FCA and Bank of England encourage switch from LIBOR to SONIA for sterling interest rate swaps from Spring 2020

In a statement published by the FCA on the 16th January 2020 the FCA and the Bank of England have identified the 2nd March 2020 as an appropriate date for market makers to change the market convention for sterling interest rate swaps from LIBOR to SONIA. The market for SONIA derivatives is already well-established with the average cleared over-the-counter SONIA swaps exceeding £4.5trillion per month over the past six months, and the traded monthly notional value is now broadly equivalent to Sterling LIBOR.

Edwin Schooling Latter, Director of Markets and Wholesale Policy at the FCA, has stated that “We have seen great progress in the development of the SONIA derivatives market. I encourage all market participants to join the initiative to put SONIA first over LIBOR from 2 March. This should help make SONIA the market standard in sterling swaps as is already the case in the bond market.” Further, Andrew Hauser, Executive Director for Markets, Bank of England, said that  “This move toward a much greater use of SONIA in the sterling derivatives market builds on the strong foundations established in recent years and demonstrates a strong continuing partnership between UK authorities and market participants to bring about a decisive shift away from use of LIBOR ahead of end-2021.”

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