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Issuer Transparency The UK experience. Robert Stheeman Tim Simmonds. Outline. What do we mean by Issuer Transparency? Current framework Key changes Current framework: Further detail Benefits Costs? Conclusion. Issuer transparency. Clarity about decision making process

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issuer transparency the uk experience

Issuer Transparency The UK experience

Robert Stheeman

Tim Simmonds

  • What do we mean by Issuer Transparency?
  • Current framework
  • Key changes
  • Current framework: Further detail
  • Benefits
  • Costs?
  • Conclusion
issuer transparency
Issuer transparency
  • Clarity about decision making process
    • Published debt management objective?
    • Communication
  • Issuance plans & methods
    • Schedule?
    • Choice of stock
    • Size of issue
current framework
Current framework
  • Introduced following 1995 Debt Management Review
  • Key changes
    • Clarified objective for debt management
    • Expanded annual remit
    • Role of taps reduced
    • Greater emphasis on consultation with market participants
key changes details
Key changes - details
  • Clarified objective for debt management
    • Primary objective to minimise cost over long-run taking account of risk
    • Removed reference to monetary policy
  • Expanded annual remit
    • Annual remit first published in 1995
    • Outlines broad amounts to be issued at each maturity (previously no indication)
    • Identifies annual auction calendar and size range for auctions
key changes cont
Key Changes (cont)
  • No longer using taps for financing
    • Taps announced day before (3:30pm)
    • Opportunistic financing (issued into a rising market)
    • Continuing role in market management
  • Greater consultation
    • Formalised procedures for consultation with market participants (on a quarterly basis)
    • Also annual meetings with minister
    • Minutes of meetings published
current framework further detail
Current framework: Further detail
  • Auction announcements
    • Quarterly announcement identifies specific stocks to be auctioned in coming quarter
    • Auction announcement (8 days in advance)
      • Size set
      • Coupon set if new stock
    • Auction results within 40 minutes
      • Including details of any stock retained by DMO
  • Consultation and responses on changes to debt mgmt operations or instruments
current framework cont
Current framework (cont)
  • Special / standing repo operations published immediately
  • Other information published
    • GEMMA prices / yields
    • DMO holdings of gilts (monthly)
    • Future financing projections (updated with budget)
    • Quarterly review
    • Annual review
    • Operational Notices
  • Difficult to quantify
    • No counterfactual
    • Anecdotal evidence
  • Leads to greater understanding of actions by the market
    • Enhances reputation of the market
    • Generates greater buy-in / commitment to new initiatives
benefits cont
Benefits (cont)
  • Creates level playing field for all market participants
    • Reduces entry barriers for prospective new entrants
  • Encourages more aggressive bidding
    • Increases market participants’ information set
    • Reduces uncertainty about future DMO actions
    • Reduces investors’ required risk premium
  • Reduces cost of funding?
  • Again, difficult to quantify
  • Lack of flexibility
    • Mitigated by ability to tap for market management reasons
    • Revision of remit possible if market conditions change significantly
    • Revised with PBR
  • Front-running?
    • Announcement effect?
    • How big is the auction concession?
auction details
Table excludes auctions of FRNs and index-linked gilts

Average cover increased since 1995/96

Average tail at auction has decreased

Appears successful strategy

Auction details
  • Transparency consistent with key debt management objective
  • Ongoing challenge
    • Can we consult more effectively with market?
    • New operations - need to consider appropriate degree of transparency