Bank of England pushes back date for changes to Sonia, an alternative to Libor for some contracts
The Bank of England today announced it was delaying changes to the way a key interest rate benchmark is calculated.
The Old Lady of Threadneedle Street was due to implement changes for how the Sterling Overnight Index Average (Sonia) is calculated by the end of this year, but announced this morning the new calculations would instead be put in place in March or April 2018.
Sonia is based on the amount of unsecured overnight sterling transactions which are brokered in London each day. It is considered by some to be a good alternative to Libor for underpinning contracts, the latter's reputation having been tainted by claims it was regularly rigged in the years leading up to the financial crisis.
Read more: Bank of England: Sorry, vegans. We're keeping the polymer £5 note
The Bank, which is running an ongoing consultation into how Sonia should be determined in a bid to lessen the chances it could be manipulated, also today proposed using a trimmed mean approach. With this method, the rate would be based on the mean average of brokers' figures but outlying numbers would be dropped from the final average calculation.
At the moment, Sonia is calculated using a volume-weighted mean.
Read more: The Bank's lack of diversity is fuelling dangerous self-confidence
In a consultation paper released last October, the Bank, which has been responsible for overseeing the rate since last April, proposed using a volume-weighted median. However, some of the respondents noted this measure could cause the rate to shift drastically if the sample pool of rates was very diverse on any particular day.