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WMBA Changes its Calculation Methodology for SONIA and RONIA Benchmarks

The Wholesale Markets Brokers’ Association (WMBA) will be changing the methodology used to calculate the Sterling Overnight Index Average (SONIA) and the Repurchase Overnight Index Average (RONIA) benchmarks it administrates. The new calculation will be effective Monday 20th June 2016, and include trades executed up to the closing of the sterling settlement day at 18:00 hrs in London. As is currently the case, the fixing will be made available half an hour after that cut-off.

In order to promote the quality and integrity of these benchmarks, the WMBA periodically reviews the design and in particular the methodology adopted to ensure that the benchmarks are a credible representation of market interest. Due to the upcoming extension to the UK settlement day for both payments and securities settlements, the WMBA has felt is necessary to adapt the current methodology and publicise the changes in line with current benchmark regulation.

What are the changes?

The settlement day for CHAPS, the UK’s high-value payment system, and CREST, the UK’s securities settlement system, will be extended by one hour and forty minutes from Monday 20th June 2016. This decision was made by CHAPS and CREST system operators, CHAPS Co and Euroclear UK & Ireland following a review and consultation instigated by the Bank of England with the final announcement made on 23rd July 2015.

In light of the changes in the infrastructure and related extension of market hours, the WMBA are extending the qualifying transactions from those occurring prior to 16:15 hrs to transactions made prior to 18:00 hrs into the volume weighted average. “Since inception it has always been the intention for WMBA Overnight Index Averages to measure all the trades occurring in the wholesale markets that day.”  The WMBA said in a statement.

The WMBA notes that whilst market convention may result in the wholesale markets closing prior to the CHAPS and CREST cut off point, in order to ensure both a comprehensive inclusion of trades and to eliminate any possibility that transactions could be deferred until the closure of the window, the WMBA will adhere to the 18.00 hrs cut off point for the purposes of calculating the benchmarks. The publication time for SONIA and RONIA will change to 18:30 hrs UK time.

Current Methodology

“SONIA is the weighted average rate to four decimal places of all unsecured sterling overnight cash transactions brokered in London by contributing WMBA member firms between 00:00 hrs and 16:15 hrs UK time with all counterparties in a minimum deal size of £25 million.”

“RONIA is the weighted average rate to four decimal places of all secured sterling overnight cash transactions brokered in London by contributing WMBA member firms between 00:00 hrs and 16:15 hrs UK time with all counterparties with no minimum deal size.”

New Methodology

“SONIA is the weighted average rate to four decimal places of all unsecured sterling overnight cash transactions brokered in London by contributing WMBA member firms between 00:00 hrs and 18:00 hrs UK time with all counter-parties in a minimum deal size of £25 million.”

“RONIA is the weighted average rate to four decimal places of all secured sterling overnight cash transactions brokered in London by contributing WMBA member firms between 00:00 hrs and 18:00 hrs UK time with all counter-parties with no minimum deal size.”

The Market Notice also detailed changes to the benchmarks recalculation policy to provide further clarity under which circumstances WMBA would publish recalculations.

The Market Notice can be found here.

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