The
Bank of England has today published a consultation document setting out in
detail plans for a new sterling money market data collection. The
consultation describes how the Bank plans to use these data to reform the
Sterling Overnight Index Average (SONIA) benchmark interest rate. SONIA is
a basis for British interest rate futures, which investors use as a guide to
future moves in interest rates.
The aim is to secure and improve the
information available to the Bank on conditions in sterling money markets. ‘The
Bank intends to collect transaction-level data from banks, building societies and
major investment firms on their secured and unsecured sterling money market
borrowing activity. This will provide the Bank with a better
understanding of developments in short-term interest rates, benefiting the
Bank’s analysis of both monetary and financial conditions. It will also
provide a richer picture of activity in the sterling money market, enabling the
Bank to better assess overall market effectiveness’.
As
announced by the Bank, 'the consultation sets out, at a high level, the
Bank’s plans to reform SONIA, a key overnight unsecured interest rate benchmark.
These plans are likely to be of interest to users of SONIA, including
participants in the sterling Overnight Indexed Swap (OIS) market'.
The
Bank and the Wholesale Market Brokers’ Association (WMBA) – which currently
administers SONIA – are working towards the Bank taking over as administrator
of SONIA in early 2016 so that, in due course, SONIA can be transitioned to a
new broader basis.
The
BoE will consult on the planned changes until October 1st. It intends to implement
changes following a second round of consultation. The Bank anticipates
that it will be in a position to consult on detailed plans for the reform of
SONIA in the second quarter of 2016.
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