–Rules Facilitate Greater Use of Wider Collateral As Mkt Stress Rises

LONDON (MNI) – The Bank of England unveiled Wednesday the detailed
rules for its new indexed long-term repo Open Market Operations (OMOs),
with the rules designed to facilitate the use of a wider range of
collateral in times of increased market stress.

The BOE also announced changes to its US dollar repo operations.
The OMO framework set out by the BOE is broadly in line with the
proposals laid out in its earlier consultation document and the rule
changes do not appear to be in response to current market stresses.

The BOE’s new rule framework for indexed long-term repos will
operate for six months and the central bank said that after six months
it would confirm the permanent operational framework.

The new indexed long-term repos will replace the previous three
month, extended-collateral, long-term repos and the three, six, nine and
twelve month long term repos.

The collateral rules allow market participants to borrow against
two sets of collateral.

The first is a narrow collateral set, which corresponds with that
used in short-term repo operations, while the second collateral set is
broader.

As market stress increases, participants will be able to make
greater use of the broader collateral set.

“The auction design permits the allocation of a greater proportion
of funds against the wider collateral set as evidence of stress
increases, although the Bank would expect to lend some funds routinely
against both collateral sets,” the BOE said in its market notice.

The wider collateral set includes UK, German, French and Spanish
regulated covered bonds rated AAA, if the issue size exceeds stg1
billion or E1 billion, senior tranches of certain AAA rated asset backed
securities and bank debt guaranteed by the Treasury.

Only higher grade sovereign debt – G10 sovereigns rated Aa3/AA- or
higher, can be used as collateral.

The BOE said securities may be denominated in sterling, euro, US
dollars, Australian dollars, Canadian dollars, Swedish krona, Swiss
francs, or in the case of Japanese Government Bonds and bank debt issued
under the UK government’s Credit Guarantee Scheme, yen.

Full details of the BOE’s market notice can be found at the
following link:

http://www.bankofengland.co.uk/markets/marketnotice100526.pdf

–London newsroom: 0044 20 7862 7491; email: drobinson@marketnews.com

[TOPICS: M$B$$$,M$$FI$,M$$BE$]