Provisional Market Notice
This provisional Market Notice should be read alongside the Explanatory Note setting out the Bank of England’s overall approach to managing the operational implications of APF unwind.
A further Market Notice – containing full operational details of the Short Term Repo facility – will be published on or around 1 September alongside supporting and legal documentation. The launch of the facility will then be confirmed if and when the MPC votes to commence APF gilt sales.
Motivation for the facility
To ensure that short-term market interest rates remain close to Bank Rate as the level of sterling central bank reserves reduces, the Bank will launch a new short-term open market operation (OMO), the Short Term Repo (STR). This will commence at the same time as any APF gilt sales begin. The STR will sit alongside the Indexed Long Term Repo (ILTR) as an OMO under the Bank’s Sterling Monetary Framework (SMF).
The Bank intends that the STR should be used freely from the point of introduction, as a way for counterparties to access reserves as necessary. The PRA would judge use of the STR as routine participation in sterling money markets and intends that it should be seen as such by bank boards and overseas regulators.
Launch date and frequency of operations
The STR will be launched alongside the commencement of any APF gilt sales programme. Details of any APF gilt sales programme will be communicated separately.
The Bank will conduct STR operations on a weekly basis, using the Bank’s electronic tendering system, Btender. STR operations will be held on Thursdays at 10:00am, except on MPC announcement days where the operation will be held at 12:30pm.
Subsequent to launch, and in line with the Bank’s usual approach, each STR operation will be confirmed via an announcement on the Bank’s wire services around one week in advance.
The STR will be priced at Bank Rate +0 bps and the rate will be indexed to Bank Rate.
The STR will be a 7-day term-repo operation.
The amount of reserves supplied in any STR operation will be unlimited.
Only collateral classed by the Bank as Level A will be eligible for use in STR operations. Participants are encouraged to deliver collateral securities to the Bank ahead of operations. Further information is available on the Eligible Collateral page.
The STR will be accessible by firms that are both SMF members and enrolled as OMO participants.
SMF members that wish to participate in the STR but which are not currently enrolled as OMO participants should complete the SMF application form available on the Information for applicants page and submit it by email to Applications@bankofengland.co.uk.
The Bank will implement a routine test trade program for all OMO participants to ensure ongoing operational readiness. This will require participants to submit STR and ILTR trades periodically at the Bank’s request. Details will be communicated to relevant firms later in the year.
Other SMF facilities
The Bank will continue to offer liquidity insurance via its other facilities.
Because the STR will provide access to reserves against Level A collateral, at Bank Rate and in unlimited quantities for a 7-day tenor, the Bank intends to adjust the minimum spread for bids against Level A collateral for a 6-month tenor in the ILTR after STR operations commence. Further details will be published in due course.