A hedge fund industry group has warned the Bank of England that proposed reforms to the market for short-term loans secured against UK government bonds could backfire, potentially reducing liquidity and increasing volatility during periods of market stress.
The Alternative Investment Management Association (AIMA) raised concerns in a letter to the BoE this month, seen by Reuters, about plans to expand central clearing in the gilt repo market. The industry body said the proposed changes could create new vulnerabilities, leaving investors more exposed to funding-market disruptions.
