BoE to Publish Review of Regulatory Impact on Market Liquidity

According to a recent Bloomberg article, the Bank of England (“BoE”) announced that it will publish an assessment of how regulation affects the efficient functioning of U.K. bond markets this year.

The BoE’s Financial Policy Committee noted “lower market depth, smaller trade sizes on average and greater price impact of asset sales” in their statement. Anomalies in the market are also becoming more persistent as market makers are less willing to provide financing to leveraged investors and the repurchase market is shrinking in size as the price of receiving this service increases.

“This increase in the cost incurred by leveraged investors to obtain financing using gilt collateral could reduce activity in financial markets going forward, with potentially adverse implications for market liquidity,” BoE officials stated.

According to the article, the BoE considers regulation to be an important part of reform for the banking industry and that it improves the resilience of markets in times of stress. “..some market developments motivate careful review and consideration of whether there are any possible refinements to internationally agreed post-crisis regulations that could further promote market effectiveness without compromising the resilience of the core of the financial system,” the BoE said.

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