Contingent NBFI Repo Facility (CNRF) – Market Notice 28 January 2025

Market Notice

In previous communications^{footnote [1]}, the Bank committed to providing an updated Market Notice and accompanying legal documentation when the Contingent NBFI Repo Facility (CNRF) is open for applications. This Market Notice has been published to provide details about the CNRF and outline how firms can start the process of applying and as such it is not an activation of the CNRF. It should be read alongside the accompanying CNRF contractual documentation.

The CNRF is a contingent facility, which aims to address episodes of severe dysfunction in the UK sovereign debt (gilt) market. In particular, the CNRF will address gilt market dysfunction arising from system-wide shocks that temporarily increase non-bank financial institutions’ (NBFIs) demand for liquidity, when that demand is outside the reach of the Bank’s existing Sterling Monetary Framework (SMF) liquidity facilities. The CNRF is not intended to provide liquidity support to NBFIs facing idiosyncratic liquidity or balance sheet pressures, or liquidity demands arising from other market events which do not result in gilt market dysfunction. The CNRF will not be activated outside of periods of severe gilt market dysfunction. For more information about the purpose of the facility, please see the Explanatory Note.

When activated, the CNRF will lend cash, against gilt collateral, to participating insurance companies, pension funds and liability-driven investment funds for a short lending term.

For queries regarding this facility, please email CNRFapplications@bankofengland.co.uk.

The Bank reserves the right to amend or supplement the information contained in this Market Notice, and to adjust the operational parameters of the CNRF or any other aspects of the facility at its sole discretion.

This Market Notice supplements the Market Notice published on 24 July 2024 in connection with the CNRF. In the event of conflict between this Market Notice and the Market Notice published on 24 July 2024, this Market Notice prevails.

Eligible counterparties

Participation in the CNRF is open to the following types of institutions:

• Insurance companies;
• Defined benefit occupational pension schemes (‘pension funds’); and
• Investment Funds or sub-funds thereof whose investment strategy seeks to match the sensitivity of its assets to United Kingdom interest rates or inflation to that of its investors’ pre-defined liabilities (‘LDI funds’).

This Market Notice refers collectively to these institutions as “ICPFs”. Eligible ICPFs must meet the eligibility criteria set out in the CNRF Terms and Conditions and any Market Notice published by the Bank from time to time to be admitted to the CNRF as 'Participants'. In particular, all ICPFs must be appropriately regulated or authorised, as applicable, by a relevant regulatory or supervisory authority as determined by the Bank from time to time for assessing eligibility for the CNRF and as more specifically set out in the CNRF Terms and Conditions.

This Market Notice specifies the following supplementary information relating to certain eligibility criteria specified in the CNRF Terms and Conditions:

Minimum level of gilt holdings

To maximise the targeted effectiveness of the CNRF in addressing severe gilt market dysfunction, while recognising the limits to the number of firms that the Bank can onboard to the CNRF, eligible ICPFs will need to make a material contribution to gilt market functioning. ICPFs that own a market value of £2 billion gilts will normally be regarded by the Bank as meeting this requirement. This minimum level of gilt holdings will be reviewed annually, and ICPFs will be informed of any changes via an updated Market Notice.^{footnote [2]}

Current and prospective financial health

To participate in the CNRF, eligible ICPFs must meet at all times, in the Bank’s opinion, an appropriate standard of current and prospective financial health.

Insurance companies regulated in the UK can demonstrate this by meeting the Prudential Regulatory Authority (PRA)’s and Financial Conduct Authority (FCA)’s regulatory threshold conditions.

For LDI funds that are subject to the macroprudential measures introduced by the European Securities and Markets Authority in 2024^{footnote [3]} (or the macroprudential guidance introduced by The Pensions Regulator and FCA in April 2023^{footnote [4]}, if applicable), adhering to these measures (or guidance) satisfies this requirement.

Pension schemes, LDI funds that are not subject to the aforementioned macroprudential measures, and insurance companies that are regulated outside the UK, can satisfy this requirement by providing evidence of financial health equivalent to an investment-grade credit rating. Where no public agency rating is available, the Bank will consider relevant credit information from other qualified sources, including private ratings from commercial lenders or other relevant third-party sources.

Where an applicant is unable to provide any of this information, please contact us at CNRFapplications@bankofengland.co.uk to discuss whether evidence of current and prospective financial health can be demonstrated in another way.

Fees

To participate in the CNRF, Participants will be required to pay an Access Fee of £8,000, payable annually. The Access Fee for the initial annual period in which the Participant is admitted to the CNRF is payable in advance and will be pro-rated to reflect the Participant's date of admission.

Activation

The CNRF will be activated when the Bank, in its sole discretion, judges there to be significant gilt market dysfunction presenting risks to UK financial stability; where lending is likely to be effective in tackling gilt market dysfunction and when the demand for liquidity is outside the reach of the SMF liquidity facilities; and until such time as the Bank judges such risks to have subsided. Activation of the CNRF will be announced by a further Market Notice published by the Bank.

To inform decisions about activating the CNRF, the Bank will draw on a range of information to monitor market conditions, including financial market data and market intelligence.

Design and operating parameters

The CNRF is structured as a collateralised loan facility between the Bank and Participants, similar to how lending facilities in the Sterling Monetary Framework operate.

The Bank’s expectations for the design and operating parameters of the facility are set out below. However, the precise parameters will be calibrated by the Bank based on prevailing market conditions when the CNRF is activated during a period of severe market dysfunction and would be confirmed and published in a Market Notice at the relevant time.

Pricing

• The pricing of borrowing from the CNRF will be specified in a Market Notice at the point of activation. Pricing will be set as a spread to Bank Rate and will be calibrated such that the facility is unattractive when compared to market pricing in normal conditions, but attractive during times of stress when the facility is active. Further explanation of the approach to pricing can be found in the Explanatory Note.

Frequency of operations

• In the event it is activated, the CNRF will provide liquidity at the frequency required to restore market functioning. This could include daily operations if needed.

Eligible collateral

• The Bank will accept gilts (both conventional and index-linked, including unconventional gilts such as strips)^{footnote [5]} as collateral. The Bank forms its own independent view of the risks in the collateral it takes in its operations and reserves the right to reject any gilts offered as collateral, for any reason, at any time.

Haircuts and concentration limits

• Haircuts for the CNRF are to be set in line with the SMF^{footnote [6]}. The Bank will keep its approach to CNRF haircuts under review and reserves the right to apply additional haircuts to any individual counterparty to account for large exposures or other risks. Applicable haircuts will be confirmed in a Market Notice at the point of activation.
• Concentration limits will be applied to cap the amount of any individual gilt with the same International Securities Identification Number (ISIN) that may be transferred to the Bank as collateral by a Participant. The Bank expects the ISIN concentration limit to be set at £500 million of the Adjusted Value (the value after applying the appropriate haircuts) of the gilts with the same ISIN but will confirm this limit at the point of activation.

Borrowing limits

• Participants will be subject to borrowing limits equal to 50% of their total gilt holdings, rounded up to the nearest £1 billion.^{footnote [7]}
• The Bank will notify Participants of their borrowing limits on admission to the CNRF, and then approximately annually thereafter.
• The Bank reserves the right to amend an individual Participant’s borrowing limit, including where multiple Participants from that Participant’s group have been admitted to the CNRF.

Allocation process

• CNRF operations will be fixed price, full allotment, subject to borrowing limits as described above.

Term of the facility

• The maturity of the lending is expected to be short-term, with a lending term of around 1 to 2 weeks. However, the Bank expects that Participants will be able to roll their borrowing in operations while the CNRF is active. The exact term of the facility will be specified via a Market Notice at the point of activation.

Bidding process

• Operations will be conducted using the Bank’s electronic tendering system, Btender^{footnote [8]}, which runs over SWIFT. Installation and completion of testing on Btender will be required prior to admission.

Settlement and collateral management

• The Bank expects settlement will be on a T+0 basis.
• All payment of funds to the Participant or the Bank will be paid or received via CHAPS.
• Gilt securities can only be delivered to the Bank’s CREST account^{footnote [9]}.
• CNRF cash advances will be paid to Participant’s nominated bank according to Standard Settlement Instructions (SSIs) provided to the Bank as part of the application and test trade process in advance. Participants will be required to provide ongoing updates as appropriate. The SSI data collection form is provided on the Bank’s website.
• ICPFs will not be eligible to join the SMF or to hold a reserves account.
• The Bank will operate a collateral pooling model to support this facility. Participants will be provided with a collateral pool account at the Bank through the on-boarding process. Collateral held in the pool will not be earmarked against individual transactions. Instead, the value of the collateral held in the pool will be used to collateralise the value of the Bank’s total exposure to the Participant under the CNRF. More detail on the methods of instructing collateral movements to a Participant’s pool account are provided in the CNRF Operating Procedures.

Results publication arrangements

• If the CNRF is activated, the Bank will publish aggregate usage of the facility shortly after the close of each operation. Historical aggregate usage will also be uploaded to the Bank’s website. By participating in the CNRF, Participants agree to the Bank publishing this information.
• The Bank does not expect Participants to publish their own usage of the facility, unless required to by law, regulation or any governmental or competent regulatory or resolution authority. Successful applicants are permitted to publish their own access to the facility once admitted. More detail on Participants’ confidentiality requirements can be found in the CNRF Terms and Conditions.

Onboarding process and requirements for eligible Participants

• ICPFs wishing to sign up for the CNRF must submit an Application Form along with supporting documentation. Applications should be submitted by individual ICPFs, with valid Legal Entity Identifiers (LEIs). The Bank reserves the right to reject applications at its sole discretion at any time.
• Participation in test trades will also be required as part of the onboarding process, to demonstrate operational readiness.
• The Bank recognises that certain ICPFs may wish to appoint a Representative (such as an asset manager) to act on their behalf for the purposes of participating in the CNRF. Representatives are required to satisfy separate eligibility criteria set out in the CNRF Terms and Conditions, and to have signed a Representative Appointment Letter published by the Bank on the CNRF webpage to give effect to their appointment. Representatives will be able to act for one or more ICPFs.