Tradition SONIA Rates
The Bank of England (BoE) took control over responsibility of administrating SONIA in April 2016. It was later reformed in April 2018 so that it now complies with international best practices for financial benchmarks.
Sterling Overnight Index Average (SONIA) is based on actual transactions (which LIBOR was not) and reflects the average of the interest rates that banks pay to borrow sterling overnight from other financial institutions.
SONIA is used to calculate the interest paid on swap transactions and sterling floating rate notes. SONIA is used to value around £30 trillion of assets each year.
Quarterly volume % increase of SONIA trades in tenors under 2Y
pre and post LIBOR transition.
Source: Clarus Financial Technology
Tradition has been contributing data to various firms that are calculating SONIA benchmark rates. These sources include:
Adopted a waterfall methodology to ensure a robust rate is published in almost all circumstances. The primary source of data is executable bids and offers from broker electronic platforms (Trad-X). Refinitiv calculate a mid-price based on clearing a predetermined notional amount.
Calculated using eligible prices and volumes for specified SONIA-linked interest rate derivative products, provided by trading venues (Trad-X) in accordance with a “Waterfall” Methodology.
Uses a waterfall approach, with separate TSRRs calculated for each identified input data type in a consistent and coherent manner, using a methodology appropriate for that data type. This enables the final methodology to be dynamic, adapting according to changing market dynamics to best measure the Underlying Interest. This can evolve in a transparent and tractable manner as markets develop.
Tradition SONIA Sell Sheet