On 27 July 2017, nine whole years after the tampering scandal reared its ugly head, the Financial Conduct Authority announced that LIBOR will likely be phased out by 2021. While some commentators have said the FCA’s announcement may be premature, it has been in the works for some time.
Since its introduction in 1984, Libor has become a cornerstone of loan and derivative markets, with over $350tn of contracts referencing the rate. As it has grown in use, however, so too have markets changed. Libor is not as robust as it once was, and newer alternatives offer fundamental improvements. Different countries have selected different successors to LIBOR but in the UK, this is expected to be SONIA.
This whitepaper will explore the key differences between SONIA and Libor and the implications this change will have on interest rate derivatives and floating rate debt.