Evolution of the liquidity exchange

The liquidity swaps market in the UK has stalled since the FSA’s consultation on the governance of these transactions. But some see the recent handful of small deals as being a precursor to a surge in demand. Thomas Whittaker reports

When the Financial Services Authority (FSA) issued its final guidance on liquidity swaps earlier this year, its permissive stance was expected to reignite the market for these transactions after it ground to a halt during the regulator’s consultation. But since the guidance was issued in February, market participants report that the volume and scale of such deals – in which insurers exchange liquid assets, such as gilts, with banks’ illiquid assets, such as asset-backed securities (ABSs) – has