Minutes of the SONIA Stakeholder Advisory Group - 20 March 2025

Minutes

1: Welcome / introductions

The Chair welcomed the Group and those present as part of the observers programme.

2: Diversity, Equity & Inclusion

DE&I remains a priority for the meeting, ensuring that the initiatives which are in place receive continued support. Members were encouraged to participate in the observers programme and consider future knowledge sharing topics.

3: Retrospective review of market conditions

The SONIA to Bank Rate wedge has narrowed slightly to ~4.5bps below Bank Rate following January 2025 month end. The rate first moved at year-end ending an 8-month long period of flatlining, followed by some further fluctuation in January 2025 and has since exhibited low levels of volatility – in line with what was observed pre-flatlining. The progressive move from excess reserves to abundant reserves through quantitative tightening, has led to some upward pressure in the rate.

Movement in volume has remained within the normal range, following typical patterns through the period and volume has remained robust.

4: The Bank’s facilities and how they are changing in a demand-driven repo-led framework

Bank staff provided an overview of the Bank’s facilities and noted the responses to December’s discussion paper on the demand-driven repo-led framework for supplying reserves, would be published in due course. The Group noted the Bank’s positive communications were effective in removing stigma around use of the Bank’s facilities, which had encouraged market participants to consider these facilities as part of their funding toolkit. Members discussed the positive trend in use of facilities, including the Short-Term Repo and Indexed Long-Term Repo facilities.

Bank staff highlighted to the Group, that the Contingent Non-Bank Financial Institution Repo Facility was open for applications. The facility is designed to support eligible firms in periods of severe dysfunction.

5: Looking ahead – comments on future notable changes

Members discussed continuing liquidity draining, and the impact on SONIA as the market approaches the Preferred Minimum Range of Reserves. The SONIA-Bank Rate wedge was last at similar levels in 2020, when reserves were close to the current outstanding amounts.

The Group noted the supply and demand dynamics in secured and unsecured money market instruments and the low volatility in SONIA versus repo rates.

6: Liquidity in SONIA derivatives markets

The positive growth trend in SONIA derivatives markets has continued, as volume and open interest reached new highs in February, in both futures and options. SONIA futures notional is now double that of LIBOR futures. Derivatives volume is now higher than pre-LIBOR transition as more investors allocate capital to the UK market.

Members discussed use of MPC dated SONIA futures, which has recently seen increasing demand.

The Group noted the confirmation from the Office for National Statistics, that their economic data releases would continue to be published at 7am and welcomed the opportunity for review in the future.

7: SSAG Knowledge sharing

HSBC provided an overview of cross-currency basis and impact on SONIA. The Group noted the drivers of cross-currency basis and the impact seen in sterling money markets. In addition, members discussed the interlinkages between global financial markets, how changing basis reflects investor demand for US dollars and domestic currency pairs, what this indicates in terms of market functioning and macro-economic conditions.

8: Real time gross settlement operating hours

Bank staff provided an update on the Bank’s progress in delivering a renewed Real-Time Gross Settlement (RTGS) and proposed extension of operating hours. Last year the Bank had published a discussion paper “Exploring longer operating hours for RTGS” together with a summary of responses. The paper outlined the initial analysis, costs and benefits of extending operating hours. A formal public consultation on a proposal for RTGS and CHAPS operating hours is due later this year.

The extension of operating hours aims to support innovation in the UK financial system, reduce cross-border frictions in payments and leverage the technical capabilities of the renewed RTGS service. The Group discussed the potential impact on SONIA and how market behaviour might change.

9: AOB

No further business was discussed.

Attendees

Chair: Caroline Stockmann (Independent member of SONIA Oversight Committee)

External Member: Alexandra Innes (Independent member of SONIA Oversight Committee)

HSBC

ICE Futures

Insight Investments

LGIM

Mizuho

NatWest

Rabobank

Société Générale

TC ICAP

Bank of England: Joe Clouting, Annabelle Irvine; Michelle Kearns, Sarah Kerr; Joanna McLafferty, Kirstine McMillan, Arif Merali, Max Newbold; Matt Roberts-Sklar, Iain Ramsay; Joe Smart, Ashley Young

Apologies

Blackrock

Goldman Sachs

ISDA

LSEG