The Bank of England has published a new discussion paper examining ways to strengthen the resilience of the UK’s gilt repo market, working closely with the FCA and with input from HM Treasury and the UK DMO.
The gilt repo market plays a critical role in underpinning the smooth functioning of government bond markets, which are themselves central to financial stability, investment, and economic growth. The Bank said the paper builds on insights from its System-wide Exploratory Scenario (SWES), which highlighted the need to ensure sufficient capacity in repo markets to maintain stability during periods of stress.
The consultation sets out two main options for reform. The first is expanding the use of central clearing for gilt repo transactions, which could improve dealer balance sheet efficiency, lower counterparty credit risk, and reduce risks linked to the disorderly unwinding of leveraged positions. The second involves setting minimum haircuts or margins for non-centrally cleared gilt repo, aimed at reducing risks from the most highly leveraged exposures.
The Bank noted that other jurisdictions have already taken similar steps. In the US, the Securities and Exchange Commission (SEC) has mandated central clearing for most repo and cash Treasury transactions by mid-2027, a measure designed to mitigate systemic risks and support orderly market functioning. Globally, the Financial Stability Board (FSB) is co-ordinating a broader programme of work to tackle vulnerabilities across core financial markets.
Alongside the two central proposals, the paper also discusses alternative or complementary measures. These include stronger public and private counterparty disclosures, which could further support transparency and resilience. The Bank is inviting feedback from market participants, industry groups, and the public on the potential benefits and costs of each option.
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 will use responses to refine its approach to gilt repo market reform and further strengthen the resilience of the UK financial system.
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