On 29 March 2021, the FCA and the Bank of England (BoE) issued a joint statement supporting and encouraging liquidity providers in the sterling non-linear derivatives market to adopt new quoting conventions for inter-dealer trading based on SONIA instead of LIBOR from 11 May 2021. This is to facilitate a further shift in market liquidity toward SONIA, bringing benefits for a wide range of users as they move away from LIBOR.

A key milestone recommended by the Working Group on Sterling Risk-Free Reference Rates (the Working Group) is to cease initiation of new GBP LIBOR-linked non-linear derivatives expiring after 2021 by end-Q2 2021, other than for risk management of existing positions. To support market participants in meeting this milestone the Working Group suggested exploring the potential to change standard trading conventions in non-linear derivatives to a SONIA basis during Q2 2021.

The FCA has engaged with participants in the non-linear derivatives market to determine support for, and the feasibility of, this approach. An FCA survey has identified strong support for a change in the interdealer quoting convention, which would see SONIA rather than LIBOR become the default price from 11 May 2021.

The FCA and the BoE encourage all participants in the sterling non-linear derivatives market to take the steps necessary to prepare for and implement these changes to market conventions on 11 May 2021 and shift liquidity away from GBP LIBOR to SONIA. In the period leading up to 11 May 2021, the FCA and the BoE will engage with market participants to determine whether market conditions allow the switch to proceed smoothly.