The hedge fund industry body "AIMA" warned the Bank of England that proposed
reforms to the UK gilt-backed short-term repo market could backfire, reducing
liquidity at times of market stress. AIMA said expanding central clearing could
create new fragilities and raise investor volatility; the warning is more direct
than its response last year, when it flagged "significant structural issues" in
the initial plan. The Bank of England is consulting on measures to bolster
gilt-repo resilience, including expanding central counterparty clearing — making
a CCP buyer, seller and guarantor of trades — and imposing minimum haircuts on
non-centrally cleared repos to better protect lenders and curb fire-sale risk in
stressed conditions.