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Global regulators will set out potential reforms to markets and funds after stresses surfaced during extreme market volatility in March as many countries were entering pandemic lockdowns, Bank of England Deputy Governor Jon Cunliffe said on Thursday.

A pending review from the Financial Stability Board, a body that includes central banks and regulators from the Group of 20 Economies (G20), will outline how funds and markets fared in March, Cunliffe said in a speech.

Markets swung wildly as investors and companies sought to build up cash defences by making hefty redemptions from money market funds and other types of funds.

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Central banks had to inject liquidity into markets to prevent the flow of credit to the economy seizing up.

The FSB review will set out a “comprehensive work plan of specific and cross-cutting issues that need further attention at the international level, including identifying areas where policy changes may be needed”, Cunliffe said.

Bank dealers and margin calls from clearing houses appear to have had the “greatest relevance” in supplying market liquidity to leveraged non-banks such as hedge funds, he said.

“This is not to say that there will be a single explanation of the ‘dash for cash’ and that we will find it in the amplification dynamics of leveraged non-banks,” Cunliffe told the Managed Funds Association (MFA), a hedge fund industry body.

“Leveraged non-banks do not operate in isolation. Their activity is interconnected with many parts of the market-based finance system, linking to banks, other non-banks and financial market infrastructure.”

MFA head of international affairs Michael Pedroni said hedge funds had been resilient in March and able to withstand the force and speed of Treasury market turmoil.

“The data are clear that hedge fund positions in the Treasury market were too small to cause the volatility experienced during this time, which is why the Federal Reserve concluded that the evidence is ‘weak’ that funds were the ‘primary driver’ of the turmoil in March,” Pedroni said.

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