Pros and cons of SONIA
Pros of SONIA
Unlike LIBOR, the SONIA benchmark is calculated using actual transactions, rather than survey results. This means that it not only reflects the average rate of transactions, but that there is less risk of the rate being manipulated. SONIA will help to provide transparency within the market.
Cons of SONIA
The transition from LIBOR to SONIA was a huge undertaking, as the previous system covered sterling deals to a notional value of $30 trillion. The concerns about the change were that it would be difficult to establish feasible and trusted alternatives, as well as liquid markets, and that – for a while – the old and new benchmarks would have to work side by side.
Another concern raised about SONIA, or rather the transition away from LIBOR, is that the group of five currencies will not be fully aligned. However, the benchmarks will have to conform to international regulations which will go someway to creating global unity between the rates.