Bank of England Implements Sonia Reforms

The Bank of England says it has implemented its reforms to the Sonia Interest rate benchmark.

The bank says its aim in reforming Sonia – the Sterling Overnight Index Average – is to strengthen a benchmark which is considered critical for the sterling financial markets. Previously, the benchmark was based on a market for brokered deposits, which the Old Lady says, has limited transaction volumes. 

The new benchmark now captures a broader scope of overnight unsecured deposits, by including bilaterally negotiated transactions alongside brokered transactions. Volumes underlying the rate based on the new methodology now average around GBP 50 billion daily, over three times larger than those underlying Sonia previously.

In addition to the methodological changes, the publication time of Sonia has been moved, such that the rate for a given London business day is now published at 09:00 on the following London business day. The rate for launch day, Monday 23 April, will be calculated by the Bank of England using the reformed methodology and published at 09:00 Tuesday 24 April. 

Commenting, Dave Ramsden (Deputy Governor for Markets and Banking) said “Today’s implementation of the reforms to Sonia is an important milestone in the Bank’s delivery of improvements to the resilience and effectiveness of financial markets,” says Dave Ramsden, deputy governor for Markets and Banking at the Bank of England. “The reforms improve the sustainability and representativeness of this key piece of the sterling market infrastructure.”

The Bank says it will publish an assessment of its compliance with IOSCO’s Principles for Financial Benchmarks in the summer, adding that an assurance report produced by EY will be published alongside this.

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Colin Lambert

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