ICE to launch three-month Sonia futures contract

World
Europe

The Intercontinental Exchange said on Wednesday it will launch a three-month futures contract based on “Sonia,” the Bank of England’s interest rate benchmark which aims to replace Libor.

Central banks across the world want to substitute Libor, the London Interbank Offered Rate, with “risk free” rates like Sonia or sterling overnight index average.

Regulators around the world aim to wean over 350 trillion US dollars of derivatives and other financial contracts away from Libor, after a widespread rate-rigging scandal brought the benchmark into disrepute and left submitting banks facing billions of dollars in regulatory fines.

The move by ICE puts it in direct competition with the London Stock Exchange Group, which will launch its own three-month Sonia futures contract on April 30.

ICE launched a one-month futures contract based on Sonia in December.

European regulators are yet to agree on a Euribor replacement for euro-denominated contracts. Eonia was originally perceived as a likely candidate, but a slump in unsecured lending used to determine the rate raised questions around its robustness

The US Federal Reserve aims to start publishing a new Secured Overnight Funding Rate (SOFR) by mid-2018. The new benchmark, a broad Treasury repo rate, was selected in June by the Alternative Reference Rates Committee.

Source(s): Reuters