The Alternative Investment Management Association (AIMA) and the Managed Funds Association (MFA) have pushed back against Bank of England proposals to impose minimum haircuts on gilt repo transactions, arguing the measures would reduce liquidity, make gilts less attractive, and be detrimental to UK borrowing costs, according to a report by Bloomberg.
The reforms are part of the BOE’s post-2022 efforts to contain leverage risks in non-bank financial institutions. They would cap the cash investors can borrow against gilts and introduce wider adoption of central clearing. While the industry groups support expanding access to clearing services, they say the market is not ready for a mandatory regime and favour incentives over requirements.
Regulators have become increasingly focused on gilt repo activity as hedge fund borrowing has climbed to £77bn — the highest since data collection began in 2016 — with a small number of firms accounting for most positions. More than half of non-centrally cleared gilt repos currently transact at zero haircuts, prompting concerns over leveraged exposures amplified shocks during periods of high volatility.
