The Bank of England has launched a new discussion paper outlining possible reforms to bolster the resilience of the UK’s gilt repo market.
Developed with input from the Financial Conduct Authority (FCA), HM Treasury and the UK Debt Management Office (DMO), the paper sets out measures that aim to safeguard financial stability and the smooth functioning of government bond markets.
Government bond markets are a cornerstone of financial stability, supporting vital services, investment, and sustainable economic growth. The gilt repo market plays a central role in ensuring these markets operate efficiently. Recent stress scenarios highlighted through the Bank’s System-wide Exploratory Scenario (SWES) exercise underscored the importance of ensuring sufficient repo market capacity to prevent shocks from spreading through the financial system.
Other jurisdictions are already moving forward with reforms. In the United States, the Securities and Exchange Commission (SEC) has mandated central clearing for most repo and US Treasury cash transactions by mid-2027. This measure is designed to mitigate systemic risks linked to non-centrally cleared trades and to ensure orderly market functioning. Internationally, the Financial Stability Board (FSB) continues to co-ordinate work on strengthening the resilience of core financial markets.
The Bank’s paper focuses on two primary options. One proposal is greater central clearing of gilt repo transactions, which could reduce counterparty credit risk, enhance dealer balance sheet efficiency, and mitigate risks arising from the disorderly unwinding of concentrated leveraged positions. The second option is the introduction of minimum haircuts or margins for non-centrally cleared gilt repo transactions, a step that could reduce risks associated with highly leveraged positions.
The paper also considers alternative or complementary measures, such as increasing transparency through enhanced public and private disclosures of counterparties. The Bank is seeking feedback on both the design and the potential costs of these options.
Bank of England deputy governor for financial stability Sarah Breeden said, “It’s essential that market-based finance and core sterling rates markets absorb rather than amplify shocks to ensure the financial system continues to provide vital services to the real economy even during periods of stress. We’ve already taken meaningful steps towards addressing vulnerabilities in the gilt repo market, but it is important that we continue to explore reforms. This DP will allow us to progress our thinking on several key potential options.
“We welcome views and feedback from gilt repo market participants, the wider industry, and the public on how these options might deliver benefits for the gilt repo market and the wider financial system.”
The Bank has opened its consultation to industry stakeholders and the public, inviting input that will shape the future resilience of the gilt repo market.
For more, find on RegTech Analyst.
Keep up with all the latest FinTech news here
Copyright © 2025 FinTech Global
The post Bank of England seeks feedback on gilt repo reforms appeared first on FinTech Global.