SONIA (Sterling Over Night Index Average) is the
effective
Effectiveness is the capability of producing a desired result or the ability to produce desired output. When something is deemed effective, it means it has an intended or expected outcome, or produces a deep, vivid impression.
Etymology
The ori ...
reference for
overnight indexed swap
An overnight indexed swap (OIS) is an interest rate swap (''IRS'') over some given term, e.g. 10Y, where the periodic fixed payments are tied to a given fixed rate while the periodic floating payments are tied to a floating rate calculated from ...
s for unsecured transactions in the
Sterling
Sterling may refer to:
Common meanings
* Sterling silver, a grade of silver
* Sterling (currency), the currency of the United Kingdom
** Pound sterling, the primary unit of that currency
Places United Kingdom
* Stirling, a Scottish city w ...
market. SONIA is a
risk-free rate
The risk-free rate of return, usually shortened to the risk-free rate, is the rate of return of a hypothetical investment with scheduled payments over a fixed period of time that is assumed to meet all payment obligations.
Since the risk-free r ...
.
History
SONIA was launched in March 1997 by WMBA Limited, and is endorsed by the
British Bankers Association
The British Bankers' Association (BBA) was a trade association for the UK banking and financial services sector. From 1 July 2017, it was merged into UK Finance.
It represented members from a wide range of banking and financial services. The ass ...
(BBA).
The
Bank of England took on administration of rate in April 2016. Two years later, in April 2018, the rate underwent a number of reforms. In the same year efforts to promote SONIA as the standard Sterling interest rate benchmark for loans, derivatives and bonds were stepped up.
In July 2019, UK transport group
National Express
National Express Group is a British multinational public transport company headquartered in Birmingham, England. It operates bus, coach, train and tram services in the United Kingdom, Ireland (National Express operates Eurolines in conjunction ...
obtained the first corporate loan referencing SONIA. The loan was drawn from
NatWest
National Westminster Bank, commonly known as NatWest, is a major retail and commercial bank in the United Kingdom based in London, England. It was established in 1968 by the merger of National Provincial Bank and Westminster Bank. In 2000, it ...
as part of a pilot scheme before launch into the wider market.
In February 2021 the ''Working Group on Sterling Risk-Free Reference Rates'' (RFRWG) announced the end of the GBP Libor by the end of 2021 and recommended to cease initiation of GBP LIBOR-linked loans, bonds, securitisations and linear derivatives by end of March 2021.
Technical details
On each
London
London is the capital and List of urban areas in the United Kingdom, largest city of England and the United Kingdom, with a population of just under 9 million. It stands on the River Thames in south-east England at the head of a estuary dow ...
business day, SONIA is measured as the trimmed mean, rounded to four decimal places, of interest rates paid on eligible sterling denominated deposit transactions. The trimmed mean is calculated as the volume-weighted mean rate, based on the central 50% of the volume-weighted distribution of rates.
Eligible transactions are:
* reported to the Bank’s Sterling Money Market daily data collection, in accordance with the effective version of th
‘Reporting Instructions for Form SMMD’
* unsecured and of one business day maturity;
* executed between 00:00 hours and 18:00 hours UK time and settled that same-day; and
* greater than or equal to £25 million in value.
The rate conventions are: annualised rate, act/365, four decimal places.
In 2018, SONIA (floating rate) bonds accounted for 20.7 per cent share of UK issuance compared to 48.1 per cent share of Interbank Offered Rate (floating rate) bonds.
See also
*
Federal funds rate
In the United States, the federal funds rate is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight on an uncollateralized basis. Reserve balances ...
*
London Inter-bank Offered Rate
*
Mutan rate
The Mutan interest rate is the un- collateralized overnight call rate in Japan. It is the reference rate for JPY
The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the ...
*
List of acronyms: European sovereign-debt crisis
References
External links
*
WMBA - Wholesale Markets Brokers' AssociationBBA Guide to SONIA
Banking in the United Kingdom
Interest rates
Reference rates
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