Issuer Transparency The UK experience

1
Issuer Transparency The UK experience

• Robert Stheeman
• Tim Simmonds

2
Outline

• What do we mean by Issuer Transparency?
• Current framework
• Key changes
• Current framework Further detail
• Benefits
• Costs?
• Conclusion

3
Issuer transparency

• Clarity about decision making process
• Published debt management objective?
• Communication
• Issuance plans methods
• Schedule?
• Choice of stock
• Size of issue

4
Current framework

• Introduced following 1995 Debt Management Review
• Key changes
• Clarified objective for debt management
• Expanded annual remit
• Role of taps reduced
• Greater emphasis on consultation with market
  participants

5
Key changes - details

• Clarified objective for debt management
• Primary objective to minimise cost over long-run
  taking account of risk
• Removed reference to monetary policy
• Expanded annual remit
• Annual remit first published in 1995
• Outlines broad amounts to be issued at each
  maturity (previously no indication)
• Identifies annual auction calendar and size range
  for auctions

6
Key Changes (cont)

• No longer using taps for financing
• Taps announced day before (330pm)
• Opportunistic financing (issued into a rising
  market)
• Continuing role in market management
• Greater consultation
• Formalised procedures for consultation with
  market participants (on a quarterly basis)
• Also annual meetings with minister
• Minutes of meetings published

7
Auction / Tap split

• Proportion sold through taps had declined
  significantly from FY 1992/93 but still
  substantial proportion

8
Current framework Further detail

• Auction announcements
• Quarterly announcement identifies specific stocks
  to be auctioned in coming quarter
• Auction announcement (8 days in advance)
• Size set
• Coupon set if new stock
• Auction results within 40 minutes
• Including details of any stock retained by DMO
• Consultation and responses on changes to debt
  mgmt operations or instruments

9
Current framework (cont)

• Special / standing repo operations published
  immediately
• Other information published
• GEMMA prices / yields
• DMO holdings of gilts (monthly)
• Future financing projections (updated with
  budget)
• Quarterly review
• Annual review
• Operational Notices

10
Benefits

• Difficult to quantify
• No counterfactual
• Anecdotal evidence
• Leads to greater understanding of actions by the
  market
• Enhances reputation of the market
• Generates greater buy-in / commitment to new
  initiatives

11
Benefits (cont)

• Creates level playing field for all market
  participants
• Reduces entry barriers for prospective new
  entrants
• Encourages more aggressive bidding
• Increases market participants information set
• Reduces uncertainty about future DMO actions
• Reduces investors required risk premium
• Reduces cost of funding?

12
Costs

• Again, difficult to quantify
• Lack of flexibility
• Mitigated by ability to tap for market management
  reasons
• Revision of remit possible if market conditions
  change significantly
• Revised with PBR
• Front-running?
• Announcement effect?
• How big is the auction concession?

13
Auction details

• Table excludes auctions of FRNs and index-linked
  gilts
• Average cover increased since 1995/96
• Average tail at auction has decreased
• Appears successful strategy

14
Conclusion

• Transparency consistent with key debt management
  objective
• Ongoing challenge
• Can we consult more effectively with market?
• New operations - need to consider appropriate
  degree of transparency
• www.dmo.gov.uk