Andrew Hauser, Executive Director of Markets at the Bank of England ("BoE") announced two new initiatives to support and accelerate the transition process in the sterling markets from LIBOR to SONIA.

Sterling Overnight Index Average

The BoE proposed to publish a daily compounded Sterling Overnight Index Average ("SONIA") index from July 2020. This initiative is designed to support market participants in their LIBOR transition efforts by providing a tool to consistently simplify the calculation of compounded interest rates. The BoE also released a discussion paper asking for market input on this proposal and the proposed use of compounded SONIA averages.


Beginning in October 2020, the BoE will increase haircuts progressively on LIBOR-linked collateral it lends against, through to the end of 2021, when haircuts are scheduled to reach 100% (i.e., implying effective ineligibility). This gradual increase is designed to encourage firms to replace such collateral with risk-free rate alternatives. Details of this decision were published in a BoE market notice.

LIBOR Transition Targets

Additionally, Mr. Hauser reviewed progress on LIBOR transition and the upcoming targets set by the UK Risk-Free Rate Working Group. In particular, he highlighted the strong encouragement of UK regulators for market makers to use SONIA as the standard reference rate for sterling interest rate swaps from March 2, 2020, as well as the target for no new issuances of term LIBOR-linked cash instruments after Q3 2020.

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