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    BoE Statement on Conventions for Referencing SONIA in New Contracts

    August 08, 2019

    BoE released a statement from the Working Group on Sterling Risk-Free Reference Rates, along with an aggregated summary of responses to the March 2019 discussion paper, on SONIA conventions and SONIA referencing in new contracts. The discussion paper captured the most significant conventions identified at the time by the working group. In addition, the Infrastructure sub-group published a working paper to aid in the operational processing of loans referencing alternative risk-free rates, focusing on potential enhancements to loan systems for vendors and proprietary system owners. The sub-group has also published an update to its standing priority list with regard to infrastructure developments for the risk-free rate transition in UK markets.

    The purpose of the statement is to continue to support market participants in their adoption of SONIA and provide further information when referencing SONIA in bonds, loans, and derivatives. In doing so the working group aims to further support template documentation and liquidity in SONIA referencing products. The March discussion paper had invited market participants to provide feedback to support the specific transition work program. It captured the most significant conventions identified at the time by the working group and provided information intended to support market participants in their preparations for addition of SONIA as well as infrastructure providers and calculation agents in their system development. 

    The Working Group on Sterling Risk-Free Reference Rates was established in 2015 to implement the FSB recommendation to develop alternative risk-free rates for use, instead of LIBOR-style reference rates. In April 2017, the working group recommended SONIA benchmark as their preferred risk-free rate and since then the group has been focused on how to transition to using SONIA across sterling markets. 

     

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    Keywords: Europe, UK, Banking, Securities, SONIA, LIBOR, Risk-Free Rates, Interest Rate Benchmarks, BoE

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