In interviews for our 2024 survey of asset managers, several firms that already accept equities told us that they were moving down the curve to be able to accept a wider variety of securities, both domestically and internationally, with some at the low end of liquidity in major indices. While Basel rules already show that delivering equities as collateral is better for dealers than cash or government bonds, why should one equity be more attractive than another? The answer is tied to what’s on the dealer’s balance sheet already.
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