REPORT: Acuiti - The Endgame for GBP LIBOR

REPORT: Acuiti - The Endgame for GBP LIBOR

On 31 December 2021, the GBP derivatives markets will complete its transition from LIBOR to the Sterling Overnight Index Average (SONIA).

In March, the FCA formalised the end-of-year deadline for the transition of GBP LIBOR (and other major currencies with the exception of USD, which will formally transition in June 2023). Meanwhile, the International Swaps and Derivatives Association (ISDA) fixed the adjustment spread to covert LIBOR to SONIA for 3-month short sterling at 11.93bps.

These two announcements crystallised the impending cessation of LIBOR and gave clarity on many of the known unknowns. Uncertainties remain, however. While preparations are well underway, inertia in certain markets – notably listed futures and options – and hopes for the introduction of a Term rate for SONIA are holding back the transition and elevating the risk of disruption in some areas of the market.

This report analyses the current levels of preparedness for the transition from LIBOR to SONIA in the GBP derivatives markets and attitudes to the remaining questions pertaining to it.

The key findings are:

  • Concern about disruption has increased over the past six months
  • Preparedness in futures and options is lagging other markets
  • Most firms are well advanced in terms of functional preparation for the transition
  • SONIA liquidity in swaps is well ahead of listed products
  • A third of respondents are currently planning to wait for the exchange/ CCP conversion for listed products
  • There is currently strong demand for a general Term SONIA rate against regulators’ wishes
  • Almost half of respondents would consider shifting their futures execution venue
  • A significant majority of the market expect a more complex market structure following the transition but are split on whether this will lead to an increase in listed or OTC trading

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