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UCITS IV: liquidity risk reporting - Understanding the liquidity of financial instruments | Brochure


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Under UCITS IV, for the first time, funds must explicitly address liquidity risk

UCITS IV: liquidity risk reportingThe European Directive defines ‘liquidity risk’ as “[…] the risk that a position in the UCITS portfolio cannot be sold, liquidated or closed at limited cost in an adequately short time frame and that the ability of the UCITS to [repurchase or redeem its units at the request of any unit-holder] is thereby compromised;”

Under UCITS IV, for the first time, UCITS must explicitly address liquidity risk. However it turns out that neither detailed regulatory guidelines, nor meaningful and recognised market practices really exist.

Basic concepts like ’mean traded volumes’, ’bid/ask’ or ’liquidity spread’ are either meaningless, not reconcilable across different instrument categories or the necessary information is just not available.

In order to help our clients address these new challenges related to liquidity risk, Deloitte’s quantitative experts conducted comprehensive empirical research to set the basis of our proprietary liquidity risk measurement approach.

Our methodology

Our proprietary model of liquidity risk measurement and monitoring approach has translated the regulatory expectations as set forth by UCITS IV framework into four dimensions:

Deloitte model of liquidity risk measurement and monitoring

How can we help?

We offer the outsourcing of liquidity risk reporting in order to comply with the new requirements under UCITS IV.

Going beyond the regulatory requirements, our implementation approach also aims at adding real value in your day-to-day risk management.

This will ensure an effective monitoring of liquidity risk and increase confidence in your liquidity management.

Steps for our assistance:

  • Definition of data requirements and interfacing
  • Processing of test portfolio
  • Processing of first reporting for all sub-funds
  • On-going reporting

Deliverables:

  • Aggregated PDF reports
  • Detailed Excel reports
  • Training sessions
  • Technical documentation

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