The Sterling Overnight Index Average SONIA is a transaction-based index that has been administered by the Bank of England BOE since April 2016.

Sonia interest rate meaning. SONIA is based on actual transactions and reflects the average of the interest rates that banks pay to borrow sterling overnight from other financial institutions and other institutional investors. The Sterling Overnight Index Average SONIA is the effective overnight interest rate paid by banks for unsecured transactions in the British Sterling GBP or market. Compounded Daily SONIA means in relation to an Interest Period the rate of return of a daily compound interest investment with the daily Sterling overnight reference rate as reference rate for the calculation of interest and will be calculated by the Calculation Agent as follows and the resulting percentage will be rounded if necessary to the fourth decimal place with 000005 being rounded upwards.

To calculate interest for for example a 3 month interest period the current practice is to use SONIA compounded in arrears Compounded SONIA over a period that starts before the interest period and finishes before the end of the interest period. Financial businesses and institutions use SONIA in a variety of ways. SONIA may be referenced in a range of different contracts eg.

SONIA is a risk-free rate meaning no bank credit risk is included. It has been endorsed by the Sterling Risk-Free Reference Rate Working Group Working Group as the preferred risk-free reference rate for Sterling Overnight Indexed Swaps OIS. SONIA is the Sterling Overnight Index Average.

SONIA is an overnight interest rate. Sterling Overnight Interest Rate Swaps OIS Equity Swaps and ISDA Credit Support Documents referencing SONIA as the interest rate applicable to GBP cash collateral. It is published each London business day by the Bank of England and measures the cost of overnight unsecured borrowing.

As an overnight rate SONIA cannot be used directly as a floating rate for a multi-day interest period. Ii Statement of methodology. Term SONIA refers to a forward-looking term reference rate based on overnight SONIA.

These FAQs which may be updated from time to time comprise information on the SONIA benchmark reforms and the derivatives industrys implementation of the relevant changes. SONIA is expected to replace GBP LIBOR across global financial markets by the end of 2021. For example to calculate the interest paid on transactions and sterling.