BoE unveils plans for enhanced data gathering

The Bank of England (BoE) is to begin gathering data on overnight rates in sterling money markets, as part of efforts to enhance financial and monetary policy-making, and strengthen interest rate benchmarks.

A consultation document published today (July 30) proposes the central bank's approach to gathering transactions data from banks, building societies and major investment firms that are active in overnight money markets.

A primary part of the BoE's monetary policy-making is to influence overnight rates, so detailed transaction data should allow the central bank to better assess the effectiveness of its monetary policy, the document says.

Similarly, the operation of overnight markets forms an important part of financial stability analysis. The BoE said it hoped the data would better allow it to gauge the impact of regulations on the functioning of the markets, a key concern at present.

The data gathering has a further role in improving the Sterling Overnight Index Average (Sonia), an interest rate benchmark calculated as the daily weighted average interest rate of unsecured sterling overnight cash transactions over £25 million.

Speaking in March, the BoE's executive director for markets, Chris Salmon, highlighted Sonia as a valuable alternative to other benchmarks such as Libor. But like Libor, Sonia needed to be reformed to be based on transactions data rather than reporting.

As such, under the BoE's proposals the firms most active in sterling money markets will be required to submit a daily return detailing the day's transactions. All firms will also be expected to produce more general "summary statistics" on a yearly basis.

On the current timetable, banks, building societies and major investment firms will be expected to submit their first annual summary in January 2016, covering only data from November and December 2015.

This survey will then inform the BoE which participants are most active and should commence daily reporting, which will begin in April 2016.

The data is expected to form the basis for a reformed Sonia benchmark. Other changes include broader coverage from brokered transactions to bilateral transactions as well, the possibility of changes to the calculation methodology, and changed publication times to allow calculation based on the increased volume of data.

Sonia is used as a reference rate for a large number of sterling overnight interest rate swaps, and with the current outstanding volume of such swaps estimated at £10 trillion, the accuracy of the benchmark is "critical", the BoE said.

Responses to the consultation should be submitted by October 1.