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Abstract:UK to end synthetic US dollar LIBOR settings by September 2024, shifting to SONIA for financial contracts.
Three months from now, the UK will reach a major financial milestone as it gets ready to switch from the US dollar LIBOR. Market players have been reminded by the Financial Conduct Authority (FCA) of the end of September 2024 deadline for the removal of the remaining synthetic US dollar LIBOR settings.
These settings—more especially, the 1-, 3-, and 6-month synthetic US dollar LIBOR—are supposed to stop being published on Monday, September 30, 2024. The last stage in the move away from LIBOR will be this cessation.
ICE Benchmark Administration Limited (IBA) is required by the FCA to disclose these parameters in synthetic form until the end of September 2024, in line with its earlier declaration from April 2023. The FCA has been very clear that it will not use its authority to force the IBA to keep publishing beyond this deadline. Market players with outstanding US dollar LIBOR exposures are thus advised to be ready for the suspension by switching to strong reference rates and, if needed, renegotiating contracts.
The Sterling Overnight Index Average (SONIA) is taking over for LIBOR in the UK. To ease this shift, the FCA and the Bank of England (BoE) have given lenders, borrowers, and investors a great deal of advice over the last several years. Because so many companies are involved in US dollar interest rate markets, the US currency LIBOR changeover is still important for the UK even if it is significant globally.
For sterling-denominated swaps, loans, and futures, SONIA is taking the role of LIBOR, which powers over $300 trillion in derivatives and other financial instruments, globally. International authorities have pushed market players to move quickly to SONIA, stressing the need to end new contracts that include LIBOR by the fourth quarter. Regulators in the US and elsewhere back this action.
The FCA and BoE have been urging market players to actively stop reference LIBOR rates in both sterling and USD contracts as the end of LIBOR draws near. The FCA emphasizes how overnight SONIA has now completely permeated all foreign currency markets. Financial contracts have undergone major changes thanks to successful Central Counterparty Clearing (CCP) conversion procedures; over £13 trillion in LIBOR-referencing contracts have been changed to SONIA.
This change should improve liquidity in certain financial instruments and help suppliers reach the Working Group's important goal of doing away with LIBOR-linked derivatives. This is a significant development in the global financial scene that will guarantee reference rates remain stable and healthy going forward.
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