Britain’s financial regulators said that banks are encouraged to scrap Libor for pricing derivatives contracts from mid-June. Piling pressure on markets to speed up the long-anticipated demise of the tarnished interest rate benchmark.
Use of the London Interbank Offered Rate or Libor in pricing new contracts such as home loans and credit cards have been set December 31 as a deadline by the regulators. Banks were fined for trying to rig the rate. And this is only after the Libor is being ditched.
This is being replaced in sterling contracts by the Bank of England’s overnight Sonia rate. Market participants are encouraged to use Sonia in sterling denominated derivatives contracts traded on exchanges from June 17. This is stated by the Bank of England and Financial Conduct Authority in a joint statement.
The regulators stated that this is to facilitate a further shift in market liquidity toward Sonia. And this brings benefits for a wide range of users as they move away from Libor. In the period leading up to 17 June, the FCA and Bank of England will engage with market participants. And this is to determine whether market conditions allow the switch to proceed smoothly.