Blockers to SONIA adoption


While England demolished the blockers in their path to World Cup glory, our customers have their own blockers to SONIA adoption.

Calculating compounded realised rates can be a challenge. Whilst the Quants are familiar with the International Swaps and Derivatives Association (ISDA) formula below as a mainstay of overnight index swap (OIS) calculations, the wider market might be forgiven for developing a headache if they stared at it for too long.

[source: ISDA]   

Unlike LIBOR which uses forward looking term rates, SONIA requires the calculation of compounded rates over a look-back period. Calculating those rates is a challenge for many in the market, requiring the download of hundreds of fixings and application of compounding logic.   

Back in March the Risk Free Rates (RFR) working group called for a calculator to be built "to support the adoption of SONIA based instruments" and launched a consultation on standard conventions to use. In May an article on GlobalCapital underlined those calculation challenges and suggested an alternative way forward using indices.

In response to customer demand, NatWest Markets is announcing the launch of nwm.RealisedRate.com to help with these calculations.

Following on from the release of our standalone calculator in June, this next evolution of the toolset demonstrates our commitment to helping the industry as a whole cope with the challenges of moving to SONIA.

This free website provides compounded SONIA rates in all major tenors, a SONIA calculator for bespoke start and end date calculations and a SONIA Realised Rate Index ‘RRIX’ baselined from the start of reformed SONIA on 23 April 2018. The calculation results can be embedded in applications or spreadsheets via a program interface.  

Following the launch, NatWest Markets is seeking industry feedback to further refine the application and API. The development will be market led in order to help a wide range of end users with their transition to the new rates.  

For more information on the application and the conventions used go to the website and click on calculation details.


 

This is Non-Independent Research, as defined by the Financial Conduct Authority. This material should be regarded as a marketing communication and may have been produced in conjunction with the NatWest Markets Plc trading desks that trade as principal in the instruments mentioned herein. All data is accurate as of the report date, unless otherwise specified.

This communication has been prepared by NatWest Markets Plc, and should be regarded as a Marketing Communication, for which the relevant competent authority is the UK Financial Conduct Authority. Please follow the link for the following information https://www.natwestmarkets.com/natwest-markets/regulation/mar-disclosures.html

Where communicated in Singapore, this communication may be deemed an advertisement. This advertisement has not been reviewed by the Monetary Authority of Singapore.  

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15th July 2019

Author:

Phil Lloyd
Head of Market Structure &
Regulatory Customer Engagement

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