Financial markets data provider Refinitiv has announced the launch of a prototype Term SONIA (Sterling Overnight Index Average) Reference Rate.

The Refinitiv Term SONIA will leverage the firm’s extensive experience in administering benchmarks to create a British Pound Sterling (GBP) forward-looking term risk-free rate that is published daily prior to noon. The rate will be available in one-month, three-month and six-month tenors.

The London InterBank Offered Rate (LIBOR) underpins hundreds of trillions of dollars of financial instruments and contracts, making it one of the most widely used benchmarks in the world. After the end of 2021, the Financial Conduct Authority (FCA), who regulate the LIBOR benchmark administrator, will no longer compel banks to submit to LIBOR. The Refinitiv Term SONIA can support market participants including lenders and borrowers with their migration away from GBP LIBOR.

Refinitiv have adopted a waterfall methodology to ensure a robust rate is published in almost all circumstances. The primary source of data is executable bids and offers from TP ICAP’s i-Swap and Tradition’s Trad-X electronic platforms. Refinitiv calculate a mid-price based on clearing a predetermined notional amount. The secondary source of data is streaming bids and offers from Tradeweb’s institutional electronic swaps platform. The rate also has an integrated fallback that applies the change in compounded SONIA in advance to the previous day’s rate.

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.”

Firms are able to immediately commence evaluation of the behaviour and suitability of the prototype as well as test technical integration. It is accessible free of charge on Refinitiv Workspace, Eikon, DataScope and via the Refinitiv website.

Refinitiv expect to launch a regulated version of the rate towards the end of 2020 when lenders are expected to offer non-LIBOR linked products to their customers.

Sang Lee, Managing Partner at Aite Group said:

“With LIBOR deeply embedded within most financial institutions the Term SONIA Reference Rate is an essential tool to facilitate transition away from LIBOR prior to the end of next year.  Now more than ever the industry requires a rate that is administered by an experienced provider and subject to the highest regulatory standards, so markets can continue to function even during periods of stress.”

Refinitiv stated that it has many years’ experience designing, calculating, governing, administering and publishing financial benchmarks that lie at the heart of the global financial system.