Minutes of Money Market Committee meeting – June 2024

Minutes

Item 1 – Welcome

The Chair thanked members for attending and confirmed that the Minutes of the April 2024 meeting had been published on the Bank’s website.^{footnote [1]}

The Chair welcomed those who were attending as part of the Bank’s Meeting Varied People (MVP) initiative.

Items 2 & 3 – Discussion on Money Market Conditions and the Bank’s future balance sheet

A member of the MMC presented an overview of current market conditions. The presentation covered high level developments across equity, commodity, rates and money markets. This included: the evolution term premia in gilts compared to that of US Treasuries and European Government Bonds; US prime Money Market Fund outflows; and an update on the Rule Book for US mandatory clearing.

Colleagues from the Bank of England presented a summary of recent public communications relating to the Bank’s future balance sheet. This covered how Bank of England reserves had evolved over the past decade and some key considerations for the path ahead as QT and TSFME unwind change the size and composition of the Bank’s future balance sheet. The presentation also touched on the recent uptick in usage of the Short-term Repo (STR) facility which was as seen as intended and expected by the Bank, as had also been reflected in some communications by senior Bank officials.

MMC members widely agreed that the STR is working well and doing its job to smooth volatility in repo rates and keep them close to Bank Rate. Members were clear on the messaging from the Bank that the STR is a routine facility and is being used as intended. Members also noted that STR usage will likely continue to increase, both in terms of volumes and number of participating institutions.

While repo rate volatility has increased as Bank of England reserves have declined, members reiterated that money markets were functioning well with no pressure in longer term funding markets and ample money market capacity. Members noted that recent volatility pointed towards discrete and temporary pockets of illiquidity rather than reserves scarcity. The step higher in SONIA through March and April was noted, as was the fact that the rate has stabilised at around 5.20%. Participants noted that a move higher in SONIA rates could be an early indicator of growing demand for liquidity in the system. Some members also suggested that short-end cross currency moves had been placing some of the upward pressure on repo rates around month-ends.

There was discussion around the level of reserves demanded by banks for transactional and precautionary liquidity needs, known as the Preferred Minimum Range of Reserves (PMRR). While members agreed that the current level of reserves is not yet close to the PMRR, some members expect the likely range at which reserves could ultimately settle could be higher than the most recent £345bn - £490bn output of the assessments from surveyed banks – on the basis that banks may demand reserves over other forms of HQLA (in addition to reserves needed to cover intraday liquidity and LCR outflows).

Members also discussed the potential composition of the Bank’s future balance sheet. One member suggested that in the context of a potential larger proportion of reserves being provided through repo in the future, there could be impacts on SONIA volumes.

Item 4 – Sub-committee Updates

Money Markets Code

One of the Chairs of the UK Money Markets Code Sub-committee informed the MMC that the Code Review (which had been conducted over the last nine months by members of the Sub-Committee and industry experts to ensure the Code remains fit for purpose and evolved in line with market practices and structures) was now complete. They outlined the key changes that would be implemented to the Code, which included the process for UK Market Participants in the event of unplanned bank holidays and unexpected market closures and that UK Market Participants are reminded about the importance of settlement discipline.

The MMC endorsed the changes to the Money Markets Code and agreed for the updated Code to be published on the Bank’s website^{footnote [2]}.

Fails Working Group

A representative from the Securities Lending Committee provided an update on the work being done by its Working Group on Settlement Efficiency. They informed the MMC that a report on the Working Group’s investigation on drivers and impacts of fails as well as potential solutions relating to settlement failure in the UK securities market, was in its final drafting stages and would be published in the following weeks. Further updates will be provided by the Working Group in Q1 2025 as they track progress of the migration to T+1 settlement in North America.

Item 5 – Migration to T+1 settlement

The MMC discussed T+1 settlement migration in the UK which is currently being explored by the Accelerated Settlement Taskforce at HM Treasury in which the FCA and Bank of England participate as observers. Members discussed how the migration in the US has gone so far which was generally considered to be smooth, albeit noting some frictions in credit markets and relating to cash flow management.

Item 6 - Any other business

A member gave an overview of the key themes that came out of this year’s Association for Corporate Treasurers (ACT) Annual Conference. Overall, attendees appeared more positive about the UK economy relative to recent past, albeit concerns around geopolitical risks remained prevalent. The Conference included a panel session on market codes of practice, which included a discussion around the UK Money Markets Code.

The Chair thanked Jessica Pulay (DMO) for her contributions to the MMC over the past years following the announcement of her new role.

The Chair also thanked members for their time and welcomed any suggestions for future agenda items to be sent to the Secretariat in due course.

Committee attendees

Gordon Lowson - Abrdn
James Winterton - Association of Corporate Treasurers
Ina Budh-Raja - Bank of New York Mellon
Emma Cooper - BlackRock
James Murphy - HSBC
Marije Verhelst – Euroclear
Romain Dumas - UBS
Simon Penn - UBS (Presenter)
Rohan Salah-Ud-Din - UBS (MVP)
Inna Shaykevich - Goldman Sachs
Chris Brown - Insight Investment
John Wherton - LGIM
Scott Creed - Lloyds Bank
Rob McNeil (Alternate)
Alan Williams - Santander UK
Yasmin Absolon - Santander UK (MVP)
Romain Sinclair - Société Générale 
Victoria Worsfold - Surrey Heath Council
John Argent - Tradition
Jessica Pulay - DMO (Observer)
Chris Ryan - DMO (Observer)
Alan Barnes - FCA (Observer)

Bank of England

Andrea Rosen (Chair)
Grace Greer
Tom Archer
Iain Ramsay (Presenter)
Janet Yum
Kirstine McMillan (Presenter)

Apologies

Nic Erevik - Newcastle Building Society
Tony Baldwin - LCH
Nina Moylett - M&G
Chirag Patel - Rabobank
Oliver Butcher - NatWest Markets
Avi Tillu - PIMCO