Please enable JavaScript.
Coggle requires JavaScript to display documents.
UK Government Bonds (Gilt Edged Market Makers (Primary dealers in the UK…
UK Government Bonds
Gilt Edged Market Makers
Primary dealers in the UK gilt market trading in conventional gilts, indexed gilts or both
Competing market makers providing liquidity in the primary market and are comprised of banks or securities firms that have been endorsed by the DMO as primary dealers in UK government bonds
Must be registered as market makers on an RIE and authorised by the FCA either directly or under the terms of an EEA passport and must also satisfy certain obligations if they want to retain their primary dealer status
Wholesale GEMMS specialise in market making to institutional investors whereas retail GEMMs service clients dealing in smaller amounts
Given special privileges in the primary market and are the only institutions which are able to bid directly at the DMO gilt auctions
-
In the secondary market, the DMO will only deal with GEMMs
Expected to make two way prices on demand to any of their clients and at all times and in any market conditions in all gilt edged securities in which they have been recognised as a primary dealer
Will provide the DMO with market intelligence, make possible gilt transfers from the DMO other investors and will also provide figures for the overall daily turnover to the DMO
Debt Management Office
An executive agency of HM Treasury which has the responsibility for the management of government debt which it achieves through its participation in the gilt market
It has as its main objective the reduction over the longer term of the costs of meeting the governments financing needs while also considering the risks involved in achieving this
-
-
-
Conders or revokes primary dealer status and controls the entry and exit of GEMMs and indeed holds gilts itself in order to help manage the market
While the DMO has a mandate to maintain the health of the market as a whole by keeping it liquid and orderly, it is the FCA that has the responsibility for the overseeing of individual GEMMs in the gilt market in terms of risks and balance sheet capabilities
-
Gilt maturities
Shorts are those gilts with less than seven years to maturity (sometimes split into shorts and ultra shorts)
-
-
The classification of maturity is not based on the first issue date rather it is the amount of time remaining until redemption then from the date of purchase
Consequently, a long-dated gilt will become a medium-dated gilt, then a short-dated gilt, up to redemption
Prices of short dated gilts tend to be relatively close to par value as the redemption date approaches
-
Inter dealer brokers
-
Act as principal to all gilt trades and are intermediaries for anonymous trading between GEMMs allowing them to unwind any unwanted long or short gilt positions
As all trades are conducted anonymously, any relevant information is retained within GEMMs and not distributed to the wider markets
IDBs are not permitted to offer their services outride of this community or to take principal positions on their account, except where they are dealing on a matched principal basis with corresponding buying and selling counterparties
-
Double dated gilts
Gilts having two redemption dates. The UK government has the option to redeem the gilts anywhere between the two specified dates. It is assumed that gilts will be redeemed on the earlier date if not specified
Can be redeemed either in part or in full any day between the two dates but to do this the government must give at least three months notice in the London Gazette
If it does not redeem until the final maturity, it will continue pay the fixed coupon to the holder
-
Fully marketable and registered UK government, sterling denominated bonds
-
UK government liabilities, listed on the London Stock Exchange
The market for government bonds is a mature market, it is one where the rate of growth has slowed but the market still functions, however it is characterised by the lack of innovation. Effectively supply and demand are equal
Deemed to be extremely safe investments because it widely thought that the UK government will not default on its obligations in relation to either principal or interest payments
-
Suitable for private investors seeking low risk and also for institutional investors such as pension funds and insurance companies which use gilts to match their future known liabilities
Vast majority of dealing in gilts takes place over the counter either on the telephone or through electronic trading platforms
The price of a gilt is comprised of two key components: the capital amount of the gilt and the accrued interest since the last coupon payment
In the UK gilt coupons are without exception paid semi annually with interest accruing on a daily basis and payment being made on the next dividend payment date
The clean price is the price that is quoted in the financial press and does not include any accrued interest. If an investor were to purchase a gilt days, weeks or months after the last coupon payment date there would be an element of accrued interest. An investor would then pay the dirty price
-