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RISK MANAGEMENT | 13 December 2024

Benchmark Reform:
Assistance with publications

Absa | Corporate and Investment Banking > Insights and Events > Benchmark Reform | Assistance with publications
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On 29 November 2024, the Market Practitioners Group published three significant consultation papers, based on the recommendations of various working groups. The three papers are:

  • JIBAR Fallback Methodology Recommendation
  • Consultation on market conventions for ZARONIA-based non-linear derivative instruments
  • Recommendations for a ZARONIA-First initiative in the derivatives market

Below is a brief view of the key takeaways of the different publications.

Proposal for jibar transition and fallback credit adjustment spreads for the south african interest market

In pursuance of a smooth transition from JIBAR to ZARONIA, the SARB Market Practitioners Group has recommended that the South African interest rate market adopt the standard International Swaps and Derivatives Association fallback methodology for calculating a fallback adjustment spread, namely the median value over a five-year lookback period. A fallback adjustment spread is required by market participants to transition contracts from JIBAR to ZARONIA, and there is a unique Credit Adjustment Spread for every tenor. This is due to the inherent structural differences between JIBAR and ZARONIA given that JIBAR is available in multiple tenors while ZARONIA is an overnight rate. The fallback adjustment spread aims to ensure that contracts originally negotiated to reference JIBAR continue to meet the original objectives of the counterparties to the maximum extent possible.

Full article: JIBAR Fallback Methodology Recommendation

Recommendation for a “zaronia first” initiative in the derivative market

In furtherance of efforts to enhance market liquidity in ZARONIA-based derivatives, the proposed “ZARONIA -First" initiative is modelled on similar initiatives in the US and UK – “SOFR First” and “SONIA First” respectively.

The recommendation considers global learnings as well as nuances specific to the South African market, with the ultimate objective to migrate liquidity in JIBAR to ZARONIA-based derivatives.

Full article: Recommendations for a ZARONIA-First initiative in the derivatives market

Market conventions for zaronia-based non-linear derivatives

The Derivative Workstream deliberated on and summarised recommended standard market conventions for the non-linear derivatives that will reference ZARONIA. The recommendations and suggestions for market microstructure, products and associated conventions for ZARONIA -based non-linear derivatives are considered to be critical to enable similar financial functionality and utility as the current, but soon-to-be ceased, JIBAR-based non-linear derivatives market.

Full article: Consultation on market conventions for ZARONIA-based non-linear derivative instruments

Additional information

For an overview of the JIBAR transition to ZARONIA please see the Absa benchmark reform web page - https://cib.absa.africa/home/insights-and-events/benchmark-reform-jibar-to-zaronia/

You can also reach out to your Relationship Manager for more information on how the transition will be affecting your business.

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