TITLE: Bank of England Publishes Feedback Statement on Gilt Repo Market Resilience Reforms
BODY:
On 1 April 2026, the Bank of England published a feedback statement summarising responses to its September 2025 discussion paper on enhancing the resilience of the gilt repo market. The statement outlines how the Bank intends to progress potential reforms in collaboration with the Financial Conduct Authority (FCA), with input from HM Treasury and the UK Debt Management Office (DMO).
The Bank received 40 written responses from a broad cross-section of market participants, including asset managers, insurers, pension funds, banks, dealers, and trade bodies. Respondents broadly supported the Bank's objective of enhancing gilt repo market resilience and acknowledged that market dynamics can generate liquidity imbalances during stress. However, they raised concerns about the proportionality and potential negative spillovers of proposed market-wide measures, particularly mandatory central clearing and non-risk-sensitive minimum haircuts on non-centrally cleared transactions.
On central clearing, respondents recognised potential financial stability benefits including improved counterparty risk management and operational efficiencies. However, they highlighted existing access barriers, operational constraints, and cost considerations making clearing unfeasible for most participants. Respondents opposed a clearing mandate, instead favouring voluntary adoption incentivised through innovations such as cross-product margining, expanded collateral pools, and new access models. Concerns were raised about procyclical margin effects and concentration risk from relying on a single central counterparty.
Regarding minimum haircuts, most respondents opposed non-risk-sensitive requirements, warning these would increase funding costs and divert activity to alternative markets. A small minority saw merit in risk-sensitive haircuts if appropriately calibrated. Respondents also proposed alternative measures including innovations to the Bank's liquidity backstops, measures to reduce margin procyclicality, and targeted adjustments to capital requirements for gilt repo dealers.
The Bank will continue engaging with market participants throughout 2026 and intends to publish a comprehensive update including potential policy proposals in early 2027. The Bank will provide adequate notice and implementation timelines for any proposed changes.