LiquidityMetrics
SETTING THE STANDARD FOR LIQUIDITY ANALYTICS
LiquidityMetrics is a multi-asset class liquidity risk measurement framework thatextends market impact models from trading floors to risk departments.

LiquidityMetrics is currently delivered through MSCI RiskManager and enables users to benefit from a single liquidity
platform and methodology to:• Support liquidity risk management and regulatory risk reporting requirements• Perform portfolio liquidity capacity-checks and assess the underlying time horizon required for liquidation• Stress test the liquidity of the portfolio under alternative trading scenarios and market impact conditions

Benefits and features• Standard language for market liquidity that can be• Intuitive asset, position and portfolio level analytics forapplied throughout an organisation to support investment

multi-asset class, multi-currency strategies.

management, risk control and risk management functions.

• Monetary based measures that provide economic effects• Supports regulatory risk reporting requirements for ESMAand actionable information in addition to enhanced liquidity

AIFMD, UCITS including liquidity stress test requirements,scoring grades.

SEC 22e-4 and Form PF directives while improving the quality• Interactive access through the RiskMetrics RiskManager riskof the liquidity risk management processes.

platform to define analysis settings, run reports on demand,• Global multi-asset class coverage supported by IHS Markitand view results.

quote and trade data for Fixed Income, Virtu’s Cost Curves for• Automated workflow with industrial scale throughput forEquities and data-driven calibrations for Derivatives.

batch processing.

• Complete methodology that jointly models the multiple
facets of liquidity risk – time, cost, size – and is universallyconsistent across asset classes.

Portfolio Liquidity Proﬁle

COMPANY: ${portfolioAttribute(Company)}
PORTFOLIO: Strategy 1

CURRENCY: EUR
ANALYSIS DATE: October 24, 2016
Portfolio As-Of Date: October 24, 2016

Liquidity Scores

Asset Type by Market Value

Market Value by Liquidity Score

Market Value by Liquidity Score

Liquid: 10.97%

Cash: 27.7%

Less Liquid: 0%
Illiquid: 0%

Bond: 4.1%

Long

Pct of Total Gross Market Value

Highly Liquid: 86.58%

Equity: 66.5%

Unscored: 2.46%

Other: 1.6%

ShortGross100%
80%
60%
40%
20%
0%

Highly Liquid

LiquidLess Liquid

Illiquid

Unscored

Liquidit y Score by Asset Class (% M ar k et Value)
Total Portfolio
Asset Type # Assets

Highly Liquid%# Assets

59

Amount%# Assets%# Assets%# Assets%# Assets

110,703,155 86.58

414,021,420 10.97

00 0.00

00 0.00

3

3,142,272 2.46

15,267,852

4.12

00 0.00

1

5,267,852 4.12

00 0.00

00 0.00

00 0.00

35,481,130 27.75

1835,481,130 27.75

00 0.00

00 0.00

00 0.00

00 0.00

Equity4685,065,074 66.53

41

75,222,025 58.83

38,753,569 6.85

00 0.00

00 0.00

21,089,480 0.85

Other

12,052,792

00 0.00

00 0.00

00 0.00

00 0.00

12,052,792 1.61

Total Portfolio Liquidation

AmountAmount%Transaction Cost By Liquidation Horizon
Liquidation Horizon

100%

1 day
Trading Scenario

80%
60%
40%
20%
0%

0 DaysAmountUnscored18

1.61

AmountIlliquid

Cash66

AmountLess Liquid

BondTotal

127,866,847 100.00

Liquid

1 Day

3 Days

7 Days15 Days

30 Days365+

3 days

5 days10 days

30 daysSize (%)

Costs (bps)Size (%)

Costs (bps)Size (%)

Costs (bps)Size (%)

Costs (bps)Size (%)

Costs (bps)

1%

0.98

0.24

0.98

0.23

0.98

0.23

0.98

0.22

0.98

0.21

5%

4.88

0.33

4.88

0.29

4.88

0.27

4.88

0.25

4.88

0.23

10%

9.75

0.41

9.75

0.34

9.75

0.31

9.75

0.27

9.75

0.24

25%

24.39

0.58

24.39

0.44

24.39

0.39

24.39

0.33

24.39

0.26

50%

48.20

0.78

48.77

0.58

48.77

0.49

48.77

0.39

48.77

0.29

100%

94.92

1.08

95.91

0.77

96.910.64

97.54

0.49

97.54

0.33

Notes
Highly Liquid: <3 days to liquidate; Liquid: 4-5 days to liquidate; Less Liquid: 6-10 to liquidate; Illiquid: >10 days to liquidate. Assumes 100% liquidation with a 250bp Transaction Cost limit.
While this Report was prepared using sources, models, information and data believed to be reliable, the information contained herein, including, without limitation, any results or data provided to you by MSCI, Inc. (“RMG”), are provided to you AS IS. All expressed or implied representations or warranties of any kind withrespect to the Report or the information contained herein, including, without limitation, warranties as to accuracy, completeness, timeliness, suitability, merchantability or use for a particular purpose are hereby disclaimed. Neither MSCI nor MSCI’s software or data providers shall be responsible or liable for results obtained
from use of the Report, or any information or analyses contained therein, or any losses, (whether direct, indirect, in contract, tort or otherwise) arising from any decision made or action taken by any party in reliance upon the Report, or for any delays, inaccuracies, errors in, or omissions of the Report.

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LiquidityMetrics | msci.com

Analytics - from asset to portfolio level• Liquidation horizon – the time to liquidation of a portfolio
given a transaction cost threshold.
• Liquidation amount – the maximum size that can be liquidated
given transaction cost and liquidation horizon constraints.

• Market depth – the maximum (buy and sell) size thresholds
above which trades are expected to meet either no sufficient
supply/demand or otherwise distressed, unpredictable prices.
• Bid-ask spread – half bid/ask spread is the expected transaction
cost for small orders traded on whatever time horizon.

• Liquidation value – the proceeds expected to be realized
from an order.
• Transaction cost – expected difference between realized
price of an order and the prevailing price.
• Liquidity bucketing – ready-to-use regulatory (SEC Liquidity
Rule 22e-4 and AIFMD) and custom scoring rules.
• Regulatory bucket threshold - the maximum position size fora security and a given liquidity bucket (e.g. ‘Highly Liquid’).

Methodology - liquidity surface
LiquidityMetrics methodology is based on constructing assetspecific liquidity surfaces to capture the time, cost, and size
dimensions of market trades. Through the use of liquidity
surfaces a complete description of asset liquidity is possible.
Anatomy of a liquidity surface
Four main features of an asset’s liquidity can be directly

LiquidityMetrics in practiceLiquidityMetrics provides one liquidity analytics standard
throughout the organization.
Investment management• Stress testing via alternative liquidation scenarios

observed from its liquidity surface.

• Pre-trade, expected transaction cost analysis• Market impact – the dependence of price impact on order• Liquidity based investment decisions

size; larger orders usually demand larger transaction costs.
• Market elasticity – the speed, and to what extent, a market
regenerates the liquidity removed by a trade and reverts backto its previous state. This determines how much transaction
costs decrease with longer time horizons.

Risk management and control• Firm-wide liquidity risk measurement• Quantification of hidden costs in liquidation/redemption
commitments• Supports regulatory risk reporting (ESMA AIFMD, UCITS including
liquidity stress test requirements, SEC 22e-4 and Form PF)

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