
Government Broker
A government broker is a senior British securities broker in the market for U.K. government gilts. Since 1986, government brokers have had to have a special license and have taken on the name gilt-edged market makers (GEMMs). Prior to 1986, Mullens & Co. served as the primary government broker. 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 senior British securities broker in the market for U.K. government gilts. In secondary market gilt dealings, GEMMs are market makers for gilt debt trading.
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.
Understanding Government Brokers
Prior to 1986, Mullens & Co. served as the primary government broker. But in 1986, Mullens & Co. was sold to bank SG Warburg amid 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 created massive market upheaval on the London Stock Exchange by abolishing fixed commission rates for stockbrokers and doing away with exchange rules that established a formal division between brokers and "jobbers" or wholesalers. The London securities market was in large part modernized and has since become a major force in the globalization of financial markets.
Modern-Day Government Brokers
After 1986, a key change in the gilt market was the classification for government brokers, which widened. Government brokers became required to have a special license and took on the name gilt-edged market makers (GEMM).
Gilt-edged market makers are authorized to deal in the issuance and trading of gilt-edged securities. GEMMs must obtain a gilt trading license from the Bank of England for trading gilts. The license provides 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, including quotas for primary issuance and participation expectations in trading. The DMO’s obligations and expectations are detailed in the GEMM Guidebook by the United Kingdom Debt Management Office.
The DMO's Role
The DMO is tasked with the daily management of the U.K.’s government gilt debt including the holding of primary issuance auctions for debt securities. Conventional gilts are the simplest of the two gilt offerings. Conventional gilts are also the greatest outstanding and as such the largest liability of the DMO. Index-linked gilts make regular payments accounting for inflation. The DMO promises 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 may register as a member of the DMO’s Approved Group of Investors for direct purchases. In secondary market gilt dealings, GEMMs are market makers for gilt debt trading.
Active Buyers
Pension funds are one of the most active buyers of gilts in both the primary and secondary markets. Individual investors are also active, choosing gilts for their steady income and low-risk characteristics.
Related terms:
Big Bang
The Big Bang refers to the day the stock market was deregulated in London, which took place on October 27, 1986. read more
Brexit (British Exit from the European Union)
Brexit refers to the U.K.'s withdrawal from the European Union after voting to do so in a June 2016 referendum. read more
Commodity Futures Trading Commission (CFTC)
The CFTC is an independent U.S. federal agency established by the Commodity Futures Trading Commission Act of 1974. read more
Discount House Defined
Primarily operating in the United Kingdom, a discount house bought, sold, and negotiated bills of exchange or promissory notes. read more
Gilt-Edged Securities
Gilt-edged securities are high-grade investment bonds offered by governments and blue-chip companies as a means of borrowing money. read more
Gilts
Gilts are bonds that are issued by the British government and generally considered low-risk equivalent to U.S. Treasury securities. read more
Jobber
Jobber -- also called a "stockjobber" -- is a slang term for a market maker on the London Stock Exchange prior to October 1986. read more
Market Maker
Market makers compete for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. read more