Minutes
1: Welcome / introductions
The Group welcomed the new Chair, Caroline Stockmann, and introductions were made.
2: Diversity, Equity & Inclusion
The Group discussed opportunities and initiatives to improve diversity and inclusion and noted the improved diversity of members, which can be difficult to achieve given the lack of diversity at the top of management structures within member firms.
Members discussed ways to include colleagues in the meetings – either from other areas of their organisation or more junior colleagues – potentially through an observer programme. Members shared and discussed ideas for inclusive agenda items and format and timings of future meetings that may enable this, including knowledge sharing and deeper dive discussions on key topics.
The Group noted the opportunity to respond to the PRA’s consultation paper on diversity and inclusion proposals, which had been developed in parallel with the Bank of England and the FCA.
3: Reflections of the effectiveness of SSAG
The Group discussed how the content and structure of the meetings could be revised to focus on key topics and maintain relevance in a changing regulatory environment. The Group expressed an interest in additional data provision (such as additional SONIA market metrics) which may enable better understanding of key risks within the SONIA market. Bank staff agreed to review the data provided to the Group.
4: Retrospective review of market conditions
The Bank presented a pack of publicly available statistics on the SONIA rate and volume and on SONIA adoption since September 2020.
Overnight volumes had trended down in recent months but remained robust, and the SONIA-Bank Rate wedge had narrowed slightly. Members commented on drivers of the changes in the SONIA market, which were attributed to a change in money market fund assets under management (AUM) and a deleveraging of liability-driven investment funds (LDI). It was noted that there had been some reallocation of funds from the SONIA market to the repo market, driven by higher repo rates and a greater demand for cash versus collateral. The Group noted the impact of QT had contributed to this increased demand and the market had reflected higher deposit rates as a consequence. In addition, members noted an increased appetite for short and term investments, which had similarly contributed to lower volumes.
The SONIA rate had remained stable across the period with a slight trend towards Bank Rate. Members noted the relationship dynamics which support SONIA market activity. There had been some pressure on deposit rates which had contributed to a slight narrowing of the wedge though volatility of the SONIA rate remained low. This was in contrast to repo markets, where there had been record use of liquidity facilities and pronounced movement in rates.
5: Year-end preparation and expectations
The Group anticipated a benign year-end. Most pre-positioning had already been completed resulting in reduced demand for cash placement through to the new year although there remained a healthy supply of investment products. Some participants had been more limited in market activity in previous years due to regulatory requirements, but this was noted as less of a constraint for 2023. These factors, along with SONIA market participants’ preference for stability through longer term relationship management, meant the Group did not anticipate issues.
6: Horizon scanning – Impact of Quantitative Tightening (QT); SONIA and money markets
The Group shared views on how QT might encourage the evolution of liquidity facilities and impact volatility and short-term money market rates. Members noted a potential increased pressure on funding as temporary facilities mature. Members also commented on the anticipated increase in regulatory liquidity requirements for money market funds (i.e. an increase in weekly liquid assets). This may coincide with an increased pressure on banks to issue liabilities at maturities greater than money market fund liquidity requirements, as banks seek to manage regulatory metrics. This in turn, may impact the maturity transformation required for money market participation.
7: RFR Update – Liquidity in SONIA derivatives markets
Volumes in SONIA referencing markets overall remained stable with outstanding stocks in SONIA swaps remaining at ~ £30trn. There was a sharp fall in short-dated SONIA swap volumes in October as the market recognised the peak of the rate cycle, following confirmation of a hold on Bank Rate at the September MPC meeting. Volumes have since rebounded.
Options volumes and open interest have increased from a low starting point and remain stable.
The Group noted the change in activity of some market participants who have reduced activity due to changing market dynamics. It is expected that some participants will again increase activity as the market matures.
As the Bank Rate cycle nears its expected peak, volatility has decreased, and the market has developed greater depth at the front end. In addition, members noted concentrated activity between MPC dates which is expected to ease as uncertainty around Bank Rate changes reduces.
Members noted out-of-hours data releases have impacted liquidity however the Office for Statistics Regulation (OSR) has issued a request for feedback on the Review of the Code of Practice for Statistics, which members were encouraged to review.
Attendees
Chair: Caroline Stockmann (Independent member of SONIA Oversight Committee)
External Member: Alexandra Innes (Independent member of SONIA Oversight Committee)
ICE Futures: Uriel Amitai, Stelios Tselikas
Insight Investments: Chris Brown
ISDA: Jonathan Martin
JP Morgan AM: Olivia Maguire
LCH: Philip Whitehurst
LGIM: John Wherton
Mizuho: Dominic Duncan
NatWest: Oliver Butcher
Rabobank: Chirag Patel
Société Générale: Romain Sinclair
RBC Capital Markets: Sean Taor
Bank of England: Zee Akhtar, Daniel Beale, Joe Clouting, James Howat, Joanna McLafferty, Kirstine McMillan, Arif Merali, Kavya Saxena, Joe Smart, Laura Wightman, Ashley Young
Apologies
Blackrock IM: Paul Hauff
Goldman Sachs: Nikhil Choraria
HSBC: James Murphy
TP ICAP: Philip Chilvers