Challenging an Official SARON Fixing After a Large Quarter-End Repo Trade
At 17:00 on 30 September, the official SARON is published at 0.42%. The product control team of a Zurich bank had independently estimated 0.38% for discounting its CHF 600 million SARON OIS book. The repo desk reports that a single overnight repo of CHF 1.2 billion at 0.55% was executed on the SIX Repo platform late in the afternoon; total platform volume for the calculation period was CHF 3.5 billion. Most other trades were clustered between 0.35% and 0.40%. The bank's valuation model uses a simple volume-weighted average of the trades it sees, not the official methodology. The head of valuation asks whether the bank should challenge the published rate, switch to its internal estimate for month-end NAV, or keep the official SARON. A vendor has also flagged that its data feed may be delayed by 15 minutes on quarter-end.
1. Explain whether the large repo trade should mechanically move SARON under the official methodology, and why the bank's 0.38% estimate differs from the published 0.42%.
Read the worked answer
Under a volume-weighted median methodology, trades are sorted by rate and the median is the rate at which cumulative volume reaches 50%. The CHF 1.2 billion trade at 0.55% is about 34% of the CHF 3.5 billion total. The remaining CHF 2.3 billion, about 66%, is clustered at lower rates. Because the large trade does not by itself cross the 50% cumulative volume threshold, the median remains in the lower cluster, so a published rate of 0.42% is plausible. A simple volume-weighted average would be pulled up much more by the 1.2 billion trade: roughly (1.2 x 0.55% + 2.3 x 0.37%) / 3.5 = 0.43%, close to the official print. The bank's 0.38% estimate is likely a simple average of a subset that excludes or underweights the large trade. The difference is therefore a methodology issue, not necessarily a bad official fixing.
2. What should the bank do about month-end NAV and the delayed vendor feed?
Read the worked answer
The bank should keep the official SARON as the primary valuation input and should not substitute its internal 0.38% merely because it differs. It should document the reconciliation, confirm that its model is not the official methodology, and investigate whether the model is fit for purpose. Substituting an internal estimate without a formal fallback trigger would create inconsistency and potential audit findings. For the delayed vendor feed, the bank should use the official administrator source or an approved fallback, not a stale vendor value. If the official rate is temporarily unavailable, the valuation policy should specify the fallback hierarchy, such as the last published rate with escalation. If SARON is later corrected, the bank should apply its correction policy and assess materiality for NAV. The month-end NAV should use the official rate available at the valuation point, with the vendor delay treated as an operational issue.