FCA Asks Financial Firms to Drop Synthetic LIBOR for Robust Alternative
- Most of the LIBOR settings ended on December 31, 2021.
- Synthetic LIBOR was introduced as a temporary measure.

On Wednesday, the UK’s Financial Conduct Authority, along with the Bank of England and a Working Group, has asked the financial companies that are using synthetic LIBOR to adopt a permanent and robust alternative to the controversial LIBOR.
The FCA discontinued most of the LIBOR at the end of 2021. This prompted the majority of the industry to make a transition to SONIA, as £13 trillion LIBOR-referencing contracts converted to SONIA last December. In addition, it added that there is no longer any sterling LIBOR-linked cleared derivatives.
But, the UK agency introduced a synthetic LIBOR in November for two currencies, pound sterling and yen, for its temporary usage in existing contracts. “The FCA has been clear that synthetic LIBOR is a temporary bridge
Bridge
The bridge or liquidity bridge is an essential component for brokers that are enabling their clients to trade at interbank rates directly via a Prime Broker or a Prime-of-Prime (PoP). While market makers do not require a bridge in order to service its clients, brokers which are sending through orders to a liquidity provider or an electronic execution venue need a bridge to connect their trading platform to the interbank market.Bridges are used extensively in forex trading, specifically for Metatrader, the world’s most popular trading platform. Bridges can be connecting a broker to a prime of prime or to a prime broker. Connectivity providers are delivering solutions mostly oriented towards the most popular platforms in the market – MetaTrader 4 (MT4) and MT5. The component is another crucial part of proper risk mitigation for the brokerage. The Need for Bridges in Retail TradingGiven the rise of the MT4 and MT5 platforms, there has since arose a need for bridge technology. This is due to the fact that Metaquotes, the company behind MT4, only envisaged their platform being used as a purely an interface client broker trading.This means the broker set the quotes, set the spread, and traded against the client. However, the trader actually had no direct access to the wholesale forex market, yet many brokers were unwilling to let go of MT4 in favor of other platforms which already inherently supported access to the market via Electronic Communications Networks (ECN) due to MT4’s huge popularity and thus potential loss of clients. MetaTrader was not designed to communicate with banks or liquidity providers because Metaquotes didn’t implement the FIX protocol (Financial Information Exchange). The FIX protocol is an electronic communications protocol setup in the early 1990’s to provide worldwide exchange of information in real time with respect to the transactions of financial markets and instruments. As a result, software was developed by third parties to enable MetaTrader to connect traders to the interbank.
The bridge or liquidity bridge is an essential component for brokers that are enabling their clients to trade at interbank rates directly via a Prime Broker or a Prime-of-Prime (PoP). While market makers do not require a bridge in order to service its clients, brokers which are sending through orders to a liquidity provider or an electronic execution venue need a bridge to connect their trading platform to the interbank market.Bridges are used extensively in forex trading, specifically for Metatrader, the world’s most popular trading platform. Bridges can be connecting a broker to a prime of prime or to a prime broker. Connectivity providers are delivering solutions mostly oriented towards the most popular platforms in the market – MetaTrader 4 (MT4) and MT5. The component is another crucial part of proper risk mitigation for the brokerage. The Need for Bridges in Retail TradingGiven the rise of the MT4 and MT5 platforms, there has since arose a need for bridge technology. This is due to the fact that Metaquotes, the company behind MT4, only envisaged their platform being used as a purely an interface client broker trading.This means the broker set the quotes, set the spread, and traded against the client. However, the trader actually had no direct access to the wholesale forex market, yet many brokers were unwilling to let go of MT4 in favor of other platforms which already inherently supported access to the market via Electronic Communications Networks (ECN) due to MT4’s huge popularity and thus potential loss of clients. MetaTrader was not designed to communicate with banks or liquidity providers because Metaquotes didn’t implement the FIX protocol (Financial Information Exchange). The FIX protocol is an electronic communications protocol setup in the early 1990’s to provide worldwide exchange of information in real time with respect to the transactions of financial markets and instruments. As a result, software was developed by third parties to enable MetaTrader to connect traders to the interbank.
Read this Term to RFRs, and its availability is not guaranteed beyond end-2022,” the regulator clarified.
The Dominance of SONIA
Moreover, the FCA’s decision to put an end to LIBOR prompted other global regulators to urge companies to find alternatives to the widely used benchmark. By far, SONIA is the most used alternative in the UK. Its floating rate note issuance in cash markets has exceeded £120 billion since 2018, and new SONIA lending surpassed £100 billion in diverse sectors.
According to the Bank of Estimates, less than 2 percent of the total sterling LIBOR legacy stock remains and notes still remain, and firms are already addressing this residual exposure.
“It is difficult to think of a more far-reaching and substantial market shift in recent years than the transition away from LIBOR,” said Andrew Bailey, the Governor of The Bank of England. “The fact that most LIBOR settings ended at end-2021 with minimal disruption is a testament to the co-operation across a wide range of industry sectors and jurisdictions.”
On Wednesday, the UK’s Financial Conduct Authority, along with the Bank of England and a Working Group, has asked the financial companies that are using synthetic LIBOR to adopt a permanent and robust alternative to the controversial LIBOR.
The FCA discontinued most of the LIBOR at the end of 2021. This prompted the majority of the industry to make a transition to SONIA, as £13 trillion LIBOR-referencing contracts converted to SONIA last December. In addition, it added that there is no longer any sterling LIBOR-linked cleared derivatives.
But, the UK agency introduced a synthetic LIBOR in November for two currencies, pound sterling and yen, for its temporary usage in existing contracts. “The FCA has been clear that synthetic LIBOR is a temporary bridge
Bridge
The bridge or liquidity bridge is an essential component for brokers that are enabling their clients to trade at interbank rates directly via a Prime Broker or a Prime-of-Prime (PoP). While market makers do not require a bridge in order to service its clients, brokers which are sending through orders to a liquidity provider or an electronic execution venue need a bridge to connect their trading platform to the interbank market.Bridges are used extensively in forex trading, specifically for Metatrader, the world’s most popular trading platform. Bridges can be connecting a broker to a prime of prime or to a prime broker. Connectivity providers are delivering solutions mostly oriented towards the most popular platforms in the market – MetaTrader 4 (MT4) and MT5. The component is another crucial part of proper risk mitigation for the brokerage. The Need for Bridges in Retail TradingGiven the rise of the MT4 and MT5 platforms, there has since arose a need for bridge technology. This is due to the fact that Metaquotes, the company behind MT4, only envisaged their platform being used as a purely an interface client broker trading.This means the broker set the quotes, set the spread, and traded against the client. However, the trader actually had no direct access to the wholesale forex market, yet many brokers were unwilling to let go of MT4 in favor of other platforms which already inherently supported access to the market via Electronic Communications Networks (ECN) due to MT4’s huge popularity and thus potential loss of clients. MetaTrader was not designed to communicate with banks or liquidity providers because Metaquotes didn’t implement the FIX protocol (Financial Information Exchange). The FIX protocol is an electronic communications protocol setup in the early 1990’s to provide worldwide exchange of information in real time with respect to the transactions of financial markets and instruments. As a result, software was developed by third parties to enable MetaTrader to connect traders to the interbank.
The bridge or liquidity bridge is an essential component for brokers that are enabling their clients to trade at interbank rates directly via a Prime Broker or a Prime-of-Prime (PoP). While market makers do not require a bridge in order to service its clients, brokers which are sending through orders to a liquidity provider or an electronic execution venue need a bridge to connect their trading platform to the interbank market.Bridges are used extensively in forex trading, specifically for Metatrader, the world’s most popular trading platform. Bridges can be connecting a broker to a prime of prime or to a prime broker. Connectivity providers are delivering solutions mostly oriented towards the most popular platforms in the market – MetaTrader 4 (MT4) and MT5. The component is another crucial part of proper risk mitigation for the brokerage. The Need for Bridges in Retail TradingGiven the rise of the MT4 and MT5 platforms, there has since arose a need for bridge technology. This is due to the fact that Metaquotes, the company behind MT4, only envisaged their platform being used as a purely an interface client broker trading.This means the broker set the quotes, set the spread, and traded against the client. However, the trader actually had no direct access to the wholesale forex market, yet many brokers were unwilling to let go of MT4 in favor of other platforms which already inherently supported access to the market via Electronic Communications Networks (ECN) due to MT4’s huge popularity and thus potential loss of clients. MetaTrader was not designed to communicate with banks or liquidity providers because Metaquotes didn’t implement the FIX protocol (Financial Information Exchange). The FIX protocol is an electronic communications protocol setup in the early 1990’s to provide worldwide exchange of information in real time with respect to the transactions of financial markets and instruments. As a result, software was developed by third parties to enable MetaTrader to connect traders to the interbank.
Read this Term to RFRs, and its availability is not guaranteed beyond end-2022,” the regulator clarified.
The Dominance of SONIA
Moreover, the FCA’s decision to put an end to LIBOR prompted other global regulators to urge companies to find alternatives to the widely used benchmark. By far, SONIA is the most used alternative in the UK. Its floating rate note issuance in cash markets has exceeded £120 billion since 2018, and new SONIA lending surpassed £100 billion in diverse sectors.
According to the Bank of Estimates, less than 2 percent of the total sterling LIBOR legacy stock remains and notes still remain, and firms are already addressing this residual exposure.
“It is difficult to think of a more far-reaching and substantial market shift in recent years than the transition away from LIBOR,” said Andrew Bailey, the Governor of The Bank of England. “The fact that most LIBOR settings ended at end-2021 with minimal disruption is a testament to the co-operation across a wide range of industry sectors and jurisdictions.”