Update: The Bank of England has delayed the introduction of increased haircuts to apply to all LIBOR linked collateral. For more details, please refer to our July 28 post.

The FCA and the Bank of England (BoE) have encouraged market participants to switch from LIBOR to SONIA from March 2, 2020 in all new trades.  Some market participants have already started referencing RFRs.  For the year to date ending on March 6, 2020 the following notionals* (as published by ISDA) were traded.

RFR Traded Notional Trade Count
SOFR $222.9 billion 998
SONIA $7.1 trillion 6,304
€STR $0.9 billion 16
SARON $4.2 billion 9
TONAR $76.3 billion 178

In February 2020, with the view to accelerate the use of SONIA in sterling markets, the BoE took the following steps:

  • The BoE announced that it intends to publish a daily SONIA Compounded Index to support the use of SONIA in a wider range of products.
  • The BoE published a discussion paper entitled “Supporting Risk-Free Rate transition through the provision of compounded SONIA” to obtain market feedback on the design of the proposed SONIA Compounded Index and whether the BoE should also publish a set of compounded SONIA Period Averages. This consultation is open until 9 April 2020.
  • The BoE announced that, subject to the feedback it receives on the consultation mentioned above, it intends to publish the SONIA Compounded Index by end-July 2020.
  • The BoE announced that it will increase haircuts on LIBOR-linked collateral that it lends against with effect from Q3 2020.

The FCA and BoE continue to publish letters for specific market participants, such as trade associations and asset management firms, to keep them updated on developments regarding the transition from LIBOR.

Please see the FCA and BoE’s announcement regarding the switch from LIBOR to SONIA and letters to trade associations and asset management firms, along with other such updates.

For more information, refer to the BoE’s announcements and discussion paper.

*Please note that these figures relate only to interest rate derivatives required to be disclosed under U.S. regulations and do not include any exchange-traded or credit derivatives.