Working Group on Sterling Risk-Free Reference Rates Publishes Summary of Responses to Discussion Paper on SONIA Referencing Conventions

The Working Group on Sterling Risk-Free Reference Rates has published a summary of the responses it received to its March 2019 discussion paper on conventions for referencing SONIA in new financial contracts.
 
The discussion paper sought responses from interested market participants on considerations for SONIA conventions. Key matters upon which market participants responded were:
 

• Alignment between markets: many market participants confirmed that they were primarily concerned that conventions in the derivatives and cash markets should be aligned;
• Lag vs lock out conventions: bond market participants confirmed that they preferred the five-day "lag" convention to enhance certainty of interest rates, a preference supported by the Working Group; in the loan market, the Working Group believes a five-day lag would also have benefits, but there may be situations where the lag would need to be different;
• Rounding of compounded SONIA: bond market participants also highlighted the need for consensus on the number of decimal places to which SONIA should be rounded, and the Working Group considers four decimal places would be appropriate for new SONIA-linked bonds;
• Further market outreach: market participants made clear that further education in the market, for instance a demonstration of practical worked examples and the provision of educational content for technical points, would be helpful.

 
The Working Group has also published (i) a Working Paper on Loans Processing, designed to assist market participants in the operational processing of loans referencing alternative risk free rates such as SONIA; and (ii) a Priority List, setting out the Working Group's key priorities with regard to infrastructure developments for the transition to a risk-free rate.
 
View the Working Group's Statement and Summary of Responses.
 
View the Working Group's Working Paper on Loans Processing.
 
View the Working Group's Priority List. 
 
View details of the Working Group's March 2019 Discussion Paper.

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