This Market Notice sets out operational arrangements that the Bank of England (the Bank) intends to apply to sales of index-linked and long-dated conventional UK government bonds (gilts) that were purchased between 28 September and 14 October 2022 on a temporary and targeted basis, in line with its financial stability objective (the financial stability gilt portfolio).
As set out in the News release published on 10 November 2022, and consistent with the objectives of the gilt market operations announced on 28 September 2022, the Bank intends to unwind this portfolio in a way that is timely but orderly.
As previously announced, gilts in the portfolio will be made available to interested buyers from 29 November 2022.
The Bank intends to operate a demand-led approach to sales. To deliver that, the Bank will run a series of reverse enquiry windows which will typically be open three times a week on Tuesdays, Wednesdays and Fridays. The Bank will set minimum levels for the prices it is willing to accept. This approach, set out in more detail below, means that there will be instances when the Bank could sell a larger volume of gilts if demand is particularly strong, but also times when the Bank will sell few or no gilts if there is insufficient demand.
Further details on pricing
The Bank will allow eligible counterparties to bid for the gilts held in the financial stability gilt portfolio via reverse enquiry windows. Both index-linked and long-dated conventional gilts will be available for sale in each window, unless otherwise specified as set out below.
The Bank intends to set minimum levels for the prices it is willing to accept, in support of its objective to unwind the portfolio in a timely but orderly manner. Acceptance of any bids to buy gilts will be at the Bank’s discretion, based on its assessment of the pattern and strength of demand. There will be two elements to the Bank’s approach to assessing demand:
- As a general principle, the Bank will accept bids that are deemed attractive relative to prevailing market levels. This means that the Bank will not allocate bids that are lower than prevailing market mid prices, as published by Tradeweb at the close of the specified window. Bids at or above the prevailing market mid price will be allocated competitively. This means that where, individually or collectively, participants bid for more than the available amount of a gilt, bids will be allocated based on the attractiveness of bids relative to market prices. To provide potential purchasers with clarity, the Bank does not expect to change the calibration of this pricing approach regularly.
- To ensure unwind does not trigger renewed dysfunction, the Bank will typically not sell individual gilts which have experienced a significant fall in price ahead of a window. Specifically, the Bank will not allocate bids for gilts in a window where the submitted price is significantly lower than the previous trading day’s close.
In addition, as it does in all of its operations, the Bank will routinely monitor price movements in individual gilts and sectors of the gilt curve ahead of the close of the reverse enquiry window, and reserves the right to exclude any gilt(s) from sale, at any time, at its sole discretion.
Taken together, the features of this approach to pricing mean that there will be instances when the Bank could sell a larger volume of gilts if demand is particularly strong, but also times when the Bank will sell few or no gilts if there is insufficient demand. This demand-led approach is intended to allow the Bank to meet demand where it exists, while limiting the impact of sales on market conditions.
The Bank will monitor the impact of the gilt sales on market conditions closely, and reserves the right to amend any aspects of its approach at its sole discretion.
Other operating parameters for gilt sales
Eligible gilts to be made available for sale
Other than as specified below, the Bank will make available for sale in each window all index-linked and long-dated conventional gilts that are held within the financial stability gilt portfolio in the Asset Purchase Facility (APF).
The Bank has liaised with the UK Debt Management Office (DMO) on the scheduling of these windows in order to ensure that the portfolio can be unwound in a timely but orderly fashion, while minimising interference with the DMO’s own issuance programme. Accordingly the Bank:
- Will not make available for sale long-dated conventional gilts held in its financial stability gilt portfolio on days when the DMO is auctioning long-dated conventional gilts. Likewise, the Bank will not make available for sale index-linked gilts on days when the DMO is auctioning index-linked gilts.
- Will not make available for sale gilts held in its financial stability gilt portfolio which the DMO has announced it will re-open, including via a gilt tender, during the period of one week (exactly 168 hours) before and after the re-opening. If the DMO announces a re-opening, including via a gilt tender, within that one week period, of a gilt that would otherwise be available for sale on a particular day, the Bank will remove the gilt from the list of gilts to be made available for sale under this sales programme at that time.
- Will adjust the gilts available for sale consistent with (i) above on days in which the DMO confirms it will undertake a gilt syndication, and reserves the right to cancel a reverse enquiry window on such days.
To ensure that both organisations remain able to fulfil their respective remits, Bank and DMO staff will maintain liaison.
The Bank intends to make available for sale gilts held in the financial stability gilt portfolio via multi-stock reverse enquiry windows. Given the Bank’s demand-led approach, there is no restriction on the amount of each individual gilt that could be sold in each window, subject only to bids being attractive relative to prevailing market levels and the remaining amount of each gilt held within the portfolio.
Sales will be undertaken at prices determined in a variable rate window on a discriminatory-price basis. Each window will be open to competitive bids only; non-competitive bids will not be invited.
The Bank will not restrict the maximum total value of gilts for sale to a single counterparty in each window. There will be no minimum or maximum allocation of a particular gilt. The Bank nevertheless reserves the right to introduce concentration limits to its operations at a future date, including at gilt, counterparty or end-client level.
From 29 November, the Bank typically expects to open a reverse enquiry window three times a week. Windows will normally open on Tuesdays, Wednesdays and Fridays at 3pm and close at 3:30pm.footnote  Windows will not be operated on days between 19 December 2022 and 6 January 2023 inclusive. In exceptional circumstances, the Bank may announce further changes to the schedule on its wire services pages at its sole discretion.
The Bank will confirm on its wire services pagesfootnote  each Friday at 4:30pm the details of the reverse enquiry windows to be held during the following week, including whether any of the gilts in the financial stability gilt portfolio will be ineligible for sale for any of the reasons outlined above. The details of each window will be re-confirmed by the Bank on its wire services pages at 9am on the morning of the window.
The Bank reserves the right to cancel and close any window at any time before the results are published, at its sole discretion. If a window is cancelled it may be re-scheduled to take place later the same day, or on a future date. Any re-scheduled window would be confirmed by the Bank on its wire service pages.
Reverse enquiry windows will operate via the Bank’s electronic tendering system, Btender. The Bank reserves the right to restrict the number and/or the timing of bids submitted by counterparties who do not have access to Btender.
Counterparties must input into Btender the nominal sterling amount in millions for each specific gilt they wish to buy and the clean price at which they wish to bid. The number of decimal places allowed for the price is currently three.
Bids are submitted by counterparties using a clean price. Bids received in Btender will be converted to a yield using the standard gilt market conversion calculation available on the DMO’s website, and the yield will be displayed to counterparties for information.
The minimum bid amount and increment are currently set at £5 million and £1 million respectively.
Bids will be allocated in ascending yield order, based on the attractiveness of bids for different stocks relative to market yields. Bids that are accepted at the highest yield may be scaled down on a pro rata basis and will be rounded down to the nearest allocation increment, currently set at £0.1 million.
Bids are accepted in full or in part at the counterparty’s bid price. The amount of each accepted bid in total proceeds will be payable to the Bank by the counterparty.
The Bank reserves the right to reject bids, in whole or in part, including in the light of other bids received, at its sole discretion.
Consistent with the approach taken for the index-linked and long-dated conventional gilt purchases announced in the 11 October 2022 and 3 October 2022 Market Notices respectively, and the APF Sales Operating Procedures, the Bank is asking Gilt-edged Market Makers (GEMMs) to identify bids made on behalf of themselves, non-GEMM dealer(s) in their group(s), or their clients via a set of unique identifiers. No distinction is made in the Bank’s allocation process between bids made on behalf of GEMMs, non-GEMM dealer(s) in their group(s) or their clients.
Further details on this process can be found at paragraphs 5.10-5.14 of the APF Sales Operating Procedures. The existing rules for gilt sales set out in the APF Sales Operating Procedures regarding non-registered clients and the on-going responsibility of GEMMs entering transactions will apply to the gilts sales process.
Treatment of small residual holdings
On occasion, allocations may result in the Bank’s remaining holdings of a specific gilt being smaller than the minimum bid amount for these windows (£5 million nominal). In this case the Bank may at its sole discretion approach allocated GEMM counterparties after the publication of results, to offer the residual holding at the same price offered by that counterparty for that specific gilt in the window. For this purpose, counterparties will be ranked in order of the highest submitted price for the gilt in question.
In the event an allocation is pro-rated across two or more counterparties, the Bank will initially approach the counterparty that received the largest allocation. The counterparty has the right to reject the Bank’s offer of the residual holding. The Bank would then approach the next allocated party, who also has the right to reject the Bank’s offer of the residual holding.
If, after following this process, there are any residual Bank holdings of less than £5 million (nominal), the Bank may at its discretion conduct bilateral sales inviting a subset of GEMMs to bid in competition for these small remaining holdings.
Sales of residual holdings will normally settle on a T+1 basis, in line with settlement of gilt sales within the Bank’s reverse enquiry windows.
The results of each window will be announced on the Bank’s wire services pages as soon as possible after its end. The Bank will publish for each gilt for which bids were received the amount sold in terms of the total sale proceeds; the total size of bids received; the weighted average accepted price; the highest accepted price; and the lowest accepted price.
The Bank will continue to publish each Thursday at 3pm the outstanding stock of gilt holdings in the financial stability gilt portfolio in terms of the initial proceeds paid, and the aggregate weekly value of gilt sales from the financial stability gilt portfolio.
Confirmation of the amount allocated to counterparties under this sales programme will be available in Btender. In contingency situations, as set out in the APF Sales Operating Procedures applicable to this sales programme, the Bank will send a written electronic confirmation of each transaction on the day of sales where Btender is unavailable.
Gilt sales will normally settle on a T+1 basis.
All counterparties must comply with the Settlement procedures applicable to APF gilt sales outlined in the APF Sales Operating Procedures.
Operational policy framework
Gilt sales from the financial stability gilt portfolio will be undertaken by the Bank of England Asset Purchase Facility Fund Limited (BEAPFF), which houses the APF and is a wholly-owned subsidiary of the Bank and the legal counterparty to market transactions. The Bank acts as agent for BEAPFF and BEAPFF is fully indemnified by HM Treasury.
All gilts sales, transactions and operations will be subject to the APF Terms and Conditions and APF Sales Operating Procedures each as amended below, any Market Notice and any other Documentation (as such term is defined in the APF Terms and Conditions), each as may be amended by the Bank from time to time. The APF Terms and Conditions and other Documentation are available on the Bank's website.
For the purposes of gilt sales from the financial stability gilt portfolio only, the APF Sales Operating Procedures will be amended such that sections 5.1 to 5.6 inclusive (including table 3) and sections 5.17 to 5.19 inclusive under the section entitled "Gilt Sales" do not apply and the relevant procedures set out in this Market Notice apply instead. References to "auction" or "auctions" where used throughout the APF Sales Operating Procedures will be taken to in include a reference to "reverse enquiry window" or "reverse enquiry windows", as applicable.
The APF Terms and Conditions will be amended so that:
- references to "an auction" in clause 4.1(i) and 15.3 are amended to "a Transaction"
- a new definition is added as follows: "GS Trade Details means the following details, provided by the Bank to the Counterparty in respect of any bond or gilt purchased or sold or proposed to be purchased or sold by the Bank from or to the Counterparty: the ISIN of such bond or gilt, quantity (in nominal and cash proceeds), spread, yield and clean price"; and
- the words "or GS Trade Details (as applicable)" are included after each use of the term "CBPS Trade Details" in clause 15.3.
Participation in gilt sales
Eligibility to participate as counterparties
Only firms that are participants in the APF are eligible to bid during the reverse enquiry windows i.e. firms that are GEMMs (as listed on the website of the DMO) and that are also signed up to the Bank’s gilt-purchase open market operations. Within a group, only one firm may apply to participate. All provisions applicable to the eligibility of counterparties participating in gilt sales under the APF Sales Operating Procedures will apply.
Those wishing to participate as new counterparties should complete the Application Form for gilt sales available on the Bank's website and submit it by email to email@example.com. Existing counterparties do not need to re-apply.
The Bank reserves the right to reject applications or to exclude counterparties after admission at its sole discretion at any time.
All times referred to in this Market Notice are in GMT, or BST where applicable.
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