You're listening to Strictly Business Podcast with Lindsay Williams. It's out with the old and in with the new. It's out with the old and in with the new. And here to explain what I'm talking about is Vivian Tabor, And here to explain what I'm talking about is Vivian Taborer, Investment Director at 91 in Cape Town. Investment Director at 91 in Cape Town. Vivian, Vivian, I'm talking about Jai Bar and Zeronia, I'm talking about Jai Bar and Zeronia. and we have to go back a step.
And we have to go back a step. In other words, In other words, explaining what those two terms that I've just described are. explaining what those two terms that I've just described are. Okay. Okay. Hi, Hi, Lindsay. Lindsay. Yes. Yes. So So Jai Bar is the Johannesburg Interbank Offered Rate, Jai Bar is the Johannesburg interbank offered rate. And that has been used as a base rate for South African money markets and fixed income instruments now for many years.
and that has been used as a base rate for South African... money markets and fixed income instruments now for many years. And in line with what's happening globally and concerns around those rates being manipulated, And in line with what's happening globally and concerns around those rates being manipulated, if we look back at sort of 2008 and what happened with Jai Bar then, if we look back at sort of 2008 and what happened with Jibar then, we know that that can be manipulated.
we know that that can be manipulated. There's been this global move, There's been this global move, this global trend to move towards rates that... this global trend to move towards rates that are much more widely traded and have much bigger volume behind them. are much more widely traded and have much bigger volume behind them. And so... So the market is moving towards either unsecured or secured overnight lending rates.
The market is moving towards either unsecured or secured overnight lending rates. In South Africa, In South Africa, we are moving towards Zaronia, we are moving towards Zaronia, which is our South Africa overnight index average rate. which is our South Africa overnight index average rate. So effectively, So effectively, that is the rate that wholesale deposits bigger than 20 million get given in the market on an overnight basis.
that is the rate that wholesale deposits bigger than 20 million get given. in the market on an overnight basis. And it's a trimmed mean. And it's a trimmed mean. You knock off the 20% You knock off the 20% top and bottom. top and bottom. So you're looking at 80% So you're looking at 80% and it's an average rate. and it's an average rate. And that will be used as the basis for those cash and fixed income instruments going forward.
And that will be used as the basis for those cash and fixed income instruments going forward. OK, Okay, so Jai Barra is in place at the moment. so Jai Barra is in place at the moment. It will be replaced by Zeronia. It will be replaced by Zeronia. It was all to do with 2008, It was all to do with 2008, but also, but also, and that's a domestic issue, and that's a domestic issue, obviously, obviously, but also it's a global reform that has been going on. but also...
It's a global reform that has been going on. What lessons did South Africa take from those global reforms? What lessons did South Africa take from those global reforms? Yes. Yes. So effectively, So effectively, the Financial Stability the Financial Stability Board did this, Board raised concerns about the reliability of IWO benchmarks in raised concerns about the reliability of eyeball benchmarks in 2012. 2012.
And then in 2013, In 2013, the International Organization of Securities Commission published the Principles for Financial Benchmarks. the International Organization of Securities Commission published the Principles for Financial Benchmarks. And this was sort of, And this was sort of... these are the guidelines to have more credible rates and ones that were more representative. These are the guidelines to have more credible rates and ones that were more representative.
So South Africa is quite a long way behind some of the bigger markets in doing this. So South Africa is quite a long way behind some of the bigger markets in doing this. So we are following in the footsteps of the secured overnight financing rate in the US, So we are following in the footsteps of the secured overnight financing rate in the U.S.
Sonia, Sonia, which is the sterling overnight index average, which is the sterling overnight index average, the euro short-term rate, the euro short-term rate, Switzerland, Switzerland, Tokyo, Tokyo, they've all done it. they've all done it. Okay, Okay, so Zeronia is very different to Jibar. so Zerunia is very different to Jai Bar. Tell us how it's calculated and why it's considered a more reliable or modern benchmark that isn't as easily manipulated.
Tell us how it's calculated and why it's considered a more reliable or modern benchmark that isn't as easily manipulated. Yes. Yes, So if we look at Jibar, so if we look at Jibar, effectively at the moment, effectively at the moment, there's around five contributing banks to Jibar. there's around five contributing banks to Jibar. You knock off the top one, You knock off the top one, you knock off the bottom one, you knock off the bottom one. and it's not traded very much.
And it's not traded very much. So it is open to manipulation. So it is open to manipulation. If you look at the overnight call rates that have been used for Zaronia, If you look at the overnight call rates that have been used for Zaronia, you're looking at sort of 450 billion a day. you're looking at... sort of 450 billion a day. So it's massive. So it's massive. So it's much less able to be manipulated. So it's much less able to be manipulated.
The other key difference here is when we look at Jai Bar, The other key difference here is when we look at Jibar, you're looking at a forward-looking term rate. you're looking at a forward-looking term rate. So traditionally, So traditionally, the market has really been around three-month Jai Bar, the market that's really been around three-month Jai Bar, but there is also a one-month, but there is also a one-month, a six-month, a six-month, and a 12-month tenor. and a 12-month tenor.
And that interest rate is in the start of the interest period. And that interest rate is in the start of the interest period. So it'll be done today for the next 90 days. So... It'll be done today for the next 90 days. And what it does, And what it does, it also includes a credit premium. it also includes a credit premium. So there's bank credit risk built into that. So there's bank credit risk built into that.
If we look at Zaronia, If we look at Zaronia, Zaronia is a backward-looking overnight rate. Zaronia is a backward-looking overnight rate. So if you've got a So if you've got a 90-day Zaronia period, 90-day Zaronia period, okay, you'll only know the interest rate that you're earning at the end of the period. you'll only know the interest rate that you... earning at the end of the period.
And because of the way that we look at this market, And because of the way that we look at this market, it's very close to risk-free. it's very close to risk-free. There's little or no credit premium in that rate. There's little or no credit premium in that rate. So quite a big difference here that you need to get your head around. So quite a big difference here that you need to get your head on. Very good theoretical difference.
Very good theoretical difference, But what practical impact does this have for cash investors, but what practical impact does this have for cash investors, for example? for example? Give me an example. Give me an example. So if you bought a floating rate note in the market today, So if you bought a floating rate note in the market today, a one-year floating rate note in the cash market.
a one-year floating rate note in the cash market, you would have your Jive bar would be set today for the first 90 days, Your Jive bar would be set today for the first 90 days, and you would know what your interest is over that and you would know what your interest is over that 90-day period. 90-day period. And then in 90 days' And then in 90 days' time, time, it would be the second and then the third and then the fourth. it would be the second and then the third and then the fourth.
If we now have a one-year floating rate note today that we buy in the cash market, If we now have a one-year floating rate note today that we buy in the cash market, we will only know what the coupon is. we will only know what the coupon is. at the end of the at the end of the 90-day period. 90-day period. So it's different in that way. So it's different in that way. So the market is going to change. So the market is going to change.
Effectively, Effectively, for the cash market, for the cash market, instruments are shorter. instruments are shorter. It means that when we move to the cash market going live in the middle of this year, It means that when we move to the cash market going live in the middle of this year, we will have a period where you can get Zoronia-linked product and you can get Jibar-linked product. we will have a period where you can get Zoronia-linked product and you can get Jibar-linked product.
But as we get to the end of the year, But as we get to the end of the year, they'll announce the cessation of Jibar. they'll announce the cessation of Jibar. And then from... And then from… March next year, March next year, there'll be no more new Jai Bar. there'll be no more new Jai Bar. So everything then will move to Zoronia. So everything then will move to Zeronia.
Yes, Yes, so you've answered my next question, so you've answered my next question, actually, actually, because because I was going to ask you, I was going to ask you, will existing cash investments that reference Jai Bar, will existing cash investments that reference Jai Bar, the existing system, the existing system, automatically switch to Zoronia? automatically switch to Zeronia? Or is this a change mostly relevant for new investments? Or is this a change mostly relevant for new investments?
So it'll mostly be new investments, So it'll mostly be new investments, but there will be some investments that will be caught. but there will be some investments that will be caught. still in existence by the end of 2026. still in existence by the end of 2026. And for those instruments, And for those instruments, they will change to Zoronia plus a spread to calculate what would have been the Jai Bar reset.
they will change to Zoronia plus a spread to calculate what would have been the Jai Bar reset. But it will be a very small amount of the market. But it will be a very small amount of the market and it'll primarily there be for longer dated instruments. And it'll primarily there be for longer-dated instruments. So for longer-dated bonds, So for longer dated bonds, for long-dated loans, for long dated loans, so things that go out beyond that tenor. so things that go out beyond that tenor.
For cash market instruments that... For cash market instruments, The transition should be easier because the maturity of those instruments is much shorter. The transition should be easier because the maturity of those instruments is much shorter. So very few instruments are going to land up being caught in what they call that tough legacy legislation period. So very few instruments are going to land up being caught in what they call that tough legacy legislation period.
Tough legacy is a good phrase. Tough legacy is a good phrase. Some investors, Some investors, all investors actually hate change. all investors actually hate change. Do people look at this and say, Do people look at this and say, oh, oh, goodness me, goodness me, it's something new. it's something new. It's volatile. It's volatile. I don't understand it. I don't understand it. Therefore, Therefore, there's uncertainty. there's uncertainty.
Is that a valid concern, Is that a valid concern, do you think? do you think? So I think obviously the change does mean that systems have to be adjusted. So I think obviously the change does mean that systems have to be adjusted. The mindset needs to be adjusted. The mindset needs to be adjusted. We need to get used to the new way of doing this. We need to get used to the new way of doing this.
But in terms of the market itself, But in terms of the market itself, this rate is going to be much less volatile and much more certain. this rate is going to be much less volatile and much more certain. It's going to follow what's happening on the repo rate much more closely. It's going to follow what's happening on the repo rate much more closely. So overall for the market, So overall for the market, it's a good development and we should embrace it.
it's a good development and we should embrace it. Very good. Very good. It's going to make your life easier, It's going to make your life easier, Vivian. Vivian. There's going to be more clarity at 91. There's going to be more clarity at 91. There will be more clarity. There will be more clarity. Thank you. I think there's still some developments that need to take place, I think there's still some developments that need to take place, some final things that need to be nailed down.
some final things that need to be nailed down. But generally, But generally, everything is moving in the right direction. everything is moving in the right direction. There are market working groups across the market for different streams that 91 is involved in. There are market working groups across the market for different streams that 91 is involved in. So we have input in it together with the rest of the financial services industry.
So we have input in it together with the rest of the financial services industry. Very good. Very good. Vivian, Vivian, thank you very much for your insight. thank you very much for your insight. Vivian Tabor is Investment Director at 91 in Cape Town. Vivian Tabra is Investment Director at 91 in Cape Town. The views and opinions expressed in these podcasts are those of Lindsay Williams.
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