This Market Notice should be read alongside the Explanatory Note setting out the Bank of England’s (the Bank) overall approach to managing the operational implications of the Asset Purchase Facility (APF) unwind. It supersedes the provisional Market Notice on 4 August 2022. The Bank will announce the date of the first STR operation in due course.
The Bank reserves the right to adjust operational parameters of the STR or any other aspect of the facility at its sole discretion.
Motivation for the tool
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 STR. This will commence at the same time as any gilt sales under the APF begin. The STR will sit alongside the Indexed Long-Term Repo (ILTR) as an OMO under the Bank’s Sterling Monetary Framework (SMF).
The STR will supply reserves priced at Bank Rate for a 7-day term, against Level A collateral.
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 will 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. The PRA published a statement setting out its approach to the STR on 4 August 2022.
The STR will be priced at (and indexed to) Bank Rate.
The STR will be a 7-day term repo operation.
The amount of reserves supplied in each STR operation will be unlimited.
Bids will be allocated in full in all operations.
The STR will be launched alongside any commencement of APF gilt sales, as decided by the Monetary Policy Committee (MPC).
Frequency and timing of operations
The Bank will conduct STR operations on a weekly basis, using the Bank’s electronic tendering system, Btender. The operations will be conducted on a Thursday.
Operations will commence at 10:00am except on days when a MPC announcement is scheduled, in which case the operation will commence at 12:30pm.
The operation will remain live for 30 minutes.
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. An operational schedule will be published on the Information for participants page in advance of the first operation.
Bids should be submitted using Btender during the 30 minute window of the operation. Participants should submit one bid, as a nominal amount. The minimum bid amount is currently set at £5 million and the minimum bid increment is currently set at £1 million.
If Btender is unavailable for any reason, the Bank may postpone or cancel the operation. In this eventuality, an announcement would be made on the Bank’s wire services page. Further information is included in the SMF Operating Procedures available on the Documentation page.
The Bank will hold a webinar on 8 September 2022 to demonstrate to existing OMO participants how the STR will operate within Btender. More details will be relayed directly to OMO participants in due course.
The Bank will normally announce the result of each operation on the Bank’s wire services page at 10.40am on the day of the operation, or 1.10pm if the operation falls on the day of an MPC announcement, or as soon as possible thereafter. The results will detail the amount allocated in the operation in aggregate.
Each Participant will be able to see the aggregate amount allocated to the market as a whole in Btender, along with confirmation of that Participant’s individual allocation (the latter is only visible to the Participant). Aggregate allocations will also be published on the Results and usage data page and the Bank’s Database
Operations will settle on a T+0 basis.
We encourage regular Participants in the STR to net payments. The SMF Operating Procedures outline how netting works and how Participants can request to net payments if participating in the STR. Participants should ensure the data collection form is completed and sent to the Bank as soon as possible and at least three days prior to the first auction where they want to be able to net payments. The data collection form is available on the Settlement and collateral management page.
Only collateral classed by the Bank as Level A will be eligible for use in STR operations. Participants are strongly encouraged to pre-position sufficient collateral securities with the Bank ahead of operations to ensure ease of settlement. The Bank reserves the right to reject any collateral offered at any time. Further information is available on the Eligible Collateral page.
The STR will be accessible by firms that are both SMF participants and enrolled as OMO participants.
SMF participants that wish to participate in the STR but which are not currently enrolled as OMO participants should complete the Open Market Operations section of the SMF application form available on the Information for applicants page and submit it by email to Applications@bankofengland.co.uk.
Live test trades
The Bank will implement a routine test trade programme for all OMO participants to ensure ongoing operational readiness. This may require Participants to submit STR or ILTR trades periodically in live operations, at the Bank’s request. Details will be communicated to relevant firms later in the year.
All STR operations will be subject to the SMF Terms and Conditions, SMF Operating Procedures, any applicable Market Notices and any other Documentation (as such term is defined in the SMF Terms and Conditions), each of which may be amended by the Bank from time to time.
The SMF Terms and Conditions and SMF Operating Procedures can be found on the Documentation page.
Other SMF facilities
The Bank will continue to offer liquidity insurance via its other facilities.
The accompanying Market Notice sets out an update to Level A collateral pricing in the ILTR