When markets tighten, short-duration allocations face two interrelated challenges: maintaining promised liquidity and limiting execution costs. A clear operational ladder helps reconcile those goals. First, define explicit liquidity tiers tied to instrument settlement performance and counterparty limits. Second, prioritize execution by combining limit orders with time-weighted approaches for larger, non-urgent adjustments. Third, maintain a documented escalation playbook that specifies partial exits, temporary reclassification of assets, and client communications. These steps reduce discretionary ad-hoc decisions during stress and provide clients with predictable outcomes. The aim is not to eliminate risk, but to make its treatment repeatable and auditable.

A laddered approach

Constructing a ladder enables staggered liquidity across same-day, 1–7 day, and 8–30 day horizons. Same-day allocations emphasize collateralized instruments with robust settlement histories. The mid-tier can include high-quality commercial paper with explicit visibility into issuer payment cycles. The longer short-tier may employ selective corporate notes with limited duration exposure. Each rung must carry explicit exit triggers and a reallocation protocol so that, if one tier underperforms, others can absorb rebalancing flows without creating concentrated stress on a single counterparty or market segment.

Execution priorities and governance

Execution quality matters more when liquidity is scarce. KRAT benchmarks slippage at the trade level and examines realized settlement timings to refine counterparty selection. Governance triggers—such as percent of book moved in a single session or persistent reprice beyond threshold—initiate predefined actions: partial unwind, notification to clients, or temporary pause on new event-driven allocations. These rules reduce the need for improvised decisions and help preserve client trust during adverse conditions.

For implementation assistance or to discuss how these principles apply to your mandate, contact our research team or request a mandate review.