Ian Mair, Chairman of the LMMA , has been speaking at a Bank of England seminar to mark the formal launch of the initiative to introduce Cleared Term DBV. He urged the gilt repo market and the money market to ensure they are ready to start trading the product when it went live in April 2014. Although that  seemed a long way off, he noted that there was a lot of work to be done in terms of changing systems and processes and emphasised that it was crucial for the success of the new product that everyone was prepared by the start date next April.

He acknowledged that individual institutions would have to bear most of the costs in terms of resources and funding for the systems and process changes that are necessary to address the operational and liquidity tail risks that exist under the current system. These are unnecessary risks which if they should ever materialise, would be very costly indeed. He reminded the seminar that real liquidity in today’s market was embedded in systems and central bank operations as much it was in the underlying instrument itself. He said anything that reduced any risks should be welcomed, whatever the cost, even if it meant a change in market practice, pointing out that the cost of not having enough real liquidity can be dire as was proved in 2008.

The LMMA Chairman acknowledged the contribution that the market had made both to the debate and the detailed discussions that have led to the proposals for the introduction of Cleared Term DBV. He also thanked Euroclear and LCH.Clearnet for their commitment to the project and the Bank of England for engaging the market and the clearing houses to work together with the LMMA to design and adopt a product which would meet the market’s needs.

He reminded the seminar that the whole financial system depended on the central bank providing the means for day to day liquidity to oil the wheels of the UK economy and therefore any enhancements to systems and processes which would improve efficiency and at the same time eliminate or reduce unnecessary risks needed to be understood and embraced.

The full text of Ian Mair’s address  can be accessed from the DBV Archive, as can a presentation of the slides used at the seminar.

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    London Money Market Association,
    Warnford Court, 29 Throgmorton Street, London, EC2N 2AT
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    Ian Mair - Chairman
    Email - Ian.Mair@LMMA.org.uk