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 a ...

s for unsecured transactions in the Sterling market. SONIA is a risk-free rate.

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 The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government of ...

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 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 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 down to the North Sea, and has been a majo ...

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.

References

External links

*
WMBA - Wholesale Markets Brokers' Association

BBA Guide to SONIA
Banking in the United Kingdom Interest rates Reference rates {{macroeconomics-stub

History

Technical details

See also

References

External links