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We are looking at trading a sterling OIS swap (OTC) and I can't find the specifics of the conventions anywhere. People tell me that because Sonia is an overnight rate, you use the preceding rate. So the Bank publish the SONIA for the 30th March at 9am on the 31st March, it's timestamped 30th, and the market uses that as the rate for the 31st in an OIS. Is that correct? Why isn't this clearly laid out anywhere since it seems counter intuitive? All the explanations around are about how to do loans with the libor transition, not exactly how everyone does OIS today. Really appreciate any light people can shed on this, and bonus for pointing me to any documentation!

(And if that's not correct, then we don't get today's rate till tomorrow and we have a problem for our pricing timing -obviously can request a fixing lag but just trying to understand the market norms here.)

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Firstly, note that this is a detail which changed in 2018. The BenchMark Regulations (applied from the EU reg) require that benchmarks are based on actual transactions, so Sonia changed from being a term rate for overnight published today for tonight, to being an in-arrears rate published tomorrow for tonight.

The rate for some date (the index for that day) runs from that date to the following business day, so the index dated 30th ends on the 31st. Usually when pricing rates like Sonias, you talk about the end date of the swap rather than the start date, because the convention is that they start today.

Inevitably this would cause some problems with paying people based on the index, so OIS often have a cutoff near the end of the swap where the last index value before the cutoff is repeated for the remaining days.

Bonds based on overnight indices have either a lag (apply a different day's fixing) or a shift (calculate the accrual for a different date range), and the Libor fallback applies a 2 day lag.

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  • $\begingroup$ Thanks so much! I'm confused about this 'runs from that date to the following business day', when SONIA really runs over just one day, closes at 6pm and is published the following day. From BoE: "Eligible transactions are: ... executed between 00:00 hours and 18:00 hours UK time and settled that same-day" Is it opening at midnight that counts as starting the previous day? Or is this basically just a legacy convention due to how it used to be published same day? This says settlement dates didn't change in 2018, so due to legacy makes sense. isda.org/a/XNmEE/FAQs-SONIA-reform.pdf $\endgroup$ – pineapple Apr 5 at 22:19

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