At the end of July 2017, the UK Financial Conduct Authority (FCA) announced to persuade the panel banks no longer
than the end of 2021 to submit the rates for the London Interbank Offered Rate (LIBOR). This announcement from the
regulator of the key international interest rate highlighted the dwindling trust in LIBOR and proposed an orderly
transition to alternative reference interest rates. This now assumes a new urgency in the search for a suitable
Reform process advancing worldwide
In Switzerland, a national working group on the topic of CHF reference interest rates was set up back in 2013. Similar
working groups have been formed for other LIBOR currencies, such as the USD, GBP and JPY. Their main task is to
assess alternative solutions for existing reference rates. The working group in Switzerland has already analyzed
and evaluated various approaches and benchmarks. Its findings from the last four years as well as an outlook on
further actions were presented on Friday, 22 September 2017, to the roughly 250 participants of the joint event
staged by SIX Swiss Exchange and the SFAA Swiss Bond Commission in Zurich.
First of all, Dewet Moser, an Alternate Member of the SNB's Governing Board and initiator of the national
working group, provided an update on the internationally coordinated reform process and the significance
of the reference interest rates from the central bank's perspective.
Darrell Duffie, Professor of Finance at Stanford University and member of the scientific council of the
Swiss Finance Institute, then explained why LIBOR had to be replaced and what role Switzerland could play
in the replacement process.
Martin Bardenhewer, co-chairman of the national working group, outlined the working group's developments
since its foundation, the factors underlying the focus on SARON and the steps to be taken now.
All presentations are available as webcasts and PDF-downloads.
After the presentations, Martin Bardenhewer, Dewet Moser and Darrell Duffie answered questions from the audience.
Convincing arguments in favor of SARON
The Swiss Average Rate Overnight, or SARON in short, is a Swiss stock exchange index that was launched in 2009 in
conjunction with the SNB as an alternative
reference interest rate for the CHF market. It is based on actual market transactions and prices in the
Swiss repo market and thus on secured assets. The unsecured counterpart in the Swiss money market is TOIS-fixing.
Like LIBOR, TOIS-fixing is calculated based on reports from banks. For this purpose, the panel banks determines
the rates at which they can borrow money from other institutions on an unsecured basis. Both in Switzerland and
abroad, unsecured transactions have become less common. This makes the determination of the LIBOR and the
TOIS-fixing in comparison to the transaction-based SARON not sustainable. A first measure will be taken therefore
in the Swiss money market at the end of 2017, when the TOIS-fixing will be replaced by SARON.
Why SARON is a real alternative to the CHF-LIBOR:
The SARON index[pdf] is based on actual market transactions and quotes made on the regulated trading
platform SIX Repo during the day.
SARON is calculated transparently in accordance with the
Index Regulations[pdf], which are available on the SIX Swiss Exchange website.
Index data can be obtained via all
standard data vendors or directly from SIX Swiss Exchange. The intraday data (e.g. Fixings) is subject
to licensing from 1 January 2018. At the same time, the historic data will be available free of charge
on the website of SIX Swiss Exchange.
SIX Swiss Exchange uses the IOSCO Principles for Financial Benchmarks for all indices. SARON thus complies with
international benchmark standards.
Additionally, support is available from the advisory
Swiss Reference Rates Index Commission, comprising market representatives.
Furthermore, two major clearing houses have announced to offer the clearing of SARON swaps.
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