It is expected by the UK Authorities and the Working Group on Sterling Risk-Free Reference Rates that the use of Term SONIA will be relatively limited. However, both regulators and market participants expect that Term SONIA will be sufficiently robust for selected applications where the use of a rate that is compounded in arrears is not appropriate or operationally achievable.
The Standard has been developed with the aim of identifying where there may be robust rationales for the use of Term SONIA for transactions in the loan, bond and derivatives markets and to set out certain expected behaviours of markets participants when using or issuing Term SONIA products in light of the reduced systemic risks associated with overnight risk free rates.
The eight Core Principles of the Standard identify selected use cases where there may be robust rationales for using Term SONIA and set out certain expected behaviours of market participants.
FMSB members and other interested parties are invited to comment on the proposed Standard. This consultation will run until 28 May 2021 with the final document expected to be published shortly thereafter.