South African Rand Overnight Index Average (ZARONIA)

ZARONIA is the measure of the interest rate at which rand-denominated overnight wholesale funds^† in South Africa are obtained by banks, where credit, liquidity and other risks are minimal.
 

Statement of methodology

Eligible transactions

• ZARONIA is based on unsecured overnight call deposits placed with commercial banks, which are classified as deposit-taking institutions in the Banks Act.
• Only transactions concluded at arm’s length are eligible. Intra-group transactions are therefore not eligible, except where the transactions are concluded between a commercial bank and its Prime Broking Desk.
• In measuring wholesale funds, the following counterparty types are eligible:non-financial corporates
  • non-bank financial corporates
  • non-financial corporates
  • commercial banks and
  • public sector institutions
• Only transactions that are settled on the same day as the trade date (T+0) and maturing the following business day (T+1) are eligible.
• The minimum transaction size is R20 million.

ZARONIA Calculation methodology

• On each South African business day, ZARONIA is determined as a trimmed, volume-weighted mean of the central 80% of the distribution of interest rates paid on eligible unsecured call deposits, rounded off to three decimal places.
• The trimmed, volume weighted mean is calculated by:
  • ordering the transactions from the lowest rate to the highest rate
  • aggregating the transactions occurring at each rate level
  • removing the top and bottom 10% in volume terms and
  • calculating the mean of the remaining 80% of the volume-weighted distribution rates. (A pro rata calculation is applied to those volumes that span the thresholds for trimming to ensure that exactly 80% of the total eligible volume is used in the calculation of the volume-weighted mean.)

ZARONIA Contingency arrangements

• Contingency measures will apply in the event that there is insufficient data to reliably determine the level of the benchmark and/or technological difficulties which prevent the calculation of the benchmark in a manner consistent with the specified calculation methodology. Furthermore, contingency measures may be used in times of market stress or when there are unexpected disruptions due to a failure in critical infrastructure or other relevant factors.
• On any given day, contingency measures will be triggered when:
  • the number of contributing banks is three or less; and/or
  • the volume of transactions submitted by one bank constitutes more than two-thirds of the total volume submitted.
• If contingency measures are triggered, the transactions submitted for the day concerned will be combined with the transactions for the previous day. However, the rate of the previous day’s transactions will be adjusted for any changes in relevant market rates, particularly any changes in the repo rate.
• Contingency arrangements are intended to be used for relatively short periods of time. Therefore, all parties involved in the benchmark determination process should always take reasonable steps to avoid undue operational risk that could compromise the quality and/or integrity of the benchmarks.
• In cases where there is an insufficient volume of transactions and/or the number of contributing banks is below the threshold for a period of more than five consecutive business days, a substitute rate will be used, based on the repo rate plus a historical long-term spread between ZARONIA and the repo rate.
• The substitute rate will apply for a period not exceeding three months. Should the data sufficiency problem persist for a period longer than three months, the SARB, in consultation with the market, will devise a long-term solution, which might include changes to the calculation.

^† For the purposes of the liquidity coverage ratio (LCR), ‘unsecured wholesale funding’ is defined as those liabilities and general obligations that are raised from non-natural persons (i.e. legal entities, including sole proprietorships and partnerships), and which are not collateralised by legal rights to specifically designated assets owned by the borrowing institution in the case of bankruptcy, insolvency, liquidation or resolution. Obligations related to derivative contracts are explicitly excluded from this definition.