Government Broker

Investopedia

What is ‘Government Broker’

A government broker is a senior British stockbroker who works for the U.K. government. The government broker is authorized to purchase and sell government securities on the London Stock Exchange. The government broker operates according to instructions received from the Bank of England and also serves as broker to the National Debt Commissioners.

BREAKING DOWN ‘Government Broker’

A government broker was senior partner of Mullins & Co. until 1986 when the Bank of England opened its gilt-edged division. Since then, gilt-edged market makers – authorized to deal directly in gilt-edged securities – have, for the most part, assumed the function of the government broker.

The establishment of the Bank of England’s gilt-edged division concurred with the “Big Bang” in October 1986. 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

The modern-day version of government brokers, the gilt-edged market makers, sell conventional gilts, which are the simplest form of government bonds and represent the largest share of liabilities in the UK government’s portfolio. The gilt-edged market makers guarantee to pay the holder a fixed cash payment, or coupon, every six months until the bond matures, at which point the holder receives the final coupon payment and get his original investment back. For example, an investor who holds £1,000 nominal of 4pc Treasury Gilt 2019 will receive two coupon payments of £20 each on March 7 and September 7 until it expires in 2019.

In Britain, investors purchase gilts that are issued in 100-pound units. Gilts can either be bought directly from the DMO at its outright gilt auctions or through the secondary market. Bidders at auction can also choose to participate through a gilt-edged market maker, who can bid directly by telephone to the DMO on the bidder’s behalf, or by completing an application form, providing that they are members of the DMO’s Approved Group of Investors. Most anyone can buy gilts through a gilt-edged market maker. Pension funds are by far the biggest buyers as they need to meet payments when people retire. They are also purchased by individuals who want a steady income or as part of a balanced investment portfolio.

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