1. United Kingdom Debt Management Office Issuer Transparency The UK experience Robert Stheeman Tim Simmonds

2. United Kingdom Debt Management Office Outline What do we mean by Issuer Transparency? Current framework Key changes Current framework: Further detail Benefits Costs? Conclusion

3. United Kingdom Debt Management Office Issuer transparency Clarity about decision making process –Published debt management objective? –Communication Issuance plans & methods –Schedule? –Choice of stock –Size of issue

4. United Kingdom Debt Management Office Current framework Introduced following 1995 Debt Management Review Key changes –Clarified objective for debt management –Expanded annual remit –Role of taps reduced –Greater emphasis on consultation with market participants

5. United Kingdom Debt Management Office Key changes - details Clarified objective for debt management –Primary objective to minimise cost over long-run taking account of risk –Removed reference to monetary policy Expanded annual remit –Annual remit first published in 1995 –Outlines broad amounts to be issued at each maturity (previously no indication) –Identifies annual auction calendar and size range for auctions

6. United Kingdom Debt Management Office Key Changes (cont) No longer using taps for financing –Taps announced day before (3:30pm) –Opportunistic financing (issued into a rising market) –Continuing role in market management Greater consultation –Formalised procedures for consultation with market participants (on a quarterly basis) –Also annual meetings with minister –Minutes of meetings published

7. United Kingdom Debt Management Office Auction / Tap split Proportion sold through taps had declined significantly from FY 1992/93 but still substantial proportion

8. United Kingdom Debt Management Office Current framework: Further detail Auction announcements –Quarterly announcement identifies specific stocks to be auctioned in coming quarter –Auction announcement (8 days in advance) Size set Coupon set if new stock –Auction results within 40 minutes Including details of any stock retained by DMO Consultation and responses on changes to debt mgmt operations or instruments

9. United Kingdom Debt Management Office Current framework (cont) Special / standing repo operations published immediately Other information published –GEMMA prices / yields –DMO holdings of gilts (monthly) –Future financing projections (updated with budget) –Quarterly review –Annual review –Operational Notices

10. United Kingdom Debt Management Office Benefits Difficult to quantify –No counterfactual –Anecdotal evidence Leads to greater understanding of actions by the market –Enhances reputation of the market –Generates greater buy-in / commitment to new initiatives

11. United Kingdom Debt Management Office Benefits (cont) Creates level playing field for all market participants –Reduces entry barriers for prospective new entrants Encourages more aggressive bidding –Increases market participants’ information set –Reduces uncertainty about future DMO actions –Reduces investors’ required risk premium Reduces cost of funding?

12. United Kingdom Debt Management Office Costs Again, difficult to quantify Lack of flexibility –Mitigated by ability to tap for market management reasons –Revision of remit possible if market conditions change significantly –Revised with PBR Front-running? –Announcement effect? –How big is the auction concession?

13. United Kingdom Debt Management Office Auction details Table excludes auctions of FRNs and index- linked gilts Average cover increased since 1995/96 Average tail at auction has decreased Appears successful strategy

14. United Kingdom Debt Management Office Conclusion Transparency consistent with key debt management objective Ongoing challenge –Can we consult more effectively with market? –New operations - need to consider appropriate degree of transparency www.dmo.gov.uk