June Milestone set for scrapping of derivatives

Last week, Thursday 13th May, UK regulators (FCA & Bank of England) urged banks, by the 16th of June, to stop issuing LIBOR for pricing derivatives contracts, adding further regulatory weight to what are already heavily pressurised financial markets.

Regulators are pressing ahead with an aim to “encourage” market participants to use SONIA in sterling denominated derivatives contracts traded on exchanges from June 17th onwards [1].

This latest move on the part of the regulator comes in advance of the Sterling Overnight Index Average – SONIA, replacing the once dominant LIBOR index rate, and is part of a wider plan to aid market liquidity toward SONIA.

Why do regulators feel they should implement this change now?

The FCA has stated that they have been monitoring liquidity providers, namely banks, pension funds and exchanges, and found that, to ensure market maturity and support for a change in the standard trading conventions, exchange-traded derivatives (such as futures and options that are listed) can be traded on regulated exchanges, including ICE Futures Europe[2].

One of the biggest concerns for regulators is that the move to alternative reference rates would only work in markets adopting them, and so the faster they do so, the quicker they can safeguard financial stability and market integrity.

The FCA and the Bank of England will be engaging with market participants from now until the stated June deadline to ensure that smooth transitional efforts are in order.

We have already seen markets move away from referencing LIBOR nonlinear derivatives, and linear derivatives, showcasing a significant amount of trading are now referencing SONIA.

For businesses, there is still much work to do

The transitional road that lies ahead for derivatives is still a long one, with the urgency of adopting SONIA only being made abundantly clear relatively recently by UK regulators. Key timelines and milestones have now been set, and it is up to market participants to ensure that they are reaching these goals and doing so effectively and efficiently.

Unquestionably, these transitional efforts need to be well planned and run by talented teams who are both well versed in their areas of responsibility, and able to work in a fast and effective manner.

How can Momenta help your business navigate this minefield of regulatory change?

Momenta are a global contingent resource solutions firm that has, for over 30 years, been partnering with companies in the financial services, legal, technology, and training and development sectors to cost-effectively provide the right people, with the right skills, at exactly the right time.

We can, and already do for many of our clients, provide the right resource in key areas, allowing you to focus on the strategic oversight of the project at-hand, whilst we help to implement your vision.

This flexibility allows you to ensure that there is always the right balance amongst your team, delivering an effective solution that will produce the desired end results.


If you require assistance in the form of additional resource (no matter how far you are progressed with regards to your LIBOR transition plans), contact us today to see how we can help to ensure your firm is prepared for both LIBOR’S overall cessation in December 2021, and the looming deadline of mid-June for ceasing LIBOR pricing of derivatives contracts.

Get in touch with us today if you are looking for additional support in getting your transitional efforts ready to meet key business deadlines.

Works cited:
[1] Reuters. (2021). Bank of England sets June milestone for scrapping Libor in derivatives. [online] Available at: https://www.reuters.com/world/uk/bank-england-sets-june-milestone-scrapping-libor-derivatives-2021-05-13/ [Accessed 14 May 2021].
[2] Budaly, N. (2021). UK Regulators Tell Banks To Switch Out Libor By Mid-June – Law360. [online] www.law360.com. Available at: https://www.law360.com/financial-services-uk/articles/1384778/uk-regulators-tell-banks-to-switch-out-libor-by-mid-june [Accessed 15 May 2021].