Bank of England to publish SONIA Compounded Index and increase haircuts on LIBOR-linked collateral

In his speech today Andrew Hauser, Executive Director, Markets, announces two new initiatives aimed at further supporting risk free rate transition.

Firstly, the Bank intends to publish a daily SONIA Compounded Index. This would support the use of SONIA in as wide a range of financial products as possible by simplifying the calculation of compounded interest rates. The Bank is also considering publishing a simple set of compounded SONIA Period Averages, subject to a clear consensus from the market on the preferred conventions to be used. The Bank is inviting comment on the options presented in the discussion paper, after which it will decide whether it would be helpful to publish such averages.

Secondly, Andrew announces that from October 2020 the Bank will begin increasing haircuts on LIBOR-linked collateral it lends against.  From 2020 Q3, the Bank will progressively increase the haircuts on LIBOR-linked pre-positioned collateral.  Haircuts are scheduled to reach 100% (i.e. implying effective ineligibility) at the end of 2021.

The full speech is available at https://www.bankofengland.co.uk/-/media/boe/files/speech/2020/turbo-charging-sterling-libor-transition-why-2020-is-the-year-for-action-speech-by-andrew-hauser.pdf

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