SARON cheat sheet

SNB sets the policy rate as the SARON target range midpoint; the operational corridor is bounded by the deposit facility rate and the liquidity-providing facility rate, with SARON held close to the midpoint via open market operations and reserve remuneration.

SARON replaced LIBOR-based CHF benchmarks on 1 January 2022 as the primary CHF reference rate; legacy CHF LIBOR fixings ceased end-2021, and fallback language in contracts points to SARON compounded in arrears.

Money market instruments: SNB sight deposits (remunerated at tiered rates), repo (SNB repo and interbank repo), Swiss Confederation money market paper (Geldmarktbuchforderungen), bank CDs and call money.

Compounding conventions: SARON is compounded daily in arrears using the actual/360 day-count for CHF money market; simple average of daily rates over the period, with the standard formula for compounded SARON being product of (1 + r_i * d_i/360) minus one.

Negative and zero rate handling: SARON can be negative; compounded SARON products typically use a floor of zero for the compounded rate but not for the daily fixing, per ISDA fallback and SIX conventions.

SNB reserve tiers: sight deposits are remunerated at the policy rate up to an individual threshold and at a lower rate (or zero) above it; this affects the marginal cost of CHF funding and hence repo and SARON dynamics.

CHF is a classic funding currency; cross-currency basis and SNB FX reserves influence money market rates. The SNB's willingness to intervene affects short-rate expectations and forward SARON curves.

Key publication times: SNB monetary policy assessments (quarterly) set the policy rate; SARON is published by SIX each business day after the close of the interbank market, around 18:00 CET, based on the previous trading day.

SARON = Swiss Average Rate Overnight, an overnight secured (repo) rate based on actual transactions in the CHF repo market on SIX Swiss Exchange's repo platform; it is a transaction-based, not survey-based, benchmark.

Calculation: volume-weighted median of repo transactions in the SARON basket (SNB-eligible collateral, excluding certain maturities), trimmed to remove outliers; the rate is expressed as a percentage per annum.

Fixings: SARON is fixed once per business day for the overnight tenor; intraday indicative rates exist but the official fixing is the end-of-day rate, published by SIX around 18:00 CET.

Business days: SARON is published on SIX trading days; on Swiss public holidays and weekends no fixing occurs, and compounding for term products uses the previous business day's rate for non-business days per the applicable convention.

Governance: SIX Swiss Exchange acts as benchmark administrator; the rate is IOSCO-compliant, with an oversight committee and published methodology; it is registered as a critical benchmark under EU BMR and recognized in Switzerland.

Fallback: ISDA 2021 IBOR Fallback Protocol and the Swiss Bankers Association recommend compounded SARON in arrears for legacy CHF LIBOR contracts, with a spread adjustment based on the historical median.

Distinction from SARON-based term rates: SARON itself is overnight only; term SARON (1M, 3M, 6M) is derived by compounding daily fixings in arrears, not by a forward-looking term fixing.

Data: SIX publishes the SARON fixing and historical time series; the rate is also distributed via market data vendors. Integrity relies on the repo platform's transaction reporting.

Cash products: SARON-linked mortgages, SARON-linked deposits and loans; interest accrues as compounded SARON plus a margin, with reset dates and lookback/lockout conventions specified in the contract.

Derivatives: SARON OIS (overnight index swaps), SARON futures (three-month contracts on SIX), SARON basis swaps, and SARON-referencing swaptions; OIS discounting is the CHF market standard.

SARON futures: cash-settled, contract size CHF 1,000,000 notional, quoted as 100 minus the compounded SARON rate; final settlement based on the compounded SARON over the contract period.

Compounding conventions for derivatives: daily compounding in arrears, actual/360, with a two-business-day lookback and no lockout typically; payment lag of two business days after period end.

OIS mechanics: fixed leg versus compounded SARON floating leg; the fixed rate is the market's expectation of average overnight rates over the term, adjusted for term premium and collateral effects.

Pricing: SARON OIS curve is the CHF discount curve; swap rates are derived from expected daily fixings plus convexity; basis between SARON OIS and legacy CHF LIBOR swaps reflects credit and liquidity differences.

Collateral and margining: SARON swaps are typically cleared via LCH or SIX x-clear; initial margin and variation margin use the SARON OIS discount curve, and the collateral currency is CHF.

Documentation: ISDA definitions with the 2021 IBOR Fallback Supplement; Swiss-specific guidance from the SBA and SIX on SARON-linked loan documentation.

Trading models: SIX operates a central limit order book with continuous trading and periodic auctions (opening, intraday, closing); the closing auction price is the official closing price.

Order types: market, limit, stop, iceberg, and auction-only orders; validity can be day, GTC, GTD, or fill-or-kill; order priority is price then time.

Tick sizes: defined by SIX per instrument and price band; orders must conform to the tick size grid, and off-tick orders are rejected.

Market conduct: SIX rules prohibit market manipulation, insider trading, and misuse of information; the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss Takeover Board enforce conduct rules.

Best execution: SIX members must take all sufficient steps to obtain the best result for clients, considering price, cost, speed, and likelihood of execution; order handling must avoid conflicts of interest.

Circuit breakers: SIX applies volatility interruptions and trading halts; price collars and dynamic/static limits trigger auction extensions to protect the order book.

Pre- and post-trade transparency: SIX publishes real-time trade data and delayed data; members must report off-book trades and comply with the Swiss Financial Market Infrastructure Act (FinMIA).

Short selling and settlement: SIX has short-selling rules and disclosure thresholds; settlement is T+2 via SIX SIS, with fails handled under the SIX rules.

Key statutes: FinMIA (Financial Market Infrastructure Act) governs exchanges, central counterparties, and trade repositories; FinSA (Financial Services Act) governs client segmentation and conduct; FinIA (Financial Institutions Act) governs licensing.

FINMA is the prudential regulator; SIX Exchange Regulation handles listing and trading rules; the Swiss National Bank oversees monetary policy and payment systems.

Benchmark regulation: SARON is a critical benchmark under EU BMR and recognized in Switzerland; administrators must comply with IOSCO principles and FINMA recognition.

Market abuse: FinMIA and the Swiss Criminal Code prohibit insider trading and market manipulation; FINMA and the SIX regulatory bodies investigate and sanction.

Client segmentation under FinSA: retail, professional, and institutional clients; different disclosure, suitability, and appropriateness obligations apply to each category.

Cross-border: Swiss rules interact with EU MiFID II/MiFIR and the EU Benchmarks Regulation; equivalence decisions affect access to EU markets and use of SARON in EU contracts.

Reporting: transaction reporting to SIX and FINMA under FinMIA; EMIR-style reporting for derivatives to trade repositories; large position reporting thresholds.

Compliance controls: conflicts of interest policies, personal account dealing rules, market soundings procedures, and record-keeping requirements under FinSA.

Market risk: SARON products are sensitive to changes in the overnight rate path; key risk measures include DV01, duration, and convexity; OIS discounting affects valuation and risk.

Interest rate risk: basis risk between SARON and other benchmarks; reset risk for SARON-linked loans; lookback and lockout conventions change the effective exposure.

Liquidity risk: SARON OIS and futures liquidity varies by tenor; the overnight repo market underpins cash funding; stress scenarios must consider repo market dislocation.

Counterparty credit risk: exposure on SARON swaps is managed via clearing, collateral, and netting; initial margin models must capture SARON volatility.

Operational risk: benchmark transition risk, calculation errors, publication failures, and IT system dependencies; controls include reconciliation and independent price verification.

Model risk: SARON curve construction, compounding calculations, and fallback spread adjustments require validation; backtesting and benchmarking to market data.

Limits and controls: pre-trade limits, stop-loss triggers, and independent risk oversight; escalation procedures for limit breaches.

Stress testing: scenarios include rate shocks, repo market freezes, and benchmark cessation; results feed into capital and liquidity planning.

Market data: SIX publishes SARON fixings, trade data, and reference data; real-time data requires a SIX market data license; delayed data is available publicly.

SARON publication: daily fixing around 18:00 CET on SIX trading days; historical time series available from SIX; data vendors redistribute with licensing.

Trade reporting: on-venue trades are reported by SIX; off-venue trades must be reported to a trade repository or SIX under FinMIA; reporting fields include price, volume, and counterparty.

Clearing: SIX x-clear and LCH clear SARON derivatives; novation, netting, and margin flows occur post-trade; CCP default funds and margin models apply.

Settlement: T+2 for cash products via SIX SIS; derivatives settle periodically with payment lag; fails and buy-ins handled under SIX rules.

Reconciliation: daily reconciliation of positions, collateral, and cash; independent valuation of SARON-linked instruments; break resolution procedures.

Corporate actions and lifecycle: reset dates, payment dates, and compounding calculations must be tracked; fallback events and benchmark cessation triggers contractual processes.

Regulatory reporting: EMIR-style reporting to trade repositories, transaction reporting to FINMA, and large position reporting; data quality and timeliness are critical.