9  www.bankofengland.co.uk/-/media/boe/files/paper/2019/the-boes-risk-management-approach-to-collateral-referencing-libor-for-use-inthe-smf 10 www.bankofengland.co.uk/speech/2020/andrew-hauser-isda-sifma-amg-benchmark-strategies-forum-2020 4  All speeches are available online at www.bankofengland.co.uk/news/speeches  4  FIGURE 2: SONIA vs LIBOR Linked Trading Flow Volumes (January 2020)  Floating rate notes**  Swaps  Futures  Sources: Bloomberg Finance L.P., CME Group, CurveGlobal, ICE and LCH Group * Incremental increase in January 2020 from average SONIA flows in 2019 ** Maturing post-2021  This should put the brakes on further increases in the stock of sterling LIBOR swaps maturing beyond 2021 – a metric the FPC has been monitoring closely. And that number should start to go into reverse as contracts mature and others follow the early lead of firms like Nationwide and Legal & General Investment Management – which have publicly switched their balance sheet and client positions respectively to SONIA. As I announced last year, the UK’s foreign exchange reserves also now transact only in SONIA-linked contracts.11  Even with these sorts of steps, we cannot be sure that the stock of LIBOR-linked swaps will fall to zero in a timely way – and that leaves the system exposed. That’s where ISDA’s work on fallbacks comes in. While my remarks today focus on new business, I want to thank ISDA for its work – it is a major achievement to have reached consensus on both the structure and the parameters of a market-wide fallback for LIBOR cessation. We welcome the intention to re-consult on the provisions for pre-cessation fallback, and look forward to working with you to deliver on that.
We are working to identify and remove any unnecessary regulatory obstacles to transition, and clarify supervisory expectations.8 And we help provide international liaison and leadership through the Financial Stability Board’s Official Sector Steering Group, co-chaired by Andrew Bailey and John Williams. 6  www.fca.org.uk/news/speeches/next-steps-transition-libor www.bankofengland.co.uk/-/media/boe/files/financial-policy-summary-and-record/2019/december-2019.pdf See for instance www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/letter/2019/prudential-regulatory-framework-andlibor-transition.pdf and www.fca.org.uk/markets/libor/conduct-risk-during-libor-transition 7 8  3  All speeches are available online at www.bankofengland.co.uk/news/speeches  3  It is in that spirit that I want today to announce two new initiatives aimed at further supporting LIBOR transition:  -  First, and in direct response to feedback from market practitioners, the Bank is intending to publish a compounded SONIA index from July 2020. Complementing our existing overnight SONIA rate, the index will provide a flexible tool to help market participants construct compounded SONIA rates in an easy and consistent way, supporting achievement of their 2020 Q3 target for new issuance. -  The second relates to the Bank’s own lending operations for banks and other financial intermediaries. From October this year, we will begin increasing haircuts progressively on LIBOR-linked collateral we lend against. This will give firms the time they need to replace that collateral with risk free rate alternatives, ensuring their borrowing capacity is maintained while also protecting public funds. This approach reflects the clear preferences of respondents to our discussion paper last year.9  These initiatives are aimed at turbo-charging sterling transition, helping the market deliver against its commitment to transition away from LIBOR and further de-risking sterling markets.