ICE trading volumes spike on June 17 'SONIA First' day

ICE Futures Europe, the largest UK interest rates market, had on Thursday a record day for trading contracts based on the new UK alternative to Libor as firms switched to SONIA for pricing their derivatives at the request of the British regulator and central bank.

London-based ICE Futures Europe saw on Thursday trading in its three month SONIA futures contract beat its previous record day by over a fifth as its single-day volume topped 473,000 lots.

ICE Futures Europe said its five-day average daily volume for the SONIA futures contract is now above 175,000 lots, also a record, equivalent to a notional value of £175 million.

The market, owned by Intercontinental Exchange, also reported strong trading in its benchmark short sterling futures contract, which is based on Libor, linked to earlier comments from Washington that the US central bank may raise rates in 2023.

Steven Hamilton, Global Head of Financial Derivatives at ICE, said: “The date proposed by the FCA and BoE of June 17, where market participants were encouraged to adopt SONIA rather than Libor based exchange traded derivatives, coincided with a shift in rates expectations globally following comments made by the Fed the previous day.”

Hamilton added: “At ICE, home of Sterling denominated interest rate futures and options, this led to a single day Sonia futures volume record as our members and users exchanged and managed risk.”

The Financial Conduct Authority and the Bank of England picked June 17 as the latest “SONIA First” day on which firms were encouraged to switch to the Libor alternative.

SONIA is the UK’s preferred alternative to the much-maligned Libor benchmark due to stop functioning as a UK lending reference rate at the end of this year.

ICE, which competes for SONIA trading with LSE CurveGlobal and CME Group, has seen strong demand in its interest rates segment this year as European and UK investors seek protection from the prospect of rising central bank rates.

Hamilton said last week the vaccine schemes in the UK and Europe have restored investor confidence and turned people’s focus to growing inflationary pressures, which has driven demand for interest rate products.