Financial data vendor Refinitiv has launched a prototype version of its Term SONIA (Sterling Overnight Index Average) Reference Rate, which was designed to measure average SONIA rates over one month, three month and six month tenor periods on a daily basis.
The beta version will remain available for testing purposes until the end of 2020 before Refinitiv launches a regulated benchmark just when banks begin to offer non-LIBOR linked products. Until then, the new reference rates will remain accessible free of charge on Refinitiv Workspace, Eikon, DataScope, and via its website.
Refinitiv said it had adopted a waterfall methodology to calculate the reference rates using executable bid and offer prices and volumes for eligible SONIA-linked overnight swaps on the central limit order books of TP ICAP’s i-Swap and Tradition’s Trad-X electronic platforms. The secondary source of data is streaming bids and offers from Tradeweb’s institutional electronic swaps platform.
The news comes as the scandal-ridden LIBOR is set to retire at the end of 2021 as the world’s most important benchmark following a multiyear rigging scandal by major lender since the 2008 financial crisis.
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They were also a dozen bankers that have been convicted on Euribor rate-rigging charges in Britain in a series of prosecutions brought by the Serious Fraud Office, which ultimately prompted an overhaul of the UK’s rate-setting rules. Prosecutors alleged that bank traders dishonestly manipulated the rate to benefit their own trading positions, nudging them up or down while ignoring rules that they should be set independently.
LIBOR, which underpins more than $300 trillion in derivatives and other instruments, is set to be replaced with the Bank of England’s Sonia rate for sterling-denominated swaps, loans, and futures.
UK regulators urged market participants earlier this year to accelerate the shift to the Sonia overnight rate before it ceases issuance of cash products referencing Libor by the third quarter.
Shirley Barrow, Global Head Benchmarks & Indices, Refinitiv, said: “As the global financial markets migrate away from LIBOR, the need for accurate, robust and trusted alternative rates becomes ever more important. As a regulated benchmark administrator and provider of key benchmark rates, Refinitiv is delighted to use our many years of experience to create the Term SONIA Reference Rate prototype to support the industry.”