By Christopher P Mann of the Bank’s Market Services Division and Controller of the CGO Project.
In August 1995, the Bank issued a consultative paper on the need for an upgrade of the Central Gilts Office (CGO)
system and the options for achieving it. There were a number of reasons for upgrading the system:
● the current software, though efficient, cost-effective and providing fault-free performance, could no longer easily be adapted for the new developments in prospect;
● Euroclear and Cedel, the international Central Securities Depositories, were preparing to become members of CGO. More sophisticated links between these systems and CGO could only be developed from an upgraded platform;
● trading in gilt repo was planned to start in January 1996. Work during 1995 by the Gilt Repo Settlement Working Party had revealed the need for facilities specifically for repo settlement, which the existing CGO would find it difficult to provide;
● a market in gilt strips, and the ability to strip and reconstitute gilts as an essential ingredient of such a market, could not be handled by the existing system;
● the existing system could not easily be upgraded to defend against increasingly sophisticated security attacks;
● the values settled each day in CGO, and the exposures incurred by settlement banks in the system to the CGO members on whose behalf they made payments, had grown considerably and were expected to grow further with the start of gilt repo. The need to be able to measure and control such exposures had grown commensurately; and
● similarly, the exposures settlement banks incurred to each other had grown with the system. The elimination of such risks via a link between CGO and the planned real-time gross settlement (RTGS) system(4) could only proceed on the basis of upgraded CGO software.