“When a cycle comes to an end, many sensations arise.”

This was Sergio Aguero’s opening remark in a press release on 29 March 2021, the day the FCA and the Bank of England announced support and encouragement for liquidity providers in the sterling non-linear derivatives market to adopt new quoting conventions for inter-dealer trading based on SONIA instead of LIBOR from 11 May this year.

Sergio Aguero was, of course, referring to calling time on his record-breaking career at Manchester City FC, rather than the switch to SONIA.

But his words resonate anyway. In relation to the switch to SONIA, amongst the sensations participants in the sterling non-linear derivatives market will be feeling there will be relief that there is greater clarity on the way forward, satisfaction that the non-linear and linear market will align and some trepidation that many will need to learn how products will perform using the new benchmark.

In terms of existing non-linear products referencing LIBOR, market participants may well want to look at their inventory and consider what further steps they want to take in order to prepare it for the cessation of Sterling LIBOR. Our article on the ISDA Fallbacks Protocol highlights some of the points which might be relevant. 

The FCA surveyed market participants ahead of the announcement and says it learnt of strong support for the change. The FCA and the Bank of England have promised to continue to engage with market participants ahead of 11 May to determine whether market conditions will allow the switch to proceed smoothly.

Aguero intends to cap his final season with Manchester City by flooring the opposition in the Champions League Final on 29 May, maybe following an assist by Raheem Sterling. The point for the SONIA derivatives market to remember is that this Final will come a full 18 days after the switch in the quoting conventions for non-linear derivatives, and just over a month before the RFRWG’s end-Q2 2021 milestone for the cessation of new GBP LIBOR-linked non-linear derivatives expiring after 2021.