SONIA is a risk-free rate (RFR) developed by The Working Group of the Bank of England as an alternative RFR for anchored transactions. SONIA was recommended by The Working Group in April 2017 as the preferred RFR and since then has been focused on how to transition to using SONIA across sterling markets.  

Track the probability of a rate move at upcoming Bank of England Monetary Policy Committee meetings with the CME BoEWatch Tool.

Other Alternative Reference Rates

Working groups, convened by regulators in many global jurisdictions, have already converged on alternative reference rates.

Country/Currency/CODE IBOR Rate New Reference Rate
USA/Dollars/USD USD ICE LIBOR SOFR
UK/Pounds Sterling/GBP GBP ICE LIBOR SONIA
Switzerland/Swiss Francs/CHF CHF ICE LIBOR SARON
Japan/Yen/JPY JPY ICE LIBOR, Tibor TONAR
EU/Euro/EUR Euribor ESTER

The U.S. Federal Reserve’s working group, known as the Alternative Reference Rate Committee (AARC) convened in November 2014, and by June 2017 arrived on the Secured Overnight Finance Rate (SOFR) as a new reference rate. In May 2018, CME Group launched futures contracts on the SOFR.

The Sterling Risk-free Reference Rate Working Group selected the Sterling Overnight Index Average rate as a new benchmark rate. This rate, referred to as SONIA, is administered by the Bank of England since 2016 and has been reformed into a more robust transaction-based index since April 2018.

How SONIA is Measured

SONIA is a measure of the rate at which interest is paid on sterling short-term wholesale funds in circumstances where credit, liquidity and other risks are minimal. On each London business day, SONIA is measured as the trimmed mean, rounded to four decimal places, of interest rates paid on eligible sterling denominated deposit transactions.

The trimmed mean is calculated as the volume-weighted mean rate, based on the central 50% of the volume-weighted distribution of rates.1

  • Eligible transactions are:
  • Reported to the Bank’s Sterling Money Market daily data collection, in accordance with the effective version of the ”Reporting Instructions for Form SMMD”
  • Unsecured and of one business day maturity
  • Executed between 00:00 hours and 18:00 hours UK time and settled that same-day
  • Greater than or equal to £25 million in value

The Bank’s governance arrangements for administering SONIA have been designed to be consistent with the intent of international best practice, as encapsulated in the IOSCO Principles for Financial Benchmarks.2

The SONIA rate for a given London business day is published at 9:00 a.m. on the following London business day.3

References

  1. Bank of England, “SONIA Key features and policies, May 2018”
  2. Bank of England, “SONIA Key features and policies, May 2018”
  3. Bank of England, “SONIA Key features and policies, May 2018”

 

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