The Wholesale Markets Brokers’ Association (“WMBA”) today announces the launch of market making across a derivative curve settling on the Repurchase Overnight Index Average (“RONIA”), an initiative recognised by the Money Market Liaison Group. RONIA is an overnight, sterling-secured money market benchmark which was launched by WMBA in mid-2011.
Currently, five sterling market dealers, Barclays Capital, HSBC, Lloyds Bank Wholesale Banking & Markets, Nomura and UBS intend to begin to quote markets in the swaps curve in maturities up to one year. WMBA members have committed to launching broking services and pricing screens for the product and will arrange trades via their Gilt Repo and OIS desks.
Additionally, MarkitSERV have developed standard confirmation terms to facilitate fully automated post-trade processing of deals and have committed to supporting the product. “LCH.Clearnet’s SwapClear currently offers clearing in the closely related SONIA product and will monitor liquidity developments in RONIA swaps with a view to future clearing eligibility.”
The importance of the repurchase (“repo”) markets and demand for secured borrowing has increased following the financial crisis, as a means of mitigating counterparty risk which this initiative addresses directly.
The RONIA index tracks actual sterling-secured overnight funding rates and is compiled as a daily weighted average of sterling overnight Delivery By Value (DBV) gilt repo transactions brokered between midnight and 16:15 each business day by contributing WMBA member firms. It is published at 17:00 hours via Thomson Reuters, Bloomberg and the WMBA website. RONIA-eligible transactions may be included in DBV operations, which is a mechanism whereby a CREST member that has borrowed money against overnight gilt collateral may use the gilts in its account of the required value for automatic delivery by the CREST system to the account of the money lender.
Commenting on the launch, Alex McDonald, ceo, Wholesale Markets Brokers’ Association said:
“A liquid RONIA derivatives curve will provide a simple instrument that will protect owners of sterling balance sheets against secured rate risk without the basis risk inherent in the other instruments available. The interesting point behind this initiative is the underlying growth in secured lending relative to unsecured, not only in the size of the market but also in the numbers and types of participants involved.”
