BoE to publish review of regulation impact on market liquidity
The Bank of England said it will publish an assessment of how regulation is running up against the efficient functioning of UK bond markets this year.
Measures of liquidity in government and corporate-bond markets are deteriorating, with lower market depth, smaller trade sizes and greater price impact on asset sales, the central bank's Financial Policy Committee said in a statement Tuesday. Officials are preparing to publish the review of how post-crisis rules could be refined to encourage better market effectiveness.
Anomalies in the market, particularly in derivative instruments, are becoming more persistent as market makers are less willing to provide financing to leveraged investors, the BOE said.
The repurchase market -- where banks use debt as collateral to back short-term loans -- is shrinking in size and the price of receiving this service from banks is increasing.
"This increase in the cost incurred by leveraged investors to obtain financing using gilt collateral could reduce activity in financial markets going forward, with potentially adverse implications for market liquidity," stability officials said in a statement published in London on Tuesday.