Bank of England reviews SONIA framework as settlement and data changes reshape sterling markets

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BOE reviews SONIA framework

Highlights

SONIA unsecured overnight market remains stable with daily volumes around £55 billion and spread to Bank rate near 1.9 basis points.
Bank of England and HM Treasury review data collection powers to ensure robust sterling money market oversight as structures and booking locations evolve.
SONIA futures and options saw exceptionally high volumes in March amid geopolitical volatility, with open interest remaining strong despite recent political uncertainty.

SONIA oversight priorities and consultation agenda

As reported by the Bank of England, the SONIA Stakeholder Advisory Group said the unsecured overnight market remains stable, with daily volumes of about £55 billion and the spread to Bank rate fluctuating close to 1.9 basis points.

Members said money-market funds have seen collective inflows of around £15 billion since the start of the year and have increased allocations to overnight tenor after changes in liquidity guidance and higher geopolitical tensions. The group said this continues to support activity in short-dated markets, while repo-market volatility and month-end spikes are lower than in the previous year.

The Bank of England and His Majesty’s Treasury are also reviewing the statutory powers used to collect sterling money market information. The review aims to ensure the Bank’s data-collection framework remains sufficient to preserve coverage and visibility over sterling money market activity as market structure, regulation, infrastructure or booking locations evolve.

The Bank said it may in future seek data on material sterling money market activity in group entities if that is needed to preserve sufficient SONIA coverage. The group also discussed the Office for National Statistics consultation on release times for market-sensitive economic statistics, after trading-hour changes altered the context for early-morning data publication.

Operational changes and market impact in focus

The advisory group also examined the potential implications for SONIA if RTGS and CHAPS settlement move over time toward a near 24-hour, seven-day model. The Bank is reviewing feedback from its summer consultation and plans to return to the industry in the first quarter of 2027 with the main themes from responses and the next steps.

Participants discussed how longer settlement hours could affect SONIA’s definition, publication timing, reporting and operational processes. Proposed Sunday opening for CHAPS, and potentially full-weekend opening later, also raised questions over whether weekend trading activity would differ structurally from weekday volumes and rates, and whether SONIA should be published for weekends or absorb weekend activity into weekday data.

Looking ahead, participants expect the year-end sterling cash market to remain broadly stable, with conditions likely to be influenced mainly by the repo market, which is expected to be more stable than last year. They also said cross-currency basis dynamics are likely to remain stable, although reserve drainage could increase reliance on Bank of England facilities and affect SONIA volumes, spreads and commercial-paper pricing depending on where reserves are held across the market.

The Bank’s Market Intelligence team said SONIA futures and options posted exceptionally high volumes in March after increased geopolitical volatility, while open interest stayed robust despite political uncertainty. More recent volatility has lifted volumes again, though not to the record levels seen in March.

Our earlier report on Bank of England rate expectations noted that persistent inflation and firmer UK data were pushing economists toward forecasting a 25bp rise in Bank Rate to 4.0% in November, with uncertainty about whether further hikes would follow. It also highlighted that inflation was projected to stay above target and that policymakers were closely monitoring risks from energy-driven price pressures and market volatility.

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