Implementation of ZARONIA – South Africa’s new reference rate
The South African financial market is preparing for a significant change with the implementation of the South African Rand Overnight Index Average (ZARONIA) as the new reference rate for financial market contracts.
Background
Global regulatory concerns about the Inter Bank Offered Rates (IBORs) have led to reforms across multiple jurisdictions. The primary concern globally is that the IBORs are not underpinned by a sufficient number of actual transactions – a key requirement for benchmark interest rates according to the International Organization of Securities Commissions (IOSCO) principles for financial benchmarks published in 2013.
The South African Reserve Bank (SARB) identified similar concerns with the Johannesburg Inter Bank Average Rate (JIBAR) tenors. Market activity in three-month negotiable certificates of deposit (NCDs), which forms the basis of the most widely referenced three-month JIBAR, has declined significantly, while a significant number of financial market contracts are based on the rate.
To address its main concerns, the SARB constituted the Market Practitioners Group (MPG) in 2018, which is a joint public and private sector body with representation from the SARB, the Financial Sector Conduct Authority (FSCA), market interest groups and senior professionals from various institutions across the market. The MPG has formed various workstreams looking at the disciplines across the market to ensure that each aspect of foundation, adoption and transition is addressed. These workstreams established sub-working groups to draft convention papers to serve as guidelines for the market players.
The process of selecting ZARONIA as the preferred successor rate to the JIBAR was guided by the recommendations of the Risk-free Reference Rate Workstream to the MPG. The Workstream findings and recommendations are available on the SARB website.
ZARONIA: What it is, how it is calculated and published
ZARONIA measures the interest rate at which rand-denominated overnight wholesale funds are obtained by banks in South Africa. Administered by the SARB, ZARONIA is calculated based on actual unsecured overnight deposit transactions, using a trimmed, volume-weighted mean of interest rates paid on eligible deposits placed with commercial banks classified as deposit-taking institutions in the Banks Act 94 of 1990.
ZARONIA offers a more transparent and resilient benchmark, as it is grounded in actual transaction data.
On each South African business day, ZARONIA is determined as a trimmed, volume-weighted mean of the central 80% of the distribution of interest rates paid on eligible unsecured overnight call deposits, rounded off to three decimal places.
The SARB publishes the rate daily at 10h00 on business days on the SARB website, with data also accessible via an Application Programming Interface (API). Any correction to the published rate can be amended by 12h00 on business days on the SARB website.
Key stakeholders and their roles
SARB, as the administrator of ZARONIA, is leading this market reform through the MPG.
As South Africa’s principal central securities depository, Strate facilitates asset servicing for securities linked to JIBAR. We manage close to 6 000 JIBAR-linked securities.
In this phase of the project, Strate is enabling ZARONIA as a reference rate for the cash market in May 2025. Issuers can create ZARONIA-linked ISINs and ensure their downstream processes are working satisfactorily.
Strate is working closely with market participants to ensure a smooth transition. Since February 2024, we have conducted workshops with CSD Participants, issuer agents, trade reporting parties and issuers. Strate’s development based on the finalised business requirements and interface specifications has been finalised, and we are currently engaged in market testing. We also continue to monitor market readiness through monthly check-ins.
Implementation timeline for the cash market
– Current status: market scripted testing
– 19 May 2025: Go-live date for ZARONIA-linked cash securities issuance
We will provide updates on implementation progress. For any queries, please contact CSD Services on CSD-Services@strate.co.za.
