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DTCC Market Liquidity Discussion Paper

By DTCC Connection Staff | September 25, 2016

Liquidity in global financial markets has become a top concern for market participants who fear that changes in market structure and new regulations may be leaving markets more fragile and susceptible to elevated volatility, instability and systemic risk. In particular, constrained liquidity within U.S. bond markets has been debated across the financial industry, particularly after the October 15, 2014, Flash Crash in U.S. Treasuries.

In its discussion paper, “Trends and Risks in Bond Market Liquidity”, DTCC explores changes in financial markets since the 2008 financial crisis that may have contributed to the growing uncertainty surrounding market liquidity in U.S. Treasury and/or corporate bond markets.

The paper evaluates a variety of liquidity metrics using both external and internal data to assess whether they suggest an actual deterioration in market conditions. In the process, DTCC highlights the perspectives of several industry experts, and provides an overview of steps that have already been taken to help address this issue. Lastly, the paper highlights a number of DTCC initiatives that may provide structural improvements that contribute – directly or indirectly – to further mitigating market liquidity risks. The topic of liquidity in the bond market was covered in a panel discussion during a Systemic Risk Event hosted by DTCC in August. The event brought together more than 60 risk and operations professionals to discuss key issues related to developing and emerging systemic risks. A full recap of the event can be found on DTCC Connection, DTCC’s bi-weekly corporate e-newsletter.

Download Trends and Risks in Bond Market Liquidity (PDF)

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