CLEARED TERM DBV WELCOMED BY THE MARKET BUT HITS TEETHING PROBLEMS

Since Cleared Term DBV was launched on 20th August, many institutions have participated in this new product for the Gilt Repo Market. As one of the stakeholders, (The Bank of England, Euroclear and LCH.Clearnet being the others), the LMMA has carried out an investigation to gauge reaction and collate experiences so far among gilt repo traders.

From the outset, firms were encouraged to keep trading volumes low so that the market could fully test and integrate its systems, which resulted in most firms executing overnight and short term trades. For those firms there have been generally no problems, with internal and external systems working as expected and overall trading volumes encouragingly high. However, when the more active firms began to increase trading, a problem with substitutions arose, to such an extent that these firms have now ceased trading until the problems have been fixed.

It is now clear that the problem lies within Euroclear and the firm is working very hard indeed to identify both a short term fix and a permanent solution to allow trading to resume across the gilt repo market. The Bank of England’s MMLG Sub Committee for Cleared Term DBV is also committed to achieving such a solution and will report on the matter once the solution has been confirmed and a timetable agreed.

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