Government Broker

What Is a Government Broker?

A government broker is a senior British securities broker in the market for U.K. government gilts. The government broker is authorized to purchase and sell government gilt securities in the primary market and on the London Stock Exchange.

• A government broker is a British securities broker authorized to buy and sell government gilt securities.
• Gilt securities are high-grade bonds issued by governments and private organizations for the purpose of generating revenue.
• Prior to 1986, one company, Mullens and Co., was the primary U.K. government broker.
• Be that as it may, in 1986, the "Big Bang" agreement liberated and modernized financial markets. Subsequently, the Bank of England opened its own gilt-edged division.
• Starting around 1986, government brokers have needed to have a special license and have taken on the name gilt-edged market producers (GEMMs).

Understanding Government Brokers

Prior to 1986, Mullens and Co. filled in as the primary government broker. Yet, in 1986, Mullens and Co. was sold to bank SG Warburg in the midst of the changes in the U.K. financial markets. In 1986, the Bank of England opened its gilt-edged division as part of the Big Bang agreement, which changed the operational activities for trading gilts.

The Big Bang made enormous market disturbance on the London Stock Exchange by canceling fixed commission rates for stockbrokers and getting rid of exchange rules that laid out a conventional division among brokers and "middlemen" or wholesalers. The London securities market was by and large modernized and has since become a major force in the globalization of financial markets.

Advanced Government Brokers

After 1986, a key change in the gilt market was the classification for government brokers, which extended. Government brokers became required to have a special license and took on the name gilt-edged market makers (GEMM).

Gilt-edged market creators are authorized to deal in the issuance and trading of gilt-edged securities. GEMMs must get a gilt trading license from the Bank of England for trading gilts. The license gives access to operational government reporting and authorization for trading gilts. Licensed GEMMs can trade both of the two types of gilts known as conventional and indexed.

Requirements for GEMMs

GEMMs participate in both the primary issuance of gilts and the secondary trading market. The U.K. Debt Management Office (DMO) has specific obligations that GEMMs must meet, remembering amounts for primary issuance and participation expectations for trading. The DMO's obligations and expectations are definite in the GEMM Guidebook by the United Kingdom Debt Management Office.

The DMO's Role

The DMO is entrusted with the daily management of the U.K's. government gilt debt including the holding of primary issuance barters for debt securities. Conventional gilts are the easiest of the two gilt offerings. Conventional gilts are additionally the best outstanding and as such the largest liability of the DMO. Index-linked gilts make customary payments accounting for inflation. The DMO vows to pay gilt holders coupons and principal at maturity.

Any individual or institutional investor can purchase gilts from the DMO or in the secondary market. Gilts are issued in 100-pound units. Bidders in primary issuance can buy through a GEMM as an intermediary or they might register as a member of the DMO's Approved Group of Investors for direct purchases. In secondary market gilt dealings, GEMMs are market producers for gilt debt trading.

Active Buyers

Benefits funds are one of the most active buyers of gilts in both the primary and secondary markets. Individual investors are likewise active, picking gilts for their consistent income and generally safe qualities.