€STR versus SONIA

The introduction of the new euro short-term rate (“€STR”) by the European Central Bank (ECB) in October caused potential issues for MiFIR transaction reporting and RTS 23 instrument reporting as there was no standardised four character code in RTS 22 or RTS 23 for the new benchmark rate. Fortunately, ESMA has addressed problem by creating a new four character code of ESTR for the index name and stipulating that the ISIN EU000A2X2A25 should be used to identify the index. Clearly this will be transformative in the number of successful market abuse cases brought by the regulators. ESMA details how these codes should be used for both RTS 23 and RTS 22 reporting in its December MiFIR Data Reporting Q&A.

However, the ESMA guidance on €STR does highlight certain anomalies with the treatment of other interest rate benchmarks. For example, it’s the only interest rate where the ISIN also needs to be populated in the ‘Underlying Instrument’ code field. But perhaps the strangest anomaly is that there appears to be no equivalent treatment for the Sterling Overnight Index Average (SONIA). This was introduced in March 1997 and is used to value around £30 trillion of assets each year. SONIA derivatives are also traded on regulated markets, but there is no standardised four character code for this sterling interest rate benchmark and ESMA has not addressed this issue in the same way it has for the euro interest rate benchmark. It’s a similar story for EMIR, where the ‘ESTR’ code was added to the list of four character codes to identify floating rates, but no similar additional was made for SONIA. Why is this, I wonder? Answers on a postcard please…