BoE plots multi-year gilt repo market reforms

The Bank of England has laid out early plans to structurally reform the gilt repo market, warning industry leaders that any eventual policy changes will take years to implement. Officials presented the initial framework to the UK Money Markets Code Sub-Committee on June 9, emphasizing that the core objective is to fortify market resilience by bolstering liquidity supply.

The central bank acknowledged a delicate balancing act: interventions designed to improve liquidity could inadvertently increase or decrease overall leverage across the financial system. Because of this risk, officials indicated that future rules will be highly tailored to the specific mechanics of the gilt repo market and the distinct roles of various participants, ranging from clearing houses to asset managers.

To achieve these structural improvements, the Bank is actively weighing several specific mechanisms. High on the agenda is incentivizing a greater shift toward central clearing. For trades that remain outside centrally cleared systems, regulators want to see stricter and more robust margining practices. The Bank is also examining cross-margining benefits and entirely new clearing models designed specifically to lower barriers to entry and compress trading costs for counterparties. The Bank stressed that no final policy decisions have been made and pledged ongoing dialogue with the market.

The June meeting also mapped out the future of the UK Money Market Code itself, which is scheduled for a refresh in 2027. The sub-committee, which includes representatives from major institutions such as Barclays, HSBC, Bank of America, LCH, and LGIM, determined that a complete overhaul is unwarranted. Instead, the 2027 update will narrowly target market shifts that have occurred since the last revision in 2024, ensuring the framework stays relevant without overburdening compliance teams.

Separately, the committee initiated a governance review to ensure the code remains practically effective. Members want to tighten the language in the terms of reference and clarify compliance expectations without sacrificing the code’s voluntary, principles-based foundation. To combat uneven awareness across the industry, the committee plans to push for the code’s integration into internal corporate training programs and expand outreach through trade associations and social media channels.