November 18, 2015 at 12:00 PM ET | NetMeeting
The lack of market liquidity – particularly in the fixed income markets – has been a widely discussed topic recently given concerns around how regulations have driven reduced inventory levels on the sell side. At the same time, an explosion in daily redeemable products, many of which are in the same market sectors where the loss of liquidity is perceived as being most acute, has raised important questions around the ability of the buy side to handle “run on the bank” redemption scenarios. While there isn’t much historical evidence of runs on funds (outside money market funds during the crisis), regulators have identified this as a potential critical risk facing the financial system. Indeed, the SEC recently released a proposal that would require asset managers to implement formal liquidity risk management programs.