The Liquidity Risk Book


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Converting Securities Inventories to Liquidity

LiMAS allows positions to be converted into liquidity (cash inflows). How this process occurs is entirely down to simulated market conditions called scenarios. A configurable liquidity index (LiX) reflects the ‘liquidity rating’ of an individual security. Securities that are expected to behave the same in a scenario are grouped together into one liquifiability class with unequivocal liquification parameters that specify how the inventory in the class is turned into liquidity on a time-structured basis.

The available liquification venues are:
- Open market repo with central banks (overnight and tender operations)
- Secondary market repos
- Secondary market sales

Ongoing Central Bank Activities

Some inventory may already be used in ongoing central bank operations such as tenders. LiMAS loads the existing tenders, identifies the free available amounts and liquifies them according to the central bank’s rules. Securities that are eligible but not yet delivered into the central bank account can be on demand delivered and liquified.

LiMAS supports the concept of multiple central bank access.

Prioritization of Liquification Venues

LiMAS allows prioritizing how the liquification is simulated. It can be e.g. parameterized that firstly, all secondary market repos are executed, then the central bank liquification is used and nothing is sold. In another, extreme, scenario, the liquification could start with the sale of securities where the residual positions are temporarily repoed, etc.