On 17 July 2018, the Bank of England published a consultation paper by the Working Group on Sterling Risk-Free Reference Rates (Working Group) on term SONIA reference rates (TSRRs).

The Working Group’s overall objective is to catalyse a broad-based transition from sterling Libor to SONIA by end-2021. SONIA is an overnight rate, whilst Libor is most commonly referenced in 3 and 6-month tenors. The Bank of England believes that term rates play an important role in facilitating transition to SONIA by complementing ongoing efforts to encourage the direct use of overnight rates in financial contracts.

The consultation seeks feedback on practical recommendations aimed at catalysing the development of TSRRs. Market participants – including venue operators, market makers and potential administrators – are encouraged to work towards this objective.

The consultation has been launched simultaneously with ISDA’s consultation on new IBOR fallbacks for over-the-counter derivatives contracts. The consultations address different aspects of benchmark reform: the ISDA consultation is focused on preventing derivatives market disruption in the event a key IBOR is discontinued; the Working Group’s consultation focuses on how a TSRR can be constructed in order to facilitate sterling Libor transition in markets where term rates better suit users’ needs. ISDA’s consultation contemplates that the primary fallbacks for key IBORs will directly reference overnight risk-free rates.

The deadline for comments on the Working Group’s consultation is 30 September 2018. Once feedback on the consultation is received, and subject to that feedback, the Working Group anticipates that a TSRR could be available in the second half of 2019.

The deadline for comments on the ISDA consultation is 12 October 2018.