European Association of CCP Clearing Houses urges the Bank of England to expand voluntary central clearing in the gilt repo market and avoid a clearing mandate or mandatory minimum haircuts

The European Association of CCP Clearing Houses (EACH) published its response to the Bank of England’s discussion paper on enhancing the resilience of the gilt repo market, recommending that authorities prioritise measures that facilitate greater voluntary use of central clearing rather than mandating clearing. EACH also does not support introducing a mandatory minimum haircut regime for non-cleared gilt repos. EACH argues that greater central clearing could enhance intermediation capacity and support higher transaction volumes, but would also create new liquidity demands and operational challenges, particularly for non-bank financial institutions, which may need stronger liquidity risk management. It highlights the Bank’s System-wide Exploratory Scenario findings on differences between firms’ and CCPs’ projections of initial margin calls under stress and calls for greater transparency and harmonisation of margin methodologies. To unlock broader voluntary clearing, EACH points to regulatory and economic disincentives, including fund rules under MMFR and UCITS that may restrict direct CCP intermediation, restrictions on some funds reusing cash or collateral from repo to meet CCP margin, and Basel III elements such as SA-CCR and NSFR that may limit recognition of cleared repo risk and funding benefits, as well as inconsistent global G-SIB treatment of client clearing models. While acknowledging the rationale for targeted safeguards in bilateral markets to prevent excessive leverage, EACH favours stronger supervisory enforcement of risk-adequate haircuts and suggests that bilateral margin requirements for uncleared repos, akin to uncleared margin rules for OTC derivatives, could be considered alongside enhanced private reporting and calibrated public transparency on leverage.