LONDON (Reuters) - The Bank of England (BoE) said on Thursday it would make changes to its interest rate benchmark next year as part of efforts to make a key reference point for financial contracts harder to manipulate.
The new methodology for calculating the Sterling Overnight Index Average (SONIA) will capture an average daily transaction volume of nearly 40 billion pounds, about four times the amount under the current system.
The new SONIA is on average a little more than 1 basis point lower than the current benchmark, the BoE said in a statement on Thursday.
The BoE also said it would use a trimmed mean in formulating the benchmark, seen as less sensitive to erroneous or potentially manipulative transactions than the current volume-weighted mean approach.
Banks will be given six months’ notice of the changes, which will be introduced in March or April next year and are generally in line with proposals made at public consultations in October and February.
Some in the industry has called for a lowering in the minimum SONIA transaction size to 10 million pounds from 25 million, but the BoE said it had “concluded that a reduction in the transaction size threshold is not warranted at this stage”.
Most of those who responded to the consultations agreed that the ability of the BoE to “evolve the methodology for producing SONIA was an important strand in meeting the requirements of regulatory best practise for benchmarks”.
SONIA has been considered an alternative for some contracts to the London Interbank Offered Rate (LIBOR), a global benchmark for around $450 trillion of contracts that has been tainted by a market-rigging scandal.
The LIBOR, and a separate rigging scandal in foreign exchange benchmarks, led to the first set of European Union laws which mandate that benchmarks must be operated transparently and at arm’s length from those who contribute data to compile them.
Reporting by Huw Jones; editing by John Stonestreet