Links between government bond and futures markets: dealer-client relationships and price discovery in the UK
Domenico Di Gangi (),
Vladimir Lazarov (),
Aakash Mankodi () and
Laura Silvestri ()
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Domenico Di Gangi: Institute of Information Science and Technologies, National Research Council of Italy
Vladimir Lazarov: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Aakash Mankodi: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Laura Silvestri: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
No 991, Bank of England working papers from Bank of England
We use transaction-level data to study trading and clearing relationships between dealers (ie, Gilt-edged Market Makers and clearing members) and their clients, and price discovery in the UK gilt cash and futures markets in 2016. Using a network approach we analyse the distribution of trading and clearing relationships between dealers and clients, the concentration of the associated volumes and how these change over time. We find that volumes in each market are concentrated in a few key dealers, that clients tend to have relationships with a limited number of dealers and that such relationships and volumes were resilient during most of 2016, including around the EU referendum and subsequent policy announcements. We also assess the systemic risk that could be caused by the inability of those dealers operating across the two markets to perform their roles as clearing member and market maker, finding that there may be some scope for spillover effects from potential disruption in the cash market to the futures market through this channel. Finally, we find that order flows (that we proxy using net volume traded) of clients in the UK gilt futures market can affect cash prices, suggesting that the futures market plays a role in price discovery in the cash market.
Keywords: Gilt cash and futures markets; price discovery; network analysis; financial stability; resilience (search for similar items in EconPapers)
JEL-codes: G10 G20 (search for similar items in EconPapers)
Pages: 37 pages
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0991
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