Letter to Bank of England: Reform of SONIA: 30 December 2016

The FMLC responded to a consultation paper published by the Bank of England in October 2016 on the evolution of the SONIA benchmark.  The Consultation Paper sets out proposals for reforming the SONIA calculation methodology and addresses the question of how these changes can be implemented with minimum market disruption.

The FMLC notes that the approach proposed in the Consultation Paper is similar to one of the pathways recommended in a July 2014 report on reforming major benchmarks published by the Financial Stability Board and that the projected values for SONIA as it is currently calculated and for reformed SONIA are very similar.  In light of this, the FMLC agrees with the approach set out in the Consultation Paper.

The Committee also draws attention to the possibility that the economics of the underlying market for SONIA swaps may be slightly affected by the change in publication times for SONIA, with a possible consequential impact on the projected values for certain swap rates, as contractually defined.

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