BoE rates group discusses alternatives to LIBOR

Creating a SONIA offering and developing a risk-free rates based ecosystem will be a key objective to facilitate adoption, according to the minutes of the Bank of England’s Working Group on Sterling Risk-Free Reference Rates. It was suggested that examining SONIA based notes issuance and enabling FRNs to be based on risk-free rates should be a focus of the bonds sub-group. Members suggested that building a new SONIA offering in primary markets would facilitate legacy conversion.

Members expressed greater concerns with psychological and administrative barriers than with technological or economic barriers. Members also cited fear of market fragmentation as a potential deterrent to benchmark transition. Providing education and raising awareness amongst market participants and end users regarding the benchmark agenda was consistently cited as a priority. Members thought it would be particularly important to communicate those reform efforts were internationally coordinated. The Group’s plans to establish industry forums were cited as a useful means to strengthen communication. One member cited ICE licensing information on LIBOR as a useful way to identify end-users for outreach. In light of this, the Investment Association mentioned that they were planning to establish a buy-side forum.

The term rates sub-group chair provided members with an overview of the envisaged consultation for term benchmark rates referencing SONIA. The consultation would explain the rationale for the identified use cases, and for where it concluded a term benchmark rate was not necessary. It would also outline the alternative data sources and methodologies for building a robust term benchmark, with a recommendation around using actionable OIS quotes on MTFs operating central limit order books. In this context, the Group was informed that ICE Swap rate for USD was not produced for any tenor for one day in February due to a lack of streamed actionable quotes during the fixing window. It was noted that any proposal would need to consider such an eventuality.

Read the full minutes of the Working Group meeting

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