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ADVERTORIALLIQUID GOLDby Nick Noble, product manager, liquidity risk management, SmartStreamNICK NOBLEFrom Jan. 1, 2015, large, globally active banks will have to demonstrate to the regulators that they are actively managing their intraday liquidity. In practice, this means that banks will need to be aware of how individual trades impact overall intraday liquidity levels on a minute-by-minute basis. Providing regulators with this level of detail looks set to be a tricky task. Nick Noble, product manager at SmartStream, believes thatimplementing a strategic solution that provides clear real-time visibility of all positions and exposures offers banks the best way forward.Intraday liquidity first rose to prominence as a result of banks’ participation in large-value payments and securities settlement systems. The critical importance of intraday liquidity was brought home to both financial institutions and regulators by the collapse of Lehman Brothers, where a lack of intraday liquidity played a significant role in the demise of the bank.The reporting requirements will enable regulators to monitor how banks manage their intraday liquidity under normal circumstances. They will, however, need to know how each bank plans to deal with situations where financial stress arises, be that its own financial stress, that of a counterparty or customer bank, or in the event that market-wide credit or liquidity is affected.33.) SPECIAL SMARTSTREAMThe collapse of Lehman Brothers was a sobering lesson for the Although reporting is retrospective — a financial institutionindustry and underscored the need for a more disciplined will need to produce a report at the beginning of the monthSECTIONapproach to intraday liquidity management. The framework for setting out the previous month’s activity — furnishing authoritiesthis came in April 2013, when the Basel Committee on Banking with the level of detail required will be challenging. EachSupervision published its report “Monitoring Tools for Intraday Liquidity Management,” which provided national supervisors with a flexible range of tools to monitor large, globally active banks’ management of intraday liquidity.From Jan. 1, 2015, banks will have to provide monthly reports to financial authorities evidencing the way in which they manage their intraday liquidity. Specifically, all reporting banks must supply details of their daily maximum liquidity usage. This needs to be calculated using “settlement time stamps” and “transaction-by-transaction” data. In addition, financial institutions must report available intraday liquidity at the start of each business day and total payments per day, as well as the total value of time-specific obligations that settle each day.financial institution will be responsible for gathering all the necessary data and, in practice, an organization will need to know the impact that each trade has on liquidity levels, throughout its life cycle, on a minute-by-minute basis. Activity carried out on a financial institution’s behalf by a correspondent bank will also have to be reported — to the minute.Yet here lies the difficulty: Banks’ internal systems and processes usually operate on an end-of-day or overnight basis, rather than providing information in real time. Data are held in a variety of trade and transaction processing solutions, scattered across the front, middle and back offices, making it far from easy to gather. And there is a further obstacle: Data are seldom of one standard type and so, once aggregated,33Continued on Page 34FALL 2014 | FTF NEWS MAGAZINE