United Kingdom gilt securities and market liquidity: surveying the impact of structural reforms

Purpose - Between 1996 and 1998, the Bank of England (BoE) undertook structural reforms of the UK gilt market designed to improve market liquidity and accessibility. The purpose of this paper is to ascertain, through the use of a market survey, whether the broad aims of the reforms were achieved. Design/methodology/approach - The research technique used in the paper is direct qualitative survey evidence of the market. It is considered that part of the impact of any structural reform is how the market responds to it. Hence, the actual views of the market are relevant, and this highlights the value of conducting a market survey. Findings - Survey evidence suggests that the reforms were welcomed by market practitioners, and that perceived levels of liquidity had increased in the period following the reforms. From the survey results, it cannot be concluded unequivocally that the reforms led to higher liquidity. Nevertheless, the responses to the critical questions of liquidity and price spread provided evidence that an improvement in market conditions was perceived to have occurred. Practical implications - The survey results suggest that dealing and settlement efficiency in a government bond market is of value to investors. Therefore, BoE‐style reforms may be considered for implementation in other sovereign bond markets. Originality/value - The paper is the first direct survey of the UK gilt market, and the first study into the impact of the BoE reforms on market liquidity. As such, it may be of value to sterling market investors as well as the central monetary authorities.