RFR Benchmark

SONIA is the Sterling Overnight Index Average published by the Bank of England. See https://www.bankofengland.co.uk/markets/sonia-benchmark.

SOFR is the Secured Overnight Financing Rate published by the Federal Reserve Bank of New York. See https://apps.newyorkfed.org/markets/autorates/sofr.

TONA is the uncollateralised overnight call rate published by the Bank of Japan, also known as the Tokyo Overnight Average rate. See https://www.boj.or.jp/en/statistics/market/short/mutan/index.htm/.

ESTER is the Euro short-term rate, which the ECB will publish by October 2019. See https://www.ecb.europa.eu/paym/initiatives/interest_rate_benchmarks/euro_short-term_rate/html/index.en.html.

ICE RFR - Realised Average

  1. Determine the start and end dates for the relevant tenor period. For the n-month tenor, the end date is the business day in respect of which the simple average rate is being determined (i.e. the simple average rate calculation and publication date) and the start date is the business day n months before the end date, based on a Modified Following business day convention. The start date and end date will both always be business days.
  2. Calculate the average overnight rate over the tenor period as:

Where n is the number of calendar days from (and including) the start date to (but excluding) the end date and ri is the applicable overnight rate in respect of calendar day i. If i is a business day, then ri will be the overnight rate in respect of that day; otherwise it will be the overnight rate in respect of the preceding business day.

ICE RFR - Realised Compounded in Arrears

  1. Determine the start and end dates for the relevant tenor period in the same manner as for the simple average rate.
  2. Calculate the compounded overnight rate over the tenor period as:

Where n is the number of calendar days from (and including) the start date to (but excluding) the end date, d is the number of business days in the same period, b is the applicable day count fraction denominator1, ri is the applicable overnight rate in respect of business day i, and ai is the number of calendar days in the period in respect of which rate ri applies.

ICE Term RFR - Forward Looking Futures Derived - GBP

  1. Determine the start and end dates for the relevant tenor period. For the n-month tenor, the start date is the business day in respect of which the term rate is being determined (i.e. the term rate calculation and publication date) and the end date is the business day n months following the start date, based on a Modified Following business day convention. The start date and end date will both always be business days.
  2. Determine a schedule of rate change dates for the tenor period. The schedule will contain exactly one rate change date for each calendar month spanned by the tenor, including the months containing the start and end dates.

For the calendar month containing the start date, the rate change date for that month will be either:

  • the scheduled MPC meeting date for that month, provided this occurs on or after the start date; or
  • where the start date falls after the scheduled MPC meeting date for that month or there is no MPC meeting date scheduled for that month, the start date.

For subsequent calendar months (including the month containing the end date), the rate change date for that month will be either:

  • the scheduled MPC meeting date for that month; or
  • where there is no scheduled MPC meeting date for that month, the first business day of that month.

Note that, for the month containing the end date, the rate change date might fall after the end date.

  1. For each calendar month spanned by the tenor, determine the initial rate to apply for each calendar day (if any) prior to the rate change date for that month and the new rate to apply to each calendar day from (and including) the rate change date for that month to the end of the month.
    • For the month containing the start date, use SONIA in respect of the business day preceding the start date (which is published on the start date) as the initial rate. For each subsequent calendar month, the initial rate will be the new rate calculated for the rate change date for the previous month.
    • To derive the new rate for each rate change date:
      • Calculate the sum of the daily interest rates in respect of each calendar day in the month from the start of the month up to (but excluding) the rate change date.
        • For the calendar month containing the start date, for each calendar day (if any) up to (but excluding) the start date, use the published SONIA rate in respect of such day. For a business day, this will be SONIA published in respect of that day2; otherwise it will be SONIA published in respect of the preceding business day. For each calendar day from (and including) the start date up to (but excluding) the first rate change date (if this is different to the start date), use published SONIA in respect of the business day preceding the start date.
        • For subsequent months, for each calendar day up to (but excluding) the rate change date use the rate calculated for the rate change date for the previous month.
      • Imply a sum of interest rates for the whole calendar month from the ICE One Month SONIA Index Futures settlement price for that calendar month, published at the end of trading on the preceding business day3.
      • Subtract the sum of the rates for the calendar days up to (but excluding) the rate change date from the implied sum for the whole month, to determine a sum of the rates for all calendar days from (and including) the rate change to (and including) the last calendar day of the month.
      • Divide this by the number of calendar days from (and including) the rate change date to (and including) the last calendar day of the month to obtain the new daily rate which will apply from (and including) the rate change date for that calendar month.
  1. Having determined the new rates for each rate change date, and consequently the rate to apply to each calendar day of the tenor period, the derived term rate is calculated by daily compounding of these rates across the tenor period, using the same standard compounding approach as for the realised compound average rate:

Where n is the number of calendar days from (and including) the start date to (but excluding) the end date, d is the number of business days in the same period, b is the applicable day count fraction denominator4, ri is the applicable rate in respect of business day i, and ai is the number of calendar days in the period in respect of which rate ri applies.

1 365 for Sterling

2 The SONIA rate in respect of a given business day is published at 9:00am on the following business day

3 Note that the futures price represents a simple average of daily rates for the calendar month

4 365 for Sterling