The FCA and Bank of England published a statement recommending that participants in the sterling exchange-traded derivatives market switch to using Sterling Overnight Index Average (SONIA) instead of GBP London Inter-Bank Offered Rate (LIBOR) from 17 June 2021. Participants in this market were encouraged to make the needed preparations ahead of this date to enable new trading in these instruments that expires after the end of 2021 to be in GBP SONIA rather than LIBOR. The FCA and the Bank of England will be in contact with participants to assess whether market conditions will enable the transition to proceed smoothly.
The recommendation was originally made by the Working Group on Sterling Risk-Free Reference Rates, a group of market participants and trade associations, of which the FCA and Bank of England are ex officio members. In light of this recommendation, the FCA engaged with market participants to assess whether the proposal was agreeable and practical, and found there to be strong support for the switch to SONIA.
The recommendation that participants in the sterling exchange-traded derivatives market switch to using SONIA will not prevent trading in GBP LIBOR exchange-traded derivatives, with those instruments being available until later in 2021 in order to allow risk management of current positions. It will however facilitate SONIA rather than GBP LIBOR being the main source of liquidity, which will consequently promote a larger percentage of GBP exchange-traded derivative trading volumes to change to SONIA.
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