Wholesale Market Brokers’ Association (“WMBA”) today announces that it is publishing the Repurchase Overnight Index Average (“RONIA”), a new UK secured money market benchmark.
The new index tracks actual market secured overnight funding rates in sterling and is compiled as a weighted average of transactions brokered in London, supplied by members of the WMBA between 12:00 and 16:15 the following day.
RONIA is based on Secured Overnight Swaps which are repurchase (repo) agreements in which securities are sold provided that they will be repurchased on the following day. Financial institutions use overnight repos as a means of raising short-term money for financing inventories through either a short term loan funded by an overnight deposit or an overnight loan funded by a short-term deposit.
Following the financial crisis, counterparty risk provisioning and collateralisation of portfolios has become increasingly important to financial decision-making, the corollary of which has been a huge growth in secured lending and borrowing markets in the UK.
Commenting on the launch, Alex McDonald, CEO, Wholesale Market Brokers’ Association said, “The launch of RONIA is a response to the need for an official fixing benchmark to enable market participants to hedge exposures to Secured Overnight Swaps / secured lending.”
RONIA eligible transactions are Delivery by Value (DBV) which is a mechanism whereby a CREST member who has borrowed money against overnight gilt collateral may have gilts on its account to the required value delivered automatically by the system to the CREST account of the money lender.
The index is a weighted average overnight deposit rate for each business day. Each rate in the average is weighted by the principal amount of deposits which were taken on that day. The Index is published at 17:00 hours every day.