Bank of England delays government bond purchase after settlement glitches

Central bank pushes back reverse auction following problems at Crest hub

The Bank of England delayed a gilt purchase auction for the first time in more than three years on Monday, following outages in a vital part of the UK securities market’s infrastructure.

The central bank delayed the reverse auction, which had been set for 9am, until Thursday morning after persistent delays at Crest, the UK and Ireland’s main hub for settling bond and equity deals. 

It was the first time the BoE had pushed back such an operation since 2017, when an auction was disrupted by a Budget statement from the government.

Crest, which is owned by Belgian group Euroclear, is crucial to the operation of London's financial markets, as it settles trades on behalf of investors, transferring money between commercial banks and the central bank. Last year it settled more than 67m transactions with a value of more than £305tn.

The Crest system suffered an outage for most of Friday and was unable to clear a backlog of trades that had built up. That forced the BoE to temporarily step in to ensure that deals were settled and parties were not left exposed.

The central bank said its decision to postpone the auction on Monday was “a precaution” and added that the problems with Crest had not affected payment systems for consumers, nor the so-called Chaps or RTGS settlement systems, which handle high-value payments in wholesale markets.

Intermittent outages on Crest continued through the morning on Monday but were resolved by the early afternoon. “We are closely monitoring the situation and taking actions to resolve any issues with the utmost priority,” Crest said in a statement.

The BoE buys government bonds as part of its quantitative easing programme, which is designed to keep a lid on the cost of borrowing to boost the UK economy.

The UK government is set to issue at least £500bn of gilts this year, more than double the previous record at the height of the financial crisis, reflecting a surge in spending to counter the effects of the Covid-19 pandemic. The Treasury has so far raised £385bn from bond sales over the first eight months of the current fiscal year.

Glitches are rare. It has been about two years since Crest last experienced outages preventing it from completing deals within the business day.

Virginie O'Shea, founder of Firebrand Research, a capital markets consultancy, said old software in settlement systems “may be somewhat challenged by implementation of modern cyber security protocols.” 

She added: “It doesn’t help that every regulator is looking at operational resilience under the microscope at the moment, so any outages will probably receive double the attention of a normal year.”