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- New secured reference rate for sterling overnight funds
- Reflects current sterling wholesale funding markets which are substantially based on secured lending
- Will provide a benchmark for the daily funding activities of sterling market participants
- Developed by FTSE Russell with the support of Euroclear and leading inter-dealer brokers
- Captures approximately two thirds of the overnight secured funding market; up to £99bn daily transaction volume
FTSE Russell is delighted to announce the launch of £SONET (Sterling Secured Overnight Executed Transactions) following an industry-wide initiative to create a new secured reference rate for sterling overnight funds, in response to the Financial Stability Board’s July 2014 recommendations on the reform of major interest rate benchmarks. £SONET has been developed by FTSE Russell and London Stock Exchange Group, in partnership with Euroclear and leading inter-dealer brokers.
£SONET includes cleared and uncleared repo activity, and captures approximately two thirds of the overnight gilt repo market, representing up to £99 billion of daily transaction volume.
The sterling wholesale funding market is substantially based on secured lending activity. As a nearly risk free secured index £SONET reflects this market and is distinct from legacy unsecured benchmarks. £SONET can be used as a benchmark for the daily funding activities of sterling market participants; to underpin the discounting of long term sterling cash flows; and as a reference rate for derivatives and other contracts.
The rate is currently being published* in indicative form to allow prospective users to evaluate and provide feedback. FTSE Russell intends to move £SONET to a definitive basis later in 2017. Definitive £SONET will be administered in line with the forthcoming European regulation on indices used as benchmarks in financial instruments and with the IOSCO Principles for Financial Benchmarks.
£SONET reflects LSEG’s long held open access principles. In addition to assisting with the creation and refinement of £SONET, Euroclear will provide aggregated uncleared DBV repo transactions. Leading inter-dealer brokers will provide cleared repo transactions from a growing portion of the marketplace. £SONET is based on a transparent and publicly available methodology* overseen by an independent advisory committee of market participants from both the buy-side and the sell-side.
Mark Makepeace, CEO of FTSE Russell, said:
“We are delighted to be able to announce the launch of £SONET from FTSE Russell, a new secured reference rate for sterling overnight funds. We have taken care to work closely with our partners, such as Euroclear, as well as industry participants from the buy- and sell-side community to develop a robust, impartial and credible rate, which can be used as a benchmark for the markets daily funding activities.”
Adrian Pogson, Head of Solutions Management at Insight Investment, said:
“As a significant participant in the sterling repo market and user of derivatives we welcome the introduction of £SONET, which will provide a number of benefits to market participants. Being based on secured transactions, £SONET will capture a significant portion of the most relevant funding market. In addition, FTSE Russell’s Methodology and Governance will enable £SONET to remain relevant in the future as the secured sterling funding markets develop and expand.”
