Time: 14:00 – 15:30 7 September 2021 | Location: Société Générale & Teleconference
Item 1: Welcome
The Chair thanked members for their time, and thanked Societe Generale for hosting the meeting. It was noted that this was the first meeting of the Committee where members could attend in person since before the pandemic, and the first hybrid meeting of the MMC. Subject to feedback on the first session the Committee would likely meet in a hybrid way routinely in future.
The Chair also welcomed additional colleagues that had accompanied members to the Committee; an initiative that had been previously implemented on the MMC’s subcommittees in order to enable a more diverse mix of colleagues to sit in on meetings. It was noted that the Bank intended to enable around five members to invite colleagues to future MMC meetings on a rotational basis.
It was noted that since the last meeting Mick Chadwick had stepped down from the MMC, SLC and UK Money Markets Code Sub-Committee. Members and the Chair placed on record their sincere thanks to Mick for his many contributions to the committee and its work.
Finally, members raised no contentions with the minutes of the previous meeting which had been published on the Bank’s website.
Item 2: Discussion on market conditions
A short update on developments in Bank of England monetary policy since the last meeting was presented.
At its August meeting the MPC had provided an update on its strategy for monetary policy and the instruments it could use to deliver looser or tighter policy. It had been stated that Bank Rate was likely to be the preferred tool initially, and that the Bank had completed preparatory work so that a negative Bank Rate (including tiering) was now available if required.
It was further highlighted that the MPC had also updated its guidance on when the stock of assets would be reduced. Similar to the previous guidance, the stock would be reduced in a gradual and predictable manner to ensure markets continue to function and to deliver the desired impact on monetary conditions. The MPC had judged that there were benefits to reducing the stock of purchased assets by initially ceasing to reinvest maturing assets; this was likely to start when Bank rate had risen to 0.5%. The MPC would then consider actively selling some assets only once Bank Rate has risen to at least 1%.
A broader global markets update was then presented by a member of the Committee. It was noted that Covid developments were still having a large influence on markets. The Delta variant had driven a further new wave of cases globally since the previous MMC meeting. While hospitalisations and deaths had been lower than previous peaks, there remained concerns over long-term vaccine efficacy as well as global vaccine coverage. While there had been positive signs of economic growth, the speed of the global recovery appeared to be slowing. In the UK latest developments in the labour market, viewed as important for the forward direction of policy, were covered though it was noted that the picture remained difficult to read precisely until furlough was fully unwound. Digesting broader macro developments, fixed income yield curves had fallen as markets had repriced to a more realistic growth projection perhaps reflecting that exiting the pandemic would not be as smooth as previously expected. In addition, markets had also repriced lower proxies of terminal rates. Long-term inflation expectations had also remained anchored. In risk assets, volatility had remained low, major global stock indices had moved higher and credit spreads had narrowed. Members of the Committee discussed recent developments relating to central banks globally where strategies for tightening policy had been a key theme. In that context it was noted that the Bank of England’s new guidance on QT left a degree of flexibility. Major central banks globally had continued to describe recent higher inflation as transitory: while markets had continued to accept that characterisation, there were increasing signs of pressures, for example shortages of haulage drivers which had recently been observed.
Turning to year-end, members of the Committee had a range of views over how challenging this was expected to be. It was commented that the buy side sector would plan extensively for year-end throughout the year, given the usual expected reduction in balance sheet capacity offered by banks. Some members commented that a reduction in balance sheet supply had already started to be observed ahead of September quarter-end.
Item 3: Briefing on latest update to the FX Global Code
A briefing on the latest update was provided. Key timelines of the review were presented: importantly it was noted that the updated FX Global Code had been published earlier in the summer. Proposals had been developed between June 2020 and March 2021, with iterative drafts reviewed and discussed at each meeting of the Global Foreign Exchange Committee. The changes encompassed a number of key areas of focus:
- Anonymous trading: amendments to encourage greater disclosure by those operating anonymous platforms, particularly in relation to the managing of tags.
- Algorithmic Trading and Transaction Cost Analysis: the Code had been amended to encourage greater disclosure, particularly in relation to conflicts of interest.
- Buy-side outreach: work to increase awareness in promoting the Code to buy-side participants, including publication of a report on the effective means of buy-side engagement. Members of the Committee noted that similar challenges for promoting the UK Money Markets Code among the buy-side had been observed.
- Disclosures and Transparency: changes culminating in Creation of Disclosure Cover Sheets for Liquidity Providers and Platforms, encouraging greater standardisation of disclosure documentation using the Global Index of Public Registers as a central repository for disclosure information.
- Execution Principles: amendments to clarify that Principals can take on varying degrees of market risk and publication of further guidance papers.
Item 4: Proposed extension of Term DBV Window
An update on the proposed extension to the Term DBV (TDBV) window was presented. Background on the TDBV product was provided, as well as rationale for the review that led to the proposed extension. It was highlighted that the aim of the TDBV enhancements was to help reduce Operational risk and reduce the need for intraday liquidity.
Item 5: MMC’s role in the updated Sector Response Framework
A short presentation was provided on the Sector Response Framework (SRF), and where the MMC sits within it. It was stated that the SRF was a framework comprising of organisations, guidelines capabilities which had been designed in order to enabled group to respond to significant operational issues concurrently (if impacts are sector wide) or on a modular basis (if impacts are function or sub sector specific). The SRF had been endorsed by the Cross Market Operational Resilience Group (CMORG) and was in the process of being rolled out to industry. It was noted that the SRF was designed to enhance strategic and tactical coordination across participants in response to operational issues. Members of the Committee were encouraged to read through the SRF document and provide feedback.
Item 6: Diversity and Inclusion (D&I)
A further update on the steps the Bank was taking to enhance D&I among its market intelligence contacts was provided. It was noted in particular that:
- The Bank was actively encouraging market intelligence contacts to introduce diverse colleagues to calls and meetings with the Bank. Following the success of the Meeting Varied People event in the spring, the Bank was working on Phase 2 of this initiative and further updates would follow.
- All members of the UK Code Sub-Committee and Securities Lending Committee had been invited to bring colleagues to recent meetings in order to increase the range of colleagues who could take part in discussions. This would now be introduced at the MMC where members would be invited to bring along colleagues on a rotational basis.
Item 7: Update on Risk Free Rates Transition
An update on RFR transition progress was provided. It was noted that sterling markets had been well positioned for the transition with liquidity across the SONIA product set continuing to deepen. There had been continued work to support the development of the SONIA product set and broader conventions. In USD markets, recent clarification on recommended term SOFR rates had provided welcome momentum. With regards to legacy LIBOR exposures, fall-back provisions for impacted products were being finalised; a synthetic LIBOR would only represent a temporary solution. It was further noted that in order to facilitate a smooth transition away from LIBOR, a number of risk-management exemptions existed for its continued use. Utilisation of these was being monitored and appropriate governance and oversight of continued LIBOR usage was expected. The Committee would further discuss LIBOR transition when appropriate.
Item 8: AOB
It was agreed that the Bank’s work on a future digital currency should be presented at an upcoming meeting.
The next meeting was on 13 December and would be held at the Bank.
Aberdeen Standard Investments
Association of Corporate Treasurers
Barclays Bank UK
Barclays Bank UK
Guildford Borough Council
J.P. Morgan Asset Management
J.P. Morgan Asset Management
Newcastle Building Society
Bank of England
Rhys Phillips (Chair)