Dealers turn to structured products for LCR relief
The liquidity coverage ratio restricts global dealers’ capacity to issue equity derivatives thanks to the punitive treatment it metes out to hedge collateral. In a bid to liberate their inventories, dealers are turning to monetisation risk options, but prospective counterparties are wary
Offers of free-money trades generally set alarm bells ringing among seasoned investors, and rightly so. Yet according to some, banks have begun hawking a breed of easy money trades at terms too attractive to resist.
These products take the form of options that offer solid returns at low, or sometimes near-zero risk. Why? Because they are designed to help banks meet the liquidity coverage ratio (LCR) – one half of the Basel Committee on Banking Supervision's post-crisis liquidity requirements
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