Bank Of England: Minutes Of Money Market Committee Meeting – September 2023

Minutes

Item 1 – Welcome

The Chair thanked members for attending and confirmed that the Minutes of the June 2023 meeting had been published on the Bank’s website.^footnote[1]

The Chair welcomed new members and those who were attending as part of the Bank’s Meeting Varied People (MVP) initiative.

Item 2 – Discussion on market conditions

A high level update on market developments was presented by a member of the Committee which covered recent moves in the UK curve; repo market conditions; and money market fund flows.

The Committee discussed the September MPC decision and the importance of different indicators of inflation persistence.

There was also some discussion around future LDI demand for long-end gilts. Some members stated that, given the higher interest rate environment has increased Defined Benefit pension funding ratios, they believed LDI demand would remain materially lower than historical norms. Other members stated that they expect LDI buying would pick up in the near-term due to the need for duration hedging.

Members widely noted that market functioning had been orderly in recent months and discussed possible tail risks to this functioning going forward, including risks to repo market functioning around year-end and the implications of global central bank balance sheet unwinds.

Item 3 – The potential impact of T+1 settlement

A Committee member presented on the possible impacts to securities lending and repo markets of a move from T+2 settlement to T+1 settlement in the UK (which is currently being explored by the Accelerated Settlement Taskforce at HM Treasury). The presentation covered a variety of implications of such a move, including impacts on trading efficiency and inventory management.

The Committee discussed the possible upsides and costs of such a change. Members agreed the impact would be uncertain and that it would pose additional challenges for existing settlement infrastructure. Some members noted that changes needed to be considered in the context of securities funding and settlement cycles. There was also a discussion on the interactions with other settlement jurisdictions, including the impact of trading T+1 across different time zones. Other members stated they thought it would be preferential to improve existing T+2 settlement practices before moving to T+1, for example, by reducing the number of settlement fails.

In general, Committee members welcomed a reasonable time-frame for any implementation, noting that this would allow the UK to learn from other markets that implement T+1 prior to domestic implementation and give time for sufficient analysis on the issues.

Item 4 – Update on the RTGS Operating Hours Review

The Bank’s RTGS Future Roadmap Team gave an update on the RTGS operating hours review thus far. It was reported that from its initial research there is industry interest to extend hours, mainly earlier in the morning to increase overlap with the EU/APAC countries and also some interest in exploring longer extensions in the evenings for contingency scenarios.

Committee members discussed the possible use cases of an extension to operating hours, such as, a benefit of lower liquidity risk and improvement in intraday liquidity, for example, through the implementation of liquidity bridges between central banks. Others raised possible risks around the extension including potential negative impacts on staff well-being through increased working hours and some overlap with omnibus accounts.

A Discussion Paper will be published in early 2024, setting out that the Bank is reviewing operating hours and summarising the analysis so far. The Bank encouraged all organisations to input into this and are happy to hold bilaterals to discuss the topic further.

Item 5 – Securities Lending Committee update

The Chair of the Securities Lending Committee (SLC) provided an update on its recent work. They informed the Committee that SLC had discussed market conditions; impacts of Basel IV for IRB banks; and D&I (in particular, the number and drivers of women leaving senior roles) at their last meeting.

They also informed the Committee that the Working Group on Fails was meeting regularly with positive multi stakeholder engagement. The Working Group would be producing outputs via possible changes in the language to the UK Money Markets Code and a planned white paper that would outline best practices as well as the structural problems affecting settlement.

Item 6 - Any other business

The Committee discussed potential changes to the UK short selling regime work following HM Treasury’s consultation paper on its Short Selling Regulation Review.

The Chair thanked members for their time, and welcomed any suggestions for future agenda items to be sent to the Secretariat in due course.

Committee attendees

James Winterton – Association of Corporate Treasurers

Emma Cooper – BlackRock

Anna Chiparo – BlackRock (presenter)

Paul Hauff – BlackRock (presenter)

David Morris – BlackRock (presenter)

Ina Budh-Raja – BNY Mellon

Niamh Staunton – BP

Romain Dumas – Credit Suisse

Marije Verhelst – Euroclear

Inna Shaykevich – Goldman Sachs

James Murphy – HSBC

Chris Brown – Insight Investment

Olivia Maguire – J.P. Morgan Asset Management

John Wherton - Legal & General Investment Management

Nina Moylett – M&G

Oliver Butcher – NatWest

Avi Tillu – PIMCO

Louis Stewart – PIMCO (MPV invitee)

Chirag Patel - Rabobank

Alan Williams – Santander UK

Romain Sinclair – Société Générale

Matthew Heaton – Tradition (alternate)

Jessica Pulay – DMO (Observer)

Alan Barnes – FCA (Observer)

Bank of England

Andrea Rosen (Chair)

Simon Dolan

Tom Archer

Grace Greer

Paige Benattar (presenter)

Hakim Jaafar (presenter)

Regis Bouther (presenter)

Apologies

Gordon Lowson - Abrdn

Victoria Worsfold – Guildford Borough Council

Ben Challice – J.P. Morgan

Tony Baldwin – LCH

Scott Creed – Lloyds Bank

Nic Erevik – Newcastle Building Society

John Argent - Tradition