JIBAR transition to ZARONIA

The Market Practitioners Group (MPG) has designated the South African Rand Overnight Index Average (ZARONIA) as the preferred successor rate that will most likely replace the Johannesburg Interbank Average Rate (JIBAR) upon its future cessation. Whilst no firm cessation dates have yet been announced, important progress has been made in planning and defining this significant transition across the South African market.

ZARONIA publication

• ZARONIA publication has begun, and live ZARONIA data may be accessed here 

• ZARONIA is currently being published for observation only, until indicated otherwise by the SARB and MPG. We would recommend that market participants familiarise themselves with this rate.

• The current indications are that a 1-year observation period will be observed (from 1 November 2022) before use of the rate is authorised, although we advise that market participants keep close to these developments.

Market Conventions for ZARONIA-based derivative instruments – White Paper published

• The MPG has published a white paper that proposes market conventions for derivative products that will use the newly launched ZARONIA as an alternative reference rate to the JIBAR.  This marks a significant step in the effort to reform domestic reference rates and is in line with the draft transition plan which defines a derivative market transition as Pillar 1, with cash markets to follow in Pillar 2.

• The transition away from JIBAR to an alternative reference rate will have a significant impact on the derivatives market in particular, with gross notional exposure of financial contracts referencing JIBAR estimated at approximately R27 trillion as at the end of 2021.

• Given that derivative instruments account for the largest portion of the exposure (totalling just under 90% of JIBAR referencing financial instruments traded in South Africa), it is essential that market participants consider the recommendations contained in the white paper and provide their comments to ensure a smooth transition. The recommendations provide a framework for interest rate and cross currency swaps that will reference ZARONIA.

• The White Paper and its associated documents can be accessed here

With the transition away from JIBAR gaining momentum through ZARONIA publication and the publication of derivative conventions, we would strongly encourage market participants to keep close to the official sector updates published through the SARB MPG website, as well as the on-going discussions at an industry level. All indications are that 2023 will be an important year in the JIBAR transition journey, and we anticipate that the direction of travel and associated dates will become much clearer as the year progresses.