Outright Bond Purchases and Electronic Tenders

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Outright Bond Purchases and Electronic
Tenders Bank of England
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Seminar Plan
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Introduction and Policy Framework for Outright
Bond Purchases Sarah Breeden
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Outright Bond Purchases

• July Consultation Paper
• Principles
• Investment strategy
• November Market Notice
• Tender structure
• Tender arrangements

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Principles

• Five principles to guide the investment strategy
  for the portfolio-
• Simple and transparent
• Is, and can be seen to be, wholly
  non-discretionary
• Minimal credit risk
• In line with behavioural maturity of Issues
  liabilities, ie banknotes
• Not disruptive of HMG debt management policy

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Investment Strategy

• Buy-and-hold in routine circumstances
• Eligible assets
• Gilts
• FX bonds swapped into fixed rate sterling
  synthetic gilts
• Conventional only
• Match maturity distribution of gilts in issue
• Maximum maturity of 20 years
• AAA, domestic-currency only

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November Market Notice

• Structure of all bond purchase tenders
• Clear feedback - simplicity
• Six bonds within three segments
• Fixed quantities to be purchased in each segment
• Minimum/maximum quantities for pairs of bonds
  within a segment
• Narrow range
• Relative value using market prices
• No maximum counterparty allocation

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Gilt tenders

• Minimum issue size 4bn
• Exclude Cheapest-to-Deliver bond and open
  issues
• Tender size 400mn
• Monthly except December
• Monday following publication of MPC minutes
• 2.00-2.30pm

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Swapped FX bond tenders

• Minimum issue size 4bn
• Issuers that contribute at least 2 of eligible
  bonds
• Currently Austria, Canada, Denmark, France,
  Germany, Netherlands, Spain and US
• Maximum 2 or 3 issuers per tender
• single issuer and single currency where possible
• Maximum 450mn single issuer maximum 600mn
  joint tenders
• Monthly except December
• Wednesday following publication of MPC minutes
• 2.00-2.30pm

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System Overview Mike Jones and Katy Webster
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System Overview

• Principles
• External Input
• System Overview
• Access
• Offers
• Results (including swap confirmations)
• Demonstration

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Principles

• Quick
• Simple
• Accurate
• User Friendly
• Easy to interrogate
• Help facilitate settlement
• Secure

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External Input

• Reviewed market systems
• Visited FED and Bundesbank
• Broadly in line with EPDA recommendations
• Market Pilot Group issues and minutes on
  internet site
• This seminar comments welcome

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System Overview

• Bank built application
• Delivered via SWIFTNet Browse
• All operations existing repos and new outright
  purchase

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System Access (1)

• SWIFTNet can be accessed via desktop, stand-alone
  PC or Enquiry Link your decision
• System will use SWIFT accreditation details not
  a separate password
• Level of identification your decision
• Start by logging onto Browse

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System Access (2)

• Once session is open, select browsing menu and
  then Bank tender system
• Can set Bank system as default on log-in

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BTender - Scheduler

• Initial Screen allows user access to
• take part in open operations
• view results for past operations
• see details of future operations
• Basic filtering to aid navigation

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BTender Gilt Offers

• Common features with other operations
• Menu Bar
• OMO information bar
• Offer entry
• Countdown when active colour coded
• Clock Synchronisation

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BTender Gilt Offers (2)

• Initial entry at bottom of screen basic
  validation
• Following feedback will include c/party
  controlled rate plausibility
• Offer nominal and Clean Price
• NB allocation based on total proceeds as
  liquidity provision operation

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BTender Gilt Offers (3)

• Move to top of screen for management of offers
• Screen splitter and filters to help
• Offer validation issues highlighted
• Easy to cancel and amend offers
• Spinner to adjust price for one or more offers
• Offer history available to augment details on
  screen

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BTender Swap Offers

• Same offering structure as Gilts
• Offer sterling nominal and coupon rate/yield
  sterling liquidity provision
• Only extra detail is exchange rate Resulting
  bond nominal displayed for information
• Able to view draft term sheet/ confirmation

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BTender ST and LT Repo

• Broadly same offer structure as Gilts
• Offer sterling nominal
• Fixed rate and one maturity for short-term repo
  (inc Fine Tunes)
• Select maturity and input rate for long-term repo

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BTender Results

• Available after allocation complete
• Top of screen will show summary tender results
  also published to wire services and the internet
• Bottom of screen will show individual results

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BTender - Demonstration

• Available after this talk
• Would welcome feedback
• Happy to answer any questions

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Getting Ready Caroline Mogford
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Preparation for trialling (1) SWIFT connectivity

• The Bank is in discussions with your nominated
  SWIFT contacts to judge readiness
• You need to decide where and how you want access
  to SWIFTNet and discuss what this means with your
  IT department

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Preparation for trialling (1) SWIFT
connectivity contd
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Preparation for trialling (1) SWIFT
connectivity contd

• Important that this work commences now given
  SWIFT ordering lead times and possible internal
  constraints you need to be ready for
  connectivity testing by February
• MMR experience showed that co-ordinating all the
  necessary changes can take longer than
  anticipated
• The Bank and SWIFT will be writing to the
  business and SWIFT contacts you have supplied
  next week

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SWIFT contact details
SWIFT Support Tel [phone]
support_at_swift.com

• SWIFT Business
• Tim Horan
• Tel [phone]
• Tim.horan_at_swift.com

Bank of England contact Tel [phone]
4375 Michael.jones_at_bankofengland.co.uk
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Preparation for trialling (2) - Training

• Q2 2007
• Provided you are connected, a trialling system
  will be available for early familiarisation
  purposes
• User guides to support
• Site visits
• Objective is to ensure that by the start of
  trialling you can already use the system

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Trialling

• Seven-week period post training
• All operations STR (including fine tune), LTR,
  gilt and swapped FX outright purchases
• Both formal (scripted and unscripted) and
  informal trialling
• End-to-end Dress Rehearsal of outrights, close to
  launch
• Formal sign-off to the Bank of readiness
• Phased launch

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Documentation

• Operational documentation
• Legal documentation
• User guides
• Updated Red Book
• Formal sign-up once documentation is finalised

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Next Steps Sarah Breeden
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What next - policy?

• Feedback on the policy framework
• by 8 December
• Draft documentation
• legal
• operational
• Applications/sign up

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What next - BTender?

• Feedback on BTender
• As soon as possible
• Initiate your technical preparations
• Decide what your requirements are now
• SWIFT/third party suppliers
• Internal requirements
• Ensure readiness for connectivity and trialling

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Timetable

• Connectivity testing
• Training
• BTender build complete
• Internal trialling
• External trialling
• External dress rehearsals
• Phased launch
• Internet site has all documentation
• www.bankofengland.co.uk/markets/money/omo/outright
  _purchases.htm

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Outright Bond Purchases and Electronic Tenders
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SWIFT Connectivity requirements technical
information