SARON flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- SARON full name
- Swiss Average Rate Overnight: an overnight secured CHF repo rate based on actual transactions on the SIX repo platform, published daily as the CHF risk-free reference rate.
- SARON calculation method
- Volume-weighted median of eligible CHF repo transactions in the SARON basket, trimmed for outliers, expressed as a percentage per annum and fixed once per business day.
- SARON publication time
- SIX publishes the official SARON fixing each SIX trading day at approximately 18:00 CET after the interbank market closes; no fixing occurs on weekends or Swiss public holidays.
- Compounded SARON formula
- Compounded SARON over a period equals the product over days of (1 + r_i * d_i/360) minus one, using actual/360 day-count and daily fixings compounded in arrears.
- SARON vs CHF LIBOR
- SARON is transaction-based, secured, and overnight; CHF LIBOR was survey-based, unsecured, and term-based. CHF LIBOR ceased end-2021 and SARON replaced it.
- SNB policy rate corridor
- The SNB sets a target range; SARON is steered toward the midpoint using open market operations and reserve remuneration, bounded by deposit and liquidity facility rates.
- SARON OIS definition
- An overnight index swap where the floating leg pays compounded SARON and the fixed leg pays a market rate; used for hedging and as the CHF discount curve.
- SARON futures contract
- Cash-settled SIX futures with CHF 1,000,000 notional, quoted as 100 minus compounded SARON, settling against the compounded SARON over the contract period.
- SARON lookback convention
- A convention where the rate applied on a payment date references the compounded SARON observed a set number of business days earlier, typically two, reducing settlement risk.
- SARON lockout convention
- A convention freezing the final fixings of a compounding period, typically the last two business days, so the compounded rate is known before the payment date.
- SARON-linked mortgage
- A mortgage whose interest rate equals compounded SARON plus a margin, reset periodically per contract terms; common in Swiss retail and commercial lending.
- ISDA fallback spread
- A fixed spread adjustment added to compounded SARON for legacy CHF LIBOR contracts, based on the historical median difference between the benchmarks.
- SIX closing auction
- A periodic auction at end of trading that determines the official closing price; orders entered during the auction are matched at a single equilibrium price.
- SIX tick size rule
- SIX defines tick sizes per instrument and price band; orders must conform to the tick grid, and off-tick orders are rejected by the trading system.
- Best execution obligation
- SIX members must take all sufficient steps to obtain the best result for clients, considering price, cost, speed, and likelihood of execution across venues.
- SIX circuit breaker
- Volatility interruptions and price collars that trigger auction extensions or trading halts when dynamic or static price limits are breached, protecting the order book.
- FinMIA scope
- The Swiss Financial Market Infrastructure Act governs exchanges, central counterparties, trade repositories, and conduct rules including market abuse prohibitions.
- FinSA client segmentation
- The Swiss Financial Services Act classifies clients as retail, professional, or institutional, with differing disclosure, suitability, and appropriateness obligations for each category.
- FINMA role
- The Swiss Financial Market Supervisory Authority is the prudential regulator, licensing and supervising banks, insurers, and market participants, and enforcing market conduct rules.
- Critical benchmark status
- SARON is recognized as a critical benchmark under EU BMR and Swiss rules; the administrator must comply with IOSCO principles and FINMA recognition requirements.
- Market abuse prohibition
- Swiss law prohibits insider trading and market manipulation; FINMA and SIX regulatory bodies investigate and sanction breaches under FinMIA and the Criminal Code.
- SARON DV01
- The change in value of a SARON-linked position for a one basis point shift in the SARON curve; a key sensitivity measure for OIS and SARON swaps.
- SARON basis risk
- The risk that SARON-linked assets and liabilities reprice differently, or that SARON diverges from other benchmarks, affecting net interest margin and hedges.
- Repo market liquidity risk
- The risk that the CHF repo market becomes illiquid, disrupting SARON fixings and funding; stress scenarios must model repo dislocation and collateral haircuts.
- Independent price verification
- A control where valuations of SARON-linked instruments are independently checked against market data, ensuring model outputs and trader marks are accurate.
- SIX market data license
- Real-time SIX market data, including SARON fixings and trade data, requires a license; delayed data is publicly available without a license.
- Off-venue trade reporting
- Trades executed outside SIX must be reported to a trade repository or SIX under FinMIA, including price, volume, and counterparty details, within prescribed deadlines.
- SIX x-clear role
- A central counterparty that clears SARON derivatives and Swiss equities, managing novation, netting, margin, and default fund contributions for members.
- T+2 settlement
- Cash products on SIX settle two business days after trade date via SIX SIS; derivatives settle periodically with a payment lag after the compounding period ends.
- SARON reset date
- The date on which a SARON-linked loan or derivative's interest rate is recalculated using compounded SARON, per the contract's reset frequency and conventions.
- SNB sight deposits
- Balances held by banks at the SNB, remunerated at tiered rates; they are the marginal CHF funding source and influence repo and SARON dynamics.
- SARON oversight committee
- A governance body overseeing the SARON benchmark, ensuring IOSCO compliance, reviewing methodology, and handling errors or changes to the calculation process.