With wider central-clearing on the regulatory agenda, the Bank of England recently published a staff working paper on ‘The Potential Impact of Broader Central Clearing on Dealer Balance Sheet Capacity: a Case Study of UK Gilt and Gilt Repo Markets’.
The paper examines whether the balance sheet constraints on dealers could be relieved by comprehensive central-clearing and the standardisation of repo maturities (to one day a week). The BoE paper follows proposed rule changes by the Securities & Exchange Commission last year to mandate the clearing of US Treasury securities and repo and a recommendation from the Financial Stability Board for national competent authorities to look at increasing central-clearing in government bond cash and repo markets to enhance market resilience.
LRH’s co-founder Richard Comotto has written a report on the Bank of England paper providing a summary and commentary on the key points.
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