ABI RESPONSE TO THE BANK OF ENGLAND CONSULTATION ON PROPOSALS FOR AMENDMENT TO THE CORPORATE BOND SECONDARY MARKET SCHEME 3 DECEMBER 2009
The ABI is the voice of the insurance and investment industry. Its members constitute over 90 per cent of the insurance market in the UK and 20 per cent across the EU. They control assets equivalent to a quarter of the UK’s capital. They are the risk managers of the UK’s economy and society. Through the ABI their voice is heard in Government and in public debate on insurance, savings, and investment matters.
We welcome the opportunity to respond to this consultation
ABI members believe that the APF acting on both sides of the market and thereby providing more pricing marks, would be a positive step in improving price transparency (Q2). Notionally the measure could help liquidity but liquidity in this sector, high level investment grade, has generally not been an issue. Consequently any significant impact on two way liquidity in the sterling corporate bond market is considered unlikely, particularly in the absence of any information on which sectors of the market will be covered and scale of operations (Q1). Members consider that official support would be more beneficial if directed to the ABS market (Q3).
Members have no comments as to alternatives to the auction structure outlined in the paper. They would endorse the view that the minimum bid size should be at least £1m (Q4,5).
As noted above ABI members lay store by orderly markets. In that context they feel it will be valuable to markets overall if the Bank indicates how it will approach the disposal of the stock of gilts that it currently holds.
December 2009
ANNEX: QUESTIONS FOR CONSULTATION
1 The Bank welcomes views on the whether introducing corporate bond sales (in addition to purchases) would improve two-way liquidity in the sterling corporate bond market.
2 The Bank would be grateful for views of whether the APF acting on both sides of the market would be a positive step in terms of improving price transparency?
3 The Bank would appreciate comments on whether such an extension to the current Scheme would also further encourage market making in the sterling corporate bond market?
4 Given the Scheme’s objectives, the Bank would be grateful for views on whether the outlined auction structure is likely to help improve liquidity in the corporate bond market, or whether alternative structures would be more effective?
5 The Bank would appreciate feedback on whether sales of the size suggested would be suitable to support greater price transparency in the sterling corporate bond market? In particular, the Bank would appreciate views about the £1 million minimum bid size.