Market Participants Encouraged to Switch to SONIA

The FCA and the Bank of England are encouraging liquidity providers to use Sterling Overnight Index Average (SONIA), instead of London Interbank Offered Rate (LIBOR), as a basis for inter-dealer trading in sterling non-linear derivatives from 11 May this year. This change will help to meet a key milestone, recommended by the Working Group on Sterling Risk-Free Reference Rates, of stopping the issuing of new GBP LIBOR-linked non-linear derivatives expiring after 2021 by the end of Q2 2021.

This change comes following a similar change for linear sterling swaps during Q4 2020. The change has strong support amongst market participants (the FCA surveyed 22 participants, of which 100% supported this change and 95% felt 11 May 2021 was an appropriate date for the change).

Whilst this change is unlikely to require any immediate action by our Duff & Phelps clients, it will have an impact on them if any of their products are linked to sterling non-linear derivatives whose basis may change in the future.

The full text of the FCA’s statement can be found here.

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