Date of meeting: 15 November 2022
Location: Virtual meeting
Minutes
Introduction
Bank staff provided Gilt-edged Market Makers (GEMMs) a summary of the information published on 10 November 2022, which set out how the Bank intends to unwind the portfolio of index-linked and long-dated conventional gilts purchased between 28 September and 14 October 2022 in a way that is timely but orderly.
The purchases were explicitly intended to be targeted and temporary, and the Bank’s plans to exit the positions would reflect those objectives. To deliver a timely exit, the Bank would make gilts in the portfolio available to interested buyers from 29 November 2022. To ensure an orderly unwind that does not trigger renewed market dysfunction, the Bank’s sales will not commence at a fixed pace, but will be designed in a demand-led way that is responsive to prevailing market conditions.
A Market Notice would be published in the week commencing 21 November 2022 to set out operational details of the Bank’s planned approach.
Attendees were reminded of their responsibilities under competition law in relation to this discussion and were invited to provide any feedback and ask questions.
Questions/feedback from attendees
The main themes raised by participants were as follows:
1. Transparency on minimum/maximum auction size and the Bank’s pricing approach could help reduce market volatility around Bank operations and help GEMMs and clients in organizing their participation. How much detail would the Bank provide in these areas?
2. As a way to balance the supply of duration into the market, would the Bank consider segregation of sales operations either by conventional vs index-linked gilts and/or by maturity?
3. Would the Bank consider running windows every day (or even running an open-ended window); and/or would it seek to avoid days with major events such as MPC announcements?
4. Since a notable portion of client demand in gilt markets typically comes nearer market close, would the Bank consider either aligning window timings such that there was a short period of time between operations and market close; or pricing sales using close of business levels?
5. Operationally, would the Bank’s sales process for this portfolio be similar to that used for the purchase leg, for instance using the Btender system? If so, could the time taken between the close of the window and the publication of results be reduced?
Bank staff agreed to consider the above feedback and questions when designing these operations, in line with the Bank’s intention to unwind the portfolio in a timely but orderly way.
Staff reiterated that the operations would be designed in a demand-led way that was responsive to prevailing market conditions. Market feedback would be extremely valuable in achieving that objective.
The Bank noted there would be operational constraints to consider, for instance around how and when a reverse enquiry window could operate.
In response to specific questions, Bank staff confirmed that:
- The mechanism for GEMMs to submit bids into the reverse window facility would be the Bank’s Btender system, with work underway to streamline the process of publishing results.
- Bids would be differentiated only on price grounds, and no distinction is made between client and GEMM bids in the Bank’s allocation process.
Further details would be published in a Market Notice during the week commencing 21 November.
Attendees
Banco Santander
Barclays
BNP Paribas
Citigroup Global Markets
Deutsche Bank
Goldman Sachs
HSBC Bank PLC
JP Morgan
Lloyds Bank Corporate Markets plc
Merrill Lynch
Morgan Stanley & Co International plc
NatWest Markets
Nomura
Royal Bank of Canada
UBS
Bank of England