Bank of England to take over key sterling benchmark

British central bank the Bank of England (BoE) announced Wednesday it would take over responsibility for a key benchmark in the sterling markets.

The Sterling Overnight Index Average (Sonia) will be run by the BOE from April 25. The move is a regulatory response to market-rigging in key benchmarks such as the Libor (London Interbank Offered Rate) in the wake of the financial crisis. The attempted rigging of the Libor rate, used to price many derivatives globally, resulted in several banks paying multi-million dollar fines to UK and U.S. regulators.

The BoE had announced in July 2015 that it planned to take over the administration of Sonia with the cooperation of the current administrator the Wholesale Markets Brokers' Association (WMBA).

SONIA was introduced in March 1997 by the WMBA and is currently calculated as the daily weighted average interest rate of unsecured sterling overnight cash transactions of more than 25 million pounds (about 35.2 million U.S. dollars) which are brokered in London by WMBA contributing members. It is widely used in the wholesale sterling markets. The WMBA will continue to calculate and publish Sonia, but will do so on behalf of the BOE.

The BOE said in a statement it would administer Sonia in line with international best practise, as encapsulated by the IOSCO Principles for Financial Benchmarks.

The BoE added: "The bank views reform of Sonia as necessary, given its role as a critical benchmark in sterling markets, and in view of the limited size of the market for brokered deposits, on which Sonia is currently based. The bank plans to broaden the range of transactions underpinning Sonia to include bilaterally negotiated, as well as brokered, transactions in order to make it more resilient."

The BoE also confirmed it would reform the data collection underpinning Sonia to provide comprehensive coverage of sterling unsecured overnight deposit transactions.

The BoE said Sonia would transition to the new data in the second quarter of 2017, and that further consultations on its plans to reform the Sonia benchmark would take place in late summer 2016.