You're listening to Strictly Business Podcast with Lindsay Williams.
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,
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,
explaining what those two terms that I've just described are.
Okay.
Hi,
Lindsay.
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.
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.
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.
You knock off the 20%
You knock off the 20% top and bottom.
top and bottom.
So you're looking at 80%
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 was all to do with 2008,
but also,
and that's a domestic issue,
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?
Yes.
So effectively,
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 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,
which is the sterling overnight index average,
the euro short-term rate,
Switzerland,
Tokyo,
they've all done it.
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,
there's around five contributing banks to Jibar.
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.
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 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.
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 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,
it also includes a credit premium.
So there's bank credit risk built into that.
If we look at Zaronia,
Zaronia is a backward-looking overnight rate.
So if you've got a
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,
it's very close to risk-free.
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.
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.
And then in 90 days'
time,
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,
we will only know what the coupon is.
at the end of the
90-day period.
So it's different in that way.
So the market is going to change.
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,
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.
So everything then will move to Zoronia.
So everything then will move to Zeronia.
Yes,
so you've answered my next question,
actually,
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?
So it'll mostly be new investments,
but there will be some investments that will be caught.
still in existence by the end of 2026.
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.
Some investors,
Some investors, all investors actually hate change.
all investors actually hate change.
Do people look at this and say,
oh,
goodness me,
goodness me, it's something new.
it's something new.
It's volatile.
I don't understand it.
Therefore,
Therefore, there's uncertainty.
there's uncertainty.
Is that a valid concern,
do you think?
So I think obviously the change does mean that systems have to be adjusted.
The mindset needs to be adjusted.
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.
So overall for the market,
it's a good development and we should embrace it.
Very good.
It's going to make your life easier,
Vivian.
There's going to be more clarity at 91.
There will be more clarity.
Thank you.
I think there's still some developments that need to take place,
some final things that need to be nailed down.
But generally,
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.
Very good.
Vivian,
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.
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