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FX & Money Markets
Post-Election Market Rally: USD Appreciation and Central Bank Rate Cuts
By Sal Provenzano
18 Nov 2024
Interest Rate Derivatives
Interest Rate Derivatives Updates: November 2024
By Jessica Kalaria
13 Nov 2024
Business update
Ian Sams Appointed as Global Head of Product at TraditionData
By TraditionData
7 Nov 2024
Market Data
Tradition Extends Outperformance in October 2024
By Ian Sams
5 Nov 2024
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The transition away from IBORs in Europe is a multi-year process that will affect a wide range of financial products and market participants. Many countries have already stopped publishing certain IBORs, such as the Sterling and Swiss Franc LIBORs and are pushing to replace it with alternative rates like SONIA (Sterling Overnight Index Average) and SARON (Swiss Average Rate Overnight) in their respective currencies. The replacement rates are based on overnight lending transactions and will provide a more transparent and reliable benchmark than the current IBORs.
The IBOR transition in Europe is a significant change that requires market participants to make significant adjustments to their systems and processes. However, it will bring a number of benefits to the financial services industry, making it more robust, transparent, and aligned with the underlying economy. It will also encourage the development of new financial products and services and provide a more level playing field for market participants.
In the UK, LIBOR has been replaced by SONIA (Sterling Overnight Index Average) which is an unsecured overnight lending rate based on actual transactions. SONIA reflects the average of the interest rates that banks pay to borrow sterling overnight from other financial institutions. It was introduced in 1997 but was reformed in 2018 by the Bank of England (BoE).
In Europe, ESTR (Euro Short-Term Rate) has been introduced to replace EONIA. ESTR is calculated on the borrowing cost of the wholesale market. Unlike the previous IBOR, ESTR is based on more representative market data, with a larger number of banks contributing input data from the wholesale market. This means that it has a much higher transaction volume than the interbank market.
In Switzerland, SARON (Swiss Average Rate Overnight) was introduced to replace CHF LIBOR. SARON is a secured overnight lending rate, it is based on transactions and quotes posted in the Swiss repo market. SARON was first cleared in October 2017 with SARON futures available since October 2018.
As an avid Formula 1 viewer and a fan of the British drivers (in the absence of a Scottish one at this time), I listen intently to the commentary and information associated with the race as it…
