Bank opens up money market dealing - Business - News - The Independent

Bank opens up money market dealing

Sweeping reforms will end the discount houses' special status

The Bank of England yesterday announced the biggest reform for more than a century in the way that interest rates are set, marking the end of the privileged position of the City's seven discount houses.

The bank's dealings in the short-term money markets are to be opened early next year to a wide range of banks, building societies and securities firms of UK or continental ownership.

At the same time, gilt repos - debt backed by government bonds - are to become a key part of the bank's daily trading with the market.

The discount houses are specialist banks that have traditionally had a monopoly on daily dealings in bills of exchange with the Bank of England. Trading in the bills is used to control interest rates and signal changes in the cost of borrowing.

The reforms, scheduled for early next year, will restructure London's sterling money markets in line with proposals expected to be adopted for the market in euros when the single currency is in operation.

However, Ian Plenderleith, an executive director of the bank, denied the restructuring in London was prompted by the single currency or the discussions under way at the European Monetary Institute on how to set interest rates after monetary union.

"That's not our main motive," he said.

Mr Plenderleith said there were advantages in bringing the UK structure into line with the Continent, whether or not Britain joined the single currency. After the reforms, the London money markets would be "state of the art" and the bond markets would be "absolutely at the forefront" in world terms, Mr Plenderleith said.

He said the driving force for change was rapid evolution in the City, especially the mushrooming growth of the pounds 15bn-a-day gilts repo market, where pounds 60bn of repos are currently in force.

The bank will continue to use the traditional bill market operated by the discount houses. But from next year, changes in interest rates will be signalled by a move in repo rates rather than the traditional method of altering the rates at which the bank deals in the discount market.

The bank is also abandoning its insistence that gilt-edged market makers are established as separate firms, known as Gemms, and instead will allow them to be merged into their parent groups' balance sheets.

Gilts repo dealers will sign a private contract with the bank and there will be no published list.

There are to be changes in the money market dealing timetable during the day and new arrangements for clearing banks that need overnight loans. The discount houses' obligation to underwrite the weekly Treasury bill tender will be dropped.

The discount houses have been given a decade of quiet warnings by the bank that their market will be opened up.

They have already diversified into other financial specialisms and some have moved into the gilts repo market. Cater Allen, one of the leading houses, said: "We believe we will benefit [from the changes]."

Until the reform, however, the houses have retained their special access to the bank's dealing rooms. The value of this privilege has been whittled away in recent years because the clearing banks have become the dominant bill market traders, even though they have had to channel their dealings with the bank through the houses.

In 1994, the bank further eroded the houses' role by experimentally beginning fortnightly, rather than daily, dealings in gilt repos outside the discount market.

The European Monetary Institute is expected to publish proposals in January for the detailed operations of the money market in euros.

According to the bank's discussion document, the plans being drawn up by the European Monetary Institute are "relevant to any further development of the bank's operations whether or not the UK participates in monetary union: the changes proposed in this paper are consistent with the direction and spirit of the proposals currently under discussion at the European Monetary Institute".

News
John Travolta is a qualified airline captain and employed the pilot with his company, Alto
people'That was the lowest I’d ever felt'
Life and Style
healthIt isn’t greasy. It doesn’t smell. And moreover, it costs nothing
News
peopleThe report and photo dedicated to the actress’s decolletage has, unsurprisingly, provoked anger
Property
Home body: Badger stays safe indoors
property
PROMOTED VIDEO
News
The programme sees four specialists creating what they believe are three perfect couples, based on scientific matchmaking. The couples will not meet until they walk down the aisle together
tvUK wedding show jilted
Arts and Entertainment
US pop diva Jennifer Lopez sang “Happy Birthday” to Gurbanguly Berdimuhamedow, president of Turkmenistan
musicCorporate gigs become key source of musicians' income
Arts and Entertainment
You've been framed: Henri Matisse's colourful cut-outs at Tate Modern
artWhat makes a smash-hit art show
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig believed to be donning skis as 007 for first time
Sport
Mikel Arteta pictured during Borussia Dortmund vs Arsenal
champions league
Voices
Yes supporters gather outside the Usher Hall, which is hosting a Night for Scotland in Edinburgh
voicesBen Judah: Is there a third option for England and Scotland that keeps everyone happy?
Arts and Entertainment
Pulp-fiction lover: Jarvis Cocker
booksJarvis Cocker on Richard Brautigan
Arts and Entertainment
Robin Thicke and Pharell Williams in the video of the song, which has been accused of justifying rape
music...and he had 'almost no part' in writing it
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Payroll & Accounts Assistant

£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week