SARON common mistakes
SARON · Understand the traps and how to avoid them.
Treating SARON as if it were still tied to the old TOIS fixing, quoting it as a single daily rate published at a fixed moment and using it to price intraday cash flows without adjustment.
Candidates learned interest rate benchmarks in a fixing-based framework and carry that mental model over; the name change from TOIS to SARON is remembered, but the methodological shift to a transaction-based, continuously computed rate is not.
What to do instead
Rehearse the SARON definition explicitly: a transaction-based reference rate calculated from concluded repo transactions on the SIX Repo platform, compounded from intraday trades, published on a defined schedule with a defined cut-off. Practice stating which day's rate applies to which cash flow and how a compounded SARON period (e.g. monthly) is built from daily rates.
Confusing simple averaging with the compounding convention when computing a SARON-based interest amount over a period, and applying the wrong day-count basis to the accrued interest.
Compounded SARON uses a compounding formula applied to daily rates with the actual number of calendar days, and candidates approximate it with an arithmetic mean or with a 30/360 basis because those are familiar from fixed-rate products.
What to do instead
Work through several full period calculations by hand: daily rates, actual days, compounding factor, and the resulting interest amount. Then verify against a published worked example or a term sheet. Drill the difference between ACT/360, ACT/365 and 30/360 explicitly for CHF instruments.
Assuming a SARON-based loan or derivative has a fixed rate set at the start of the period, rather than recognising that the rate for the period is only known at or near its end (a backward-looking, in-arrears rate).
The LIBOR/EURIBOR habit of a forward-looking term rate fixed at period start is deeply ingrained, and candidates transfer it to SARON without noticing the structural difference.
What to do instead
State the lookback/in-arrears structure in one sentence and then apply it to concrete dates: which observation window, whether a lag applies, and when the payment amount becomes known. Practise questions that give a start and end date and ask when the cash flow is determinable.
Mixing up SARON futures and SARON-based OTC swaps in terms of contract specifications, tick size, settlement, and what the quoted price actually represents.
Candidates study derivatives generically and do not anchor the specifics: the futures contract referencing the three-month SARON, its contract months, minimum price movement, and cash settlement versus the swap's fixed-versus-compounded-floating structure.
What to do instead
Build a one-page comparison table from primary sources: underlying, quotation convention, tick, contract months, last trading day, settlement method, and margin treatment for each product. Re-derive it from memory before checking, and redo it until the table is stable.
Answering order-handling questions by intuition about 'fair' sequencing instead of applying the specific SIX Swiss Exchange rules on order types, priority, and execution, and ignoring the distinction between the trading models on the venue.
Candidates rely on general market experience from other venues and do not internalise that order priority, auction behaviour, and price-time rules are venue-specific and rulebook-defined.
What to do instead
Study the SIX rulebook sections on order types and execution alongside the trading model descriptions, and for each rule write a one-line scenario that triggers it. Practise with order-book scenarios where two orders compete and you must state which executes first and why.
Treating market conduct obligations as a list of prohibitions to memorise, and failing to apply them to a scenario involving a specific behaviour such as layering, spoofing, or trading on non-public information.
The rules are learned as abstract statements; candidates do not practise mapping a described behaviour onto the correct rule and the correct consequence, so scenario questions expose the gap.
What to do instead
For each conduct rule, write two scenarios: one clear breach and one borderline case, and state the decisive fact. Focus on the elements that distinguish manipulation from legitimate trading, and on the reporting and escalation obligations that follow a suspicion.
Answering regulatory questions using the current rule as remembered, without distinguishing Swiss-specific requirements from EU regimes such as MiFID II or EMIR that candidates assume apply by default.
Much study material is internationally oriented, so candidates import concepts like best execution reporting, transaction reporting fields, or benchmark regulation from other jurisdictions and apply them unchanged to Switzerland.
What to do instead
For every regulatory topic, note the Swiss instrument (e.g. FinSA, FinIA, FMIA, Bank Act) and its scope, and explicitly mark where Swiss rules diverge from the EU equivalent. Build a divergence list and review it before practising scenario questions.
Confusing the roles of the benchmark administrator, the calculation agent, and the trading venue when asked who determines, publishes, or oversees SARON, and who is responsible for fallback arrangements in a contract.
The functions are adjacent and the entities involved in the Swiss repo market overlap, so candidates collapse them into one actor instead of separating governance from calculation from contractual fallback.
What to do instead
Draw a responsibility map with three columns: who calculates, who administers and controls, and who is contractually responsible for fallbacks and discontinuation. Then answer questions by naming the column first, before naming the entity.
Handling risk and control questions by naming a control ('we have limits') rather than specifying the control objective, the metric, the escalation trigger, and the independent validation.
Candidates memorise control names from summaries and never practise describing a control in operational terms, which is what scenario and short-answer questions reward.
What to do instead
Use a fixed template for every control: risk identified, control activity, owner, frequency, evidence produced, escalation threshold, and independent review. Apply it to interest rate risk in the banking book, market risk limits, and model risk for benchmark-referencing valuations.
Skipping the post-trade chain in market data and reporting questions, assuming that once a trade is executed the reporting and reconciliation outcomes follow automatically, and misstating which data is public versus which is subject to delayed or non-public treatment.
Candidates concentrate on execution mechanics and treat clearing, settlement, transaction reporting, and data entitlement as administrative detail, so questions on timestamps, reference data, and reporting deadlines are answered from guesswork.
What to do instead
Trace one trade end to end: execution timestamp, confirmation, clearing, settlement, regulatory reporting, and the market data record produced at each step. Note for each data item whether it is real-time, delayed, or non-public, and which party is responsible for its accuracy.