LONDON MONEY MARKET ASSOCIATION

The London Money Market Association (LMMA) is an independent body of 33 member firms, representing their interests and the markets in which they operate, with specific interest in market operations, market practice and regulation, particularly in the Sterling money markets.

 

STERLING RISK FREE REFERENCE RATES

Following the announcement in April that the Working Group has recommended SONIA as the preferred near risk-free benchmark rate (RFR), Chris Salmon, the Bank of England’s Chris Salmon confirmed the decision at a  Sterling Risk Free Reference Rates Roundtable Conference on 6th July 2017. Subsequently, Andrew Bailey who is the CEO of the Financial Conduct Authority, announced on 27th July that LIBOR would cease to be a regulated benchmark by the end of 2021. Transition will not be easy but it does offer the opportunity for the market to decide and use reference rates which are more appropriate to different businesses. This may well be SONIA but there appears to be a need for secured reference rate as well as the risk free rate which although based on transactions is still derivative based.

 MONEY MARKET CODE

The new Money Market Code was launched by the Bank of England in May and the Bank expects the code to be adopted by the whole market by January 2018. The new code was developed in conjunction with the market through a sub-committee of the Bank of England’s Money Market Committee. The LMMA was represented on the sub-committee and fully endorses the adoption of the new code.

 

EXTENDED SETTLEMENT DAY

The Bank of England has announced that following successful testing in RTGS on Saturday 18th June, the extended hours for the CREST and CHAPS settlement day will be implemented as planned from Monday 20th June 2016.

Although the LMMA believes the change will have little material impact on sterling markets as liquidity in the afternoon is already thin, it is concerned that the absence of an agreed convention on the timing of the end of the trading day could have a detrimental impact on liquidity in the afternoon. Accordingly, in order to remove any uncertainty, the LMMA has agreed a revised market convention for the end of the sterling money market trading day to move from 15:30 to 17:00 from 20th June.

The decision to extend the settlement day follows a policy review and market engagement by the Bank of England; the review identified key benefits for financial market participants and end-users relating to risk management and closer alignment with the typical business day. From 20th June, the Bank will extend the operating hours of its own Real Time Gross Settlements infrastructure (RTGS), the vehicle through which the Bank settles payments for the main UK payments settlement systems. This enables both CREST and CHAPS to extend their day; CREST, the UK’s securities settlement system, will move the close of DBV from 16:10 to 17:30 and CHAPS, the UK’s high value payments system, will move its close from 16:20 to 18:00.

Following its own review, the Bank of England carried out a joint survey with the LMMA on the impact the change might have on the sterling money market trading day. LMMA members agreed the change would have little impact in current market conditions but also confirmed they would be cascading information on extended hours to their customers and clients on a bilateral basis and be available for trading up to the end of the new trading day convention, if warranted by customer demand and if there was available liquidity.

The Bank of England has been hosting a market-wide forum in conjunction with CHAPS and CREST on extended hours and further details about the forum and the minutes from its meetings can be found on the Bank of England website. The next forum will be held on 19th May 2016.

www.bankofengland.co.uk/markets/Pages/paymentsystem/esdforum/aspx

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    CONTACT US

    London Money Market Association,
    Warnford Court, 29 Throgmorton Street, London, EC2N 2AT
    Email: itmconsulting@btinternet.com
    Telephone: 020 7947 4916 (Switchboard)
    General Enquiries/Media
    Ian Mair - Chairman
    Email - itmconsulting@btinternet.com

    Contact Us

    London Money Market Association,
    2 Gresham Street, London, EC2V 7QP
    Email: info@LMMA.org.uk
    General Enquiries/Media
    Ian Mair - Chairman
    Email - Ian.Mair@LMMA.org.uk