NeilW wrote:
Can I ask you something else, since you've run a GEMM? Where does the GEMM get their cash balances from to buy the Gilts in the auction? And if they borrow from a bank what do they use as collateral?
Well typically the GEMM will run a broadly flat position, although that isn't possible absolutely on every gilt on a an "every day" basis. The cash position of a GEMM is broadly flat, a few million positive/negative (well in the range -£100m - +£100m but more often a quarter of that, if that's considered a few million, but in the terms of the size of the Balance Sheet it is).
The funding will come from the repo market typically, with gilts trading at t+1 settlement and repo at t. Many positions are long one gilt against short another. The cash isn't a big component of that with a repo/reverse repo net pairing taking place across the market with GEMMs and Commercial Banks with opposing positions.
GEMMs broadly speaking are facilitators of a market where they are the only counterparty able to deal with the DMO (acting as agent of the Government) in Gilt issuance auctions, and broadly speaking (but not strictly true) in the reverse situation where the APF (acting as agent for the BOE who in turn are acting as agent for the Government) in "QE". In effect GEMMs will be net selling Gilts in the market, to other GEMMs and mainly Commercial Banks/Financial Institutions in the lead up to, and post an auction, and the opposite on APF days.
So in answer to your question a GEMM will only have a small cash requirement daily, will fund this almost exclusively from the repo market, and effectively any collateral is Government paper.
I'm not sure what your thinking is, and where it is relevant, but aside from settlement mechanisms, the question is more applicable I would think to holders of Gilts which GEMMs aren't particularly.