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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

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Issuer transparency the uk experience l.jpg

Issuer Transparency The UK experience

Robert Stheeman

Tim Simmonds

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  • What do we mean by Issuer Transparency?

  • Current framework

  • Key changes

  • Current framework: Further detail

  • Benefits

  • Costs?

  • Conclusion

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Issuer transparency

  • Clarity about decision making process

    • Published debt management objective?

    • Communication

  • Issuance plans & methods

    • Schedule?

    • Choice of stock

    • Size of issue

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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

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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

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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

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Proportion sold through taps had declined significantly from FY 1992/93 but still substantial proportion

Auction / Tap split

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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

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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

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  • 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

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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?

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  • 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?

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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

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  • 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

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