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 (3:30pm) • 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. Proportion sold through taps had declined significantly from FY 1992/93 but still substantial proportion Auction / Tap split

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

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