The London Stock Exchange Group’s Interest rate derivatives platform CurveGlobal will launch three-month Sterling Overnight Index Average (SONIA) futures contacts as the UK transitions from the LIBOR benchmark.
The contracts will be admitted to trading on the London Stock Exchange Derivatives Market (LSEDM) and are expected to go-live in the second quarter this year.
The launch will follow the initial start of the benchmark rate set to replace LIBOR on 23 April this year.
Regulators and the Bank of England decided to phase out LIBOR after stating it was no longer a suitable benchmark, and proposed to replace its use in derivatives contracts with SONIA.
LIBOR has been shrouded in controversy following a string of allegations of conspiracies and penalties from banks for rigging rates. Around 20 major banks have been caught up in court cases and investigations to do with benchmark manipulation.
Some of the largest European and UK-based investment banks were found to have manipulated the benchmark including Deutsche Bank, Lloyds Banking Group and Barclays who were eventually fined a combined total of £391.5 million.
The LSEG-owned derivatives platform will also introduce inter-commodity spread contracts (ICS) between three-month SONIA and three-month short sterling futures.
“The migration to overnight indexed swap (OIS)-based contracts is a challenge for financial markets, so with LIBOR set to be replaced, it’s imperative that there are tight, liquid futures available to participants to manage the OIS/LIBOR spread risk,” said Andy Ross, CEO at CurveGlobal.
“By enabling our CurveGlobal Three Month SONIA Future to be cleared alongside swaps and futures at LCH, participants will not only benefit from greater operational efficiency, but optimal use of capital through planned potential portfolio margining.”
The ICS contract is expected to go-live in the second quarter this year, alongside the SONIA contracts.