Alex Knight is Head of EMEA, Baton Systems; Tucker Dona is Head of Business Development, Baton Systems.
What was the key theme for your business in 2024?
From geopolitical tensions to the global equities sell-off this summer, the events of 2024 have been a wakeup call for banks to look closer at the adequacy of their intraday liquidity management processes. Hampered by legacy technology and sluggish settlement cycles, post-trade inefficiencies and a lack of real-time transparency into liquidity positions have become glaringly apparent and even more restrictive during the many periods of market stress we have seen this year. Today’s world demands real-time, data-driven liquidity management decisions so even minor balance sheet inaccuracies can become significant vulnerabilities – especially in a bout of turbulence.
What are your expectations for 2025?
As we enter a new year, banks should resolve to invest in advanced real-time intraday liquidity management systems. The focus should shift from managing the size of the buffers towards having the tools that allow for real-time visibility, reliable predictions and automated control. Tools that are available now provide on-demand access to real-time data – using this data more smartly in conjunction with historical insights, treasury managers can predict the timing of inbound payments, and their impact on intraday liquidity demands with greater precision and generate recommendations as to how outbound payments can be intelligently sequenced and scheduled based on priority and liquidity usage. This reduces the risk of a liquidity shortfall, lowers funding costs and the size of intraday buffers required.
In this era of persistent market volatility, intraday liquidity risk management is not just necessary — it is the cornerstone of financial stability and investor confidence. Supervisory bodies are also starting to acknowledge its importance in today’s financial markets, as we have seen with the ECB’s Nov 2024 identification and publication of sound practices for intraday liquidity risk management.
What regulations will have the biggest impact on the industry in 2025?
We are one-year away from the mandatory central clearing of US Treasuries, which is going to have a material impact on the way that firms post margin for this product. Firms wanting to offset the impact of higher margins need to spend 2025 making operational changes and upgrades to optimize their systems for trading and clearing US Treasuries. However, there is still more clarity needed on which CCPs market participants will choose to clear these products, and which model participants will use, such as sponsored or done-away. Thankfully, much of the operational preparation and workload can be done efficiently with support from vendors providing direct connectivity into the CCPs.
If firms are not able to efficiently optimize and mobilize available assets across the range of CCPs they will use for clearing US Treasuries, they are going to face operational and cost challenges. By using data-driven insights to select the most eligible and opportunistic collateral for the different clearing venues and then being able to execute all movement instructions, firms can manage the higher margin levels more effectively. They will also be able to reduce associated costs, and more efficiently manage better their collateral usage and its impact on available liquidity.
