Re: "they set aside the uninvested cash and earn interest on it."
Actually, while I think of it -- even if STMM rates go negative, it doesn't change anything (unless another riskless option appears which has positive returns). Cost-of-carry is just factored into your price decision point -- whether it's positive or negative is irrelevant conceptually; it just affects at what point a trade becomes profitable/attractive. It's all relativities.
Example: CB arb. One leg of that is being short the stock. You can only do that by borrowing stock you don't own. You pay "rent" for that borrowed stock for the duration of the trade. Your carry is negative: you are not "earning money" on it, you are "losing money" on it: it is in effect a negative interest rate. And that cost and the expected duration is just routinely factored into assessing the existing discount on the bond, factored into calculating the point at which the trade becomes profitable.
The key point is, by not "taking advantage" of leverage you don't need (or can not justify or can not use legally or can not use due to client mandate), you are making a Risk Control decision, not a Revenue decision. Parking the unused cash has ~0 risk.
Another consideration: traders are not in the business of making money by parking it in bank accounts; if that's all they were going to do, why would you need them? Another consideration: from a wholesale point of view, behind the scenes, those bank accounts (pooled) are actually just another (interest rate) flow trader's account.
Biting the hand that feeds IT
