The European Association of CCP Clearing Houses (EACH) has responded to the Bank of England’s discussion paper on enhancing the resilience of the gilt-repo market, advocating a broader voluntary adoption of clearing.
It also recommends “removing barriers’ rather than imposing mandates”.
EACH supports exploring proportionate, risk-based approaches to margining and collateralisation, noting that risk-sensitive methodologies used in cleared markets are more risk sensitive than bilateral arrangements.
It suggests reviewing regulatory and structural disincentives that currently exist for many non-bank financial institutions (NBFIs). Examples include fund-level concentration and diversification limits that were not designed for CCP intermediation, constraints on reuse of cash or collateral pledged to CCPs, and prudential frameworks (e.g. SA-CCR, NSFR) that do not fully recognise the funding and risk benefits of central clearing.
EACH added that it agrees with the Bank that bilateral margin requirements for uncleared repos, similar to the uncleared margin rules for OTC derivatives, could potentially be considered as a risk-management tool. Any margin or haircut framework should form part of a broader toolkit that enhances resilience, improves predictability, and supports liquidity in both normal and stressed conditions.
