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A critical point for transition to SONIA from LIBOR

| Derivatives

The sterling swap market is at a critical juncture for completing the transition away from LIBOR to SONIA by the end of the year. 2021 saw a strong start for SONIA, in terms of liquidity and robust trading, as the switch away from sterling LIBOR continues to drive momentum.  

We have also observed a consistent increase in the risk and notional trading in SONIA as a proportion of our total Sterling business, in Q4 2020 SONIA was 75% of the notional and 39% of the risk executed on the platform (Source: Tradeweb). 

Source: Tradeweb

Source: Tradeweb, standard fixed/ float swaps only

The latest announcement from the Bank of England working group on Sterling Risk-Free Reference rates was published recentlywith 2 key recommendations for cleared swap users:

  1. By end-Q1 2021, cease initiation of new GBP LIBOR-linked loans, bonds, securitisations and linear derivatives that expire after the end of 2021 
  2. By end-Q1 2021, complete identification of all legacy GBP LIBOR contracts expiring after end 2021 that can be actively converted, and progress active conversion where viable through to completion by end-Q3 2021

What SONIA Trade Types Are Available to Support the Transition?

Tradeweb has solutions for both the trading of SONIA-based instruments and the active conversions of legacy GBP LIBOR contracts.  For new risk trades, the majority of actively traded SONIA interest rate swap packages are now available on the platform:

  • Outright, curves, butterflies 
  • Forward, IMM, and any dated SONIA
  • SONIA invoice spreads 
  • SONIA swap lists 
  • SONIA swaps packaged with Gilts, LIBOR, Gilt linkers, and GBP inflation

How Can I Actively Convert Legacy LIBOR Contracts?

For the active conversion of LIBOR transactions into SONIA, our NPV list trading tool is the easiest way to execute. To convert existing positions simply upload them and create the new SONIA risk that you would like to transfer into. By executing the conversion electronically, you can ensure you receive a competitive and efficient execution of your portfolio switch. This functionality is being used across currencies to facilitate transition, with clients actively trading out USD LIBOR into SOFR.

For questions on the SONIA transition that we can help with, please contact