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ARTICLE · 09 MARCH 2020

LIBOR Transition – A Compounding Problem For Emerging Markets

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The Sterling Risk-Free Reference Rates Working Group has published a working paper outlining why, in their view, overnight SONIA compounded in arrears is appropriate and likely to be operationally achievable ...

United KingdomFinance and Banking
Ashley McDermott
Ashley McDermott
Douglas A. Doetsch
Douglas A. Doetsch
Gabriela Sakamoto
Gabriela Sakamoto
Hallam Chow
Hallam Chow
J. Paul Forrester
J. Paul Forrester
Maggie C. K. Cheung
Maggie C. K. Cheung
Rachel Speight
Rachel Speight
Richard J. I. Stock
Richard J. I. Stock
Sarah Walters
Sarah Walters
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Financial regulators in the UK have declared 2020 to be a "key year for [LIBOR] transition" and reiterated the need to accelerate progress1. On 26 February 2020, the Bank of England announced its intention to publish a daily SONIA compounded-in-arrears index from July 2020 to support the use of SONIA in as wide a range of financial products as possible by simplifying the calculation of compounded interest rates. This is in line with an earlier announcement from the Federal Reserve Bank of New York relating to SOFR.

At the same time, the Sterling Risk-Free Reference Rates Working Group (the "Working Group") has published a working paper2 (the "Working Paper") outlining why, in their view, overnight SONIA compounded in arrears is appropriate and likely to be operationally achievable for approximately 90% by value of the sterling LIBOR loan market. However, this Working Paper also recognises the remaining 10% of loan deals by value would likely require some sort of

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