The DMO operates a Standing Repo Facility, whereby any GEMM who has signed the relevant documentation may request that the DMO lends out any gilt for repo purposes, which may involve temporary creation of the relevant gilt. The Facility exists in order to ensure that GEMMs can be assured of being able to access and deliver any gilt at any time, albeit at a price and subject to any limits and other requirements set out in the applicable Terms & Conditions, hence maintaining GEMMs’ ability to make two-way prices in the secondary market and avoiding the prospect of delivery failures. Such operations will usually involve a back-to-back, cash-for-cash reverse repo of gilt collateral with the same counterparty at the Bank of England’s prevailing Bank Rate. Where gilts have been created temporarily under the Facility, providers of gilt indices may wish to consider such amounts ineligible for inclusion, temporary or otherwise, in the calculation of their gilt indices.
The DMO introduced the Standing Repo Facility in June 2000. Until April 2008, the rate at which the DMO lent gilts was set at one-tenth of the Bank Rate* as set by the Bank of England. From April 2008, the rate was determined as a fixed margin of 300 basis points below the Bank Rate, and in November 2008 a floor was added, such that gilts were not lent at a rate below 0.25%.
Since March 2009, the DMO has kept the rate under regular review, communicating updates to the Terms & Conditions following changes to the Bank Rate by the Bank of England. For convenience, a summary of recent rates is provided below, but for up-to-date information, market participants should in the first instance refer to the latest Terms & Conditions of the Facility which can be found in the Money Markets publications section of the DMO website here.
|Effective From||Bank of England’s Bank Rate||Standing Repo Facility Rate|
|05 Mar 2009||0.50%||0.10%|
|04 Aug 2016||0.25%||0.00%|
|02 Nov 2017||0.50%||0.10%|
|02 Aug 2018||0.75%||0.20%|
|11 Mar 2020||0.25%||0.00%|
|19 Mar 2020||0.10%||-0.15%|
|16 Dec 2021||0.25%||0.00%|
|03 Feb 2022||0.50%||0.10%|
|17 Mar 2022||0.75%||0.20%|
|05 May 2022||1.00%||0.25%|
|16 Jun 2022||1.25%||0.50%|
|04 Aug 2022||1.75%||1.00%|
|22 Sep 2022||2.25%||1.50%|
On 16 June 2022, the DMO signalled a current intention to maintain the differential between Bank Rate and the Standing Repo Facility rate at a spread of seventy-five basis points (0.75%). The DMO does, however, reserve the right to keep this policy under review and to revise this or other Terms and Conditions of this Facility at any time, including in the light of prevailing interest rates, market conditions and/or market practices
Information is available for all instances that the standing and special repo facility have been used, and can be found here.
If the DMO considers that there is sufficient evidence of severe market dislocation or disruption, it may lend out gilts for repo purposes on different terms to those of the Standing Repo Facility to any GEMM (or, at the DMO’s sole discretion, another counterparty) that in each case has signed the required legal agreements with the DMO. Such circumstances will need to have been persistent and are not likely to be tied to any single event (e.g. delivery of a cheapest-to-deliver gilt into a single futures contract) or difficulties encountered by a single market participant. A Special Repo Facility, under which specific gilts were made available for borrowing for periods of 1 week at a time, and generally at preferential rates compared to the Standing Repo Facility, operated from October 2008 to December 2008, and again from May 2009 to August 2009. The specific gilts eligible for this Facility, and the rates at which they could be borrowed, are detailed in the relevant Terms & Conditions documents prevailing at the time, found in Money Markets publications section of the DMO website.
*Until 2006, this was the Repo Rate, but for simplicity we refer to the Bank Rate throughout