conditions. The indicators include estimates of the projected trade volume capacity of a fixed income security, which can combined with a firm’s position to estimate the number of days to exit a position in particular situations. The service also calculates expected market price impact based on a firm’s target days to liquidate and projected days to liquidate when target price impact thresholds are set.

Andrew Hausman, says: “Measuring liquidity in fixed income markets remains an area of intense focus in the industry. This is especially evident in Europe’s evolving regulatory landscape. The expansion of our Liquidity Indicators Service is key to supporting our clients’ ability to achieve liquidity risk management goals.”

The service provides liquidity assessments across portfolios using a uniform scale that allows comparison between securities. It can be used for compliance with regulations such as the European Alternative Investment Fund Management Directive (AIFMD), which requires disclosure of the liquidity time horizon of portfolios, and with a US Securities and Exchange Commission (SEC) liquidity management proposal that was made late last year as part of the Liquidity Risk Management Programme and is awaiting finalisation.

Rob Haddad, vice president of evaluated services at Interactive Data, notes a number of use cases for the service beyond regulatory compliance. In the front office, the service’s liquidity information can help traders identify securities that fit portfolio strategies and provide an input to portfolio construction. The information can also be used to support collateral management and to ensure compliance can contain and report on liquidity risk.

Haddad comments: “The service improves liquidity risk management best practice. One of its key benefits is the ability to provide risk management with a set of tools that can be used not only to look at internal portfolio risk profiles, but also to compare portfolios to peer portfolios across the industry.”

The European Liquidity Indicators Service offers both security and portfolio solutions using a web-based application to upload ad hoc enquiries and a bulk file upload for lists of securities. Its content is updated on a daily basis to ensure the provision of accurate liquidity profiles, while its framework model allows ongoing expansion of securities coverage.

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