WEBVTT

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You're listening to Strictly Business
Podcast with Lindsay Williams.

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It's out with the old and in with the new.

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It's out with the old and in with the new.

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And here to explain what I'm talking about
is Vivian Tabor,

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And here to explain what I'm talking about
is Vivian Taborer, Investment Director at

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91 in Cape Town.

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Investment Director at 91 in Cape Town.

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Vivian,

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Vivian,

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I'm talking about Jai Bar and Zeronia,

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I'm talking about Jai Bar and Zeronia.

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and we have to go back a step.

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And we have to go back a step.

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In other words,

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In other words,

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explaining what those two terms that I've
just described are.

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explaining what those two terms that I've
just described are.

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Okay.

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Okay.

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Hi,

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Hi,

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Lindsay.

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Lindsay.

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Yes.

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Yes.

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So

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So Jai Bar is the Johannesburg Interbank
Offered Rate,

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Jai Bar is the Johannesburg interbank
offered rate.

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And that has been used as a base rate for
South African money markets and fixed

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income instruments now for many years.

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and that has been used as a base rate for
South African...

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money markets and fixed income instruments
now for many years.

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And in line with what's happening globally
and concerns around those rates being

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manipulated,

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And in line with what's happening globally
and concerns around those rates being

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manipulated,

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if we look back at sort of 2008 and what
happened with Jai Bar then,

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if we look back at sort of 2008 and what
happened with Jibar then,

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we know that that can be manipulated.

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we know that that can be manipulated.

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There's been this global move,

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There's been this global move,

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this global trend to move towards rates
that...

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this global trend to move towards rates
that are much more widely traded and have

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much bigger

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volume behind them.

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are much more widely traded and have much
bigger volume behind them.

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And so...

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So the market is moving towards either
unsecured or secured overnight lending

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rates.

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The market is moving towards either
unsecured or secured overnight lending

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rates.

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In South Africa,

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In South Africa, we are moving towards
Zaronia,

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we are moving towards Zaronia,

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which is our South Africa overnight index
average rate.

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which is our South Africa overnight index
average rate.

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So effectively,

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So effectively,

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that is the rate that wholesale deposits
bigger than 20 million

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get given in the market on an overnight
basis.

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that is the rate that wholesale deposits
bigger than 20 million

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get given.

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in the market on an overnight basis.

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And it's a trimmed mean.

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And it's a trimmed mean.

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You knock off the 20%

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You knock off the 20% top and bottom.

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top and bottom.

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So you're looking at 80%

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So you're looking at 80%

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and it's an average rate.

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and it's an average rate.

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And that will be used as the basis for
those cash and fixed income

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instruments going forward.

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And that will be used as the basis for
those cash and fixed income

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instruments going forward.

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OK,

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Okay, so Jai Barra is in place at the
moment.

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so Jai Barra is in place at the moment.

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It will be replaced by Zeronia.

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It will be replaced by Zeronia.

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It was all to do with 2008,

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It was all to do with 2008,

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but also,

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but also,

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and that's a domestic issue,

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and that's a domestic issue,

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obviously,

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obviously,

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but also it's a global reform that has
been going on.

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but also...

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It's a global reform that has been going
on.

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What lessons did South Africa take from
those global reforms?

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What lessons did South Africa take from
those global reforms?

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Yes.

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Yes.

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So effectively,

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So effectively,

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the Financial Stability

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the Financial Stability

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Board did this,

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Board raised concerns about the
reliability of IWO benchmarks in

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raised concerns about the reliability of
eyeball benchmarks in 2012.

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2012.

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And then in 2013,

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In 2013, the International Organization of
Securities Commission published the

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Principles for Financial Benchmarks.

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the International Organization of
Securities Commission published the

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Principles for Financial Benchmarks.

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And this was sort of,

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And this was sort of...

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these are the guidelines to have more
credible rates and ones that were more

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representative.

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These are the guidelines to have more
credible rates and ones that were more

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representative.

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So South Africa is quite a long way behind
some of the bigger markets in doing this.

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So South Africa is quite a long way behind
some of the bigger markets in doing this.

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So we are following in the footsteps of
the secured overnight financing rate in

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the US,

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So we are following in the footsteps of
the secured overnight financing rate in

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the U.S.

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Sonia,

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Sonia,

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which is the sterling overnight index
average,

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which is the sterling overnight index
average,

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the euro short-term rate,

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the euro short-term rate,

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Switzerland,

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Switzerland,

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Tokyo,

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Tokyo,

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they've all done it.

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they've all done it.

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Okay,

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Okay,

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so Zeronia is very different to Jibar.

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so Zerunia is very different to Jai Bar.

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Tell us how it's calculated and why it's
considered a more reliable or modern

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benchmark that isn't as easily

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manipulated.

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Tell us how it's calculated and why it's
considered a more reliable or modern

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benchmark that isn't as easily

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manipulated.

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Yes.

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Yes,

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So if we look at Jibar,

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so if we look at Jibar,

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effectively at the moment,

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effectively at the moment,

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there's around five contributing banks to
Jibar.

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there's around five contributing banks to
Jibar.

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You knock off the top one,

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You knock off the top one,

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you knock off the bottom one,

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you knock off the bottom one.

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and it's not traded very much.

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And it's not traded very much.

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So it is open to manipulation.

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So it is open to manipulation.

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If you look at the overnight call rates
that have been used for Zaronia,

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If you look at the overnight call rates
that have been used for Zaronia,

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you're looking at sort of 450 billion a
day.

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you're looking at...

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sort of 450 billion a day.

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So it's massive.

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So it's massive.

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So it's much less able to be manipulated.

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So it's much less able to be manipulated.

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The other key difference here is when we
look at Jai Bar,

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The other key difference here is when we
look at Jibar,

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you're looking at a forward-looking term
rate.

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you're looking at a forward-looking term
rate.

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So traditionally,

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So traditionally,

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the market has really been around
three-month Jai Bar,

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the market that's really been around
three-month Jai Bar,

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but there is also a one-month,

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but there is also a one-month, a
six-month,

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a six-month,

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and a 12-month tenor.

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and a 12-month tenor.

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And that interest rate is in the start of
the interest period.

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And that interest rate is in the start of
the interest period.

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So it'll be done today for the next 90
days.

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So...

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It'll be done today for the next 90 days.

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And what it does,

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And what it does,

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it also includes a credit premium.

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it also includes a credit premium.

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So there's bank credit risk built into
that.

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So there's bank credit risk built into
that.

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If we look at Zaronia,

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If we look at Zaronia,

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Zaronia is a backward-looking overnight
rate.

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Zaronia is a backward-looking overnight
rate.

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So if you've got a

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So if you've got a

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90-day Zaronia period,

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90-day Zaronia period,

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okay,

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you'll only know the interest rate that
you're earning at the end of the period.

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you'll only know the interest rate that
you...

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earning at the end of the period.

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And because of the way that we look at
this market,

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And because of the way that we look at
this market,

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it's very close to risk-free.

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it's very close to risk-free.

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There's little or no credit premium in
that rate.

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There's little or no credit premium in
that rate.

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So quite a big difference here that you
need to get your head around.

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So quite a big difference here that you
need to get your head on.

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Very good theoretical difference.

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Very good theoretical difference,

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But what practical impact does this have
for cash investors,

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but what practical impact does this have
for cash investors, for example?

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for example?

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Give me an example.

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Give me an example.

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So if you bought a floating rate note in
the market today,

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So if you bought a floating rate note in
the market today,

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a one-year floating rate note in the cash
market.

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a one-year floating rate note in the cash
market, you would have your Jive bar would

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be set today for the first 90 days,

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Your Jive bar would be set today for the
first 90 days, and you would know what

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your interest is over that

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and you would know what your interest is
over that

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90-day period.

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90-day period.

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And then in 90 days'

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And then in 90 days'

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time,

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time,

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it would be the second and then the third
and then the fourth.

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it would be the second and then the third
and then the fourth.

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If we now have a one-year floating rate
note today that we buy in the cash market,

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If we now have a one-year floating rate
note today that we buy in the cash market,

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we will only know what the coupon is.

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we will only know what the coupon is.

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at the end of the

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at the end of the

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90-day period.

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90-day period.

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So it's different in that way.

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So it's different in that way.

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So the market is going to change.

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So the market is going to change.

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Effectively,

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Effectively,

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for the cash market,

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for the cash market, instruments are
shorter.

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instruments are shorter.

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It means that when we move to the cash
market going live in the middle of this

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year,

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It means that when we move to the cash
market going live in the middle of this

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year,

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we will have a period where you can get
Zoronia-linked product and you can get

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Jibar-linked product.

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we will have a period where you can get
Zoronia-linked product and you can get

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Jibar-linked product.

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But as we get to the end of the year,

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But as we get to the end of the year,
they'll announce the cessation of Jibar.

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00:08:48.779 --> 00:08:50.779
they'll announce the cessation of Jibar.

265
00:08:50.779 --> 00:08:52.779
And then from...

266
00:08:52.779 --> 00:08:54.779
And then from… March next year,

267
00:08:54.779 --> 00:08:56.779
March next year,

268
00:08:56.779 --> 00:08:58.779
there'll be no more new Jai Bar.

269
00:08:58.779 --> 00:09:00.779
there'll be no more new Jai Bar.

270
00:09:00.779 --> 00:09:02.779
So everything then will move to Zoronia.

271
00:09:02.779 --> 00:09:04.779
So everything then will move to Zeronia.

272
00:09:04.779 --> 00:09:06.779
Yes,

273
00:09:06.779 --> 00:09:08.779
Yes,

274
00:09:08.779 --> 00:09:10.779
so you've answered my next question,

275
00:09:10.779 --> 00:09:12.779
so you've answered my next question,

276
00:09:12.779 --> 00:09:14.779
actually,

277
00:09:14.779 --> 00:09:16.779
actually,

278
00:09:16.779 --> 00:09:18.779
because

279
00:09:18.779 --> 00:09:20.779
because

280
00:09:20.779 --> 00:09:22.779
I was going to ask you,

281
00:09:22.779 --> 00:09:24.779
I was going to ask you, will existing cash
investments that reference Jai Bar,

282
00:09:24.779 --> 00:09:26.779
will existing cash investments that
reference Jai Bar, the existing system,

283
00:09:26.779 --> 00:09:28.779
the existing system, automatically switch
to Zoronia?

284
00:09:28.779 --> 00:09:30.779
automatically switch to Zeronia?

285
00:09:30.779 --> 00:09:32.779
Or is this a change mostly relevant for
new investments?

286
00:09:32.779 --> 00:09:34.779
Or is this a change mostly relevant for
new investments?

287
00:09:34.779 --> 00:09:36.779
So it'll mostly be new investments,

288
00:09:36.779 --> 00:09:38.779
So it'll mostly be new investments,

289
00:09:38.779 --> 00:09:40.779
but there will be some investments that
will be caught.

290
00:09:40.779 --> 00:09:42.779
but there will be some investments that
will be caught.

291
00:09:42.779 --> 00:09:44.779
still in existence by the end of 2026.

292
00:09:44.779 --> 00:09:46.779
still in existence by the end of 2026.

293
00:09:46.779 --> 00:09:48.779
And for those instruments,

294
00:09:48.779 --> 00:09:50.779
And for those instruments,

295
00:09:50.779 --> 00:09:52.779
they will change to Zoronia plus a spread
to calculate what would have been the Jai

296
00:09:52.779 --> 00:09:54.779
Bar reset.

297
00:09:54.779 --> 00:09:56.779
they will change to Zoronia plus a spread
to calculate what would have been the Jai

298
00:09:56.779 --> 00:09:58.779
Bar reset.

299
00:09:58.779 --> 00:10:00.779
But it will be a very small amount of the
market.

300
00:10:00.779 --> 00:10:02.779
But it will be a very small amount of the
market and it'll primarily there be for

301
00:10:02.779 --> 00:10:04.779
longer dated instruments.

302
00:10:04.779 --> 00:10:06.779
And it'll primarily there be for
longer-dated instruments.

303
00:10:06.779 --> 00:10:08.779
So for longer-dated bonds,

304
00:10:08.779 --> 00:10:10.779
So for longer dated bonds,

305
00:10:10.779 --> 00:10:12.779
for long-dated loans,

306
00:10:12.779 --> 00:10:14.779
for long dated loans, so things that go
out beyond that tenor.

307
00:10:14.779 --> 00:10:16.779
so things that go out beyond that tenor.

308
00:10:16.779 --> 00:10:18.779
For cash market instruments that...

309
00:10:18.779 --> 00:10:20.779
For cash market instruments, The
transition should be easier because the

310
00:10:20.779 --> 00:10:22.779
maturity of those instruments is much

311
00:10:22.779 --> 00:10:24.779
shorter.

312
00:10:24.779 --> 00:10:26.779
The transition should be easier because
the maturity of those instruments is much

313
00:10:26.779 --> 00:10:28.779
shorter.

314
00:10:28.779 --> 00:10:30.779
So very few instruments are going to land
up being caught in what they call that

315
00:10:30.779 --> 00:10:32.779
tough legacy

316
00:10:32.779 --> 00:10:34.779
legislation period.

317
00:10:34.779 --> 00:10:36.779
So very few instruments are going to land
up being caught in what they call that

318
00:10:36.779 --> 00:10:38.779
tough legacy

319
00:10:38.779 --> 00:10:40.779
legislation period.

320
00:10:40.779 --> 00:10:42.779
Tough legacy is a good phrase.

321
00:10:42.779 --> 00:10:44.779
Tough legacy is a good phrase.

322
00:10:44.779 --> 00:10:46.779
Some investors,

323
00:10:46.779 --> 00:10:48.779
Some investors, all investors actually
hate change.

324
00:10:48.779 --> 00:10:50.779
all investors actually hate change.

325
00:10:50.779 --> 00:10:52.779
Do people look at this and say,

326
00:10:52.779 --> 00:10:54.779
Do people look at this and say,

327
00:10:54.779 --> 00:10:56.779
oh,

328
00:10:56.779 --> 00:10:58.779
oh,

329
00:10:58.779 --> 00:11:00.779
goodness me,

330
00:11:00.779 --> 00:11:02.779
goodness me, it's something new.

331
00:11:02.779 --> 00:11:04.779
it's something new.

332
00:11:04.779 --> 00:11:06.779
It's volatile.

333
00:11:06.779 --> 00:11:08.779
It's volatile.

334
00:11:08.779 --> 00:11:10.779
I don't understand it.

335
00:11:10.779 --> 00:11:12.779
I don't understand it.

336
00:11:12.779 --> 00:11:14.779
Therefore,

337
00:11:14.779 --> 00:11:16.779
Therefore, there's uncertainty.

338
00:11:16.779 --> 00:11:18.779
there's uncertainty.

339
00:11:18.779 --> 00:11:20.779
Is that a valid concern,

340
00:11:20.779 --> 00:11:22.779
Is that a valid concern,

341
00:11:22.779 --> 00:11:24.779
do you think?

342
00:11:24.779 --> 00:11:26.779
do you think?

343
00:11:26.779 --> 00:11:28.779
So I think obviously the change does mean
that systems have to be adjusted.

344
00:11:28.779 --> 00:11:30.779
So I think obviously the change does mean
that systems have to be adjusted.

345
00:11:30.779 --> 00:11:32.779
The mindset needs to be adjusted.

346
00:11:32.779 --> 00:11:34.779
The mindset needs to be adjusted.

347
00:11:34.779 --> 00:11:36.779
We need to get used to the new way of
doing this.

348
00:11:36.779 --> 00:11:38.779
We need to get used to the new way of
doing this.

349
00:11:38.779 --> 00:11:40.779
But in terms of the market itself,

350
00:11:40.779 --> 00:11:42.779
But in terms of the market itself, this
rate is going to be much less volatile and

351
00:11:42.779 --> 00:11:44.779
much more certain.

352
00:11:44.779 --> 00:11:46.779
this rate is going to be much less
volatile and much more certain.

353
00:11:46.779 --> 00:11:48.779
It's going to follow what's happening on
the repo rate much more closely.

354
00:11:48.779 --> 00:11:50.779
It's going to follow what's happening on
the repo rate much more closely.

355
00:11:50.779 --> 00:11:52.779
So overall for the market,

356
00:11:52.779 --> 00:11:54.779
So overall for the market,

357
00:11:54.779 --> 00:11:56.779
it's a good development and we should
embrace it.

358
00:11:56.779 --> 00:11:58.779
it's a good development and we should
embrace it.

359
00:11:58.779 --> 00:12:00.779
Very good.

360
00:12:00.779 --> 00:12:02.779
Very good.

361
00:12:02.779 --> 00:12:04.779
It's going to make your life easier,

362
00:12:04.779 --> 00:12:06.779
It's going to make your life easier,

363
00:12:06.779 --> 00:12:08.779
Vivian.

364
00:12:08.779 --> 00:12:10.779
Vivian.

365
00:12:10.779 --> 00:12:12.779
There's going to be more clarity at 91.

366
00:12:12.779 --> 00:12:14.779
There's going to be more clarity at 91.

367
00:12:14.779 --> 00:12:16.779
There will be more clarity.

368
00:12:16.779 --> 00:12:18.779
There will be more clarity.

369
00:12:18.779 --> 00:12:20.779
Thank you.

370
00:12:20.779 --> 00:12:22.779
I think there's still some developments
that need to take place,

371
00:12:22.779 --> 00:12:24.779
I think there's still some developments
that need to take place,

372
00:12:24.779 --> 00:12:26.779
some final things that need to be nailed
down.

373
00:12:26.779 --> 00:12:28.779
some final things that need to be nailed
down.

374
00:12:28.779 --> 00:12:30.779
But generally,

375
00:12:30.779 --> 00:12:32.779
But generally,

376
00:12:32.779 --> 00:12:34.779
everything is moving in the right
direction.

377
00:12:34.779 --> 00:12:36.779
everything is moving in the right
direction.

378
00:12:36.779 --> 00:12:38.779
There are market working groups across the
market for different streams that 91 is

379
00:12:38.779 --> 00:12:40.779
involved in.

380
00:12:40.779 --> 00:12:42.779
There are market working groups across the
market for different streams that 91 is

381
00:12:42.779 --> 00:12:44.779
involved in.

382
00:12:44.779 --> 00:12:46.779
So we have input in it together with the
rest of the financial services industry.

383
00:12:46.779 --> 00:12:48.779
So we have input in it together with the
rest of the financial services industry.

384
00:12:48.779 --> 00:12:50.779
Very good.

385
00:12:50.779 --> 00:12:52.779
Very good.

386
00:12:52.779 --> 00:12:54.779
Vivian,

387
00:12:54.779 --> 00:12:56.779
Vivian,

388
00:12:56.779 --> 00:12:58.779
thank you very much for your insight.

389
00:12:58.779 --> 00:13:00.779
thank you very much for your insight.

390
00:13:00.779 --> 00:13:02.779
Vivian Tabor is Investment Director at 91
in Cape Town.

391
00:13:02.779 --> 00:13:04.779
Vivian Tabra is Investment Director at 91
in Cape Town.

392
00:13:04.779 --> 00:13:06.779
The views and opinions expressed in these
podcasts are those of Lindsay Williams.

393
00:13:06.779 --> 00:13:08.779
and various contributors and do not
reflect the policy, position, or opinion

394
00:13:08.779 --> 00:13:10.779
of any other agency, organization,

395
00:13:10.779 --> 00:13:12.779
employer, or company associated with
StrictlyBusinessPodcast.com.

396
00:13:12.779 --> 00:13:14.779
Assumptions made on the analyses are not
reflective of the position of any other

397
00:13:14.779 --> 00:13:16.779
entity other than the speaker or the
author.

398
00:13:16.779 --> 00:13:18.779
And since we are critically thinking human
beings, these views are always subject to

399
00:13:18.779 --> 00:13:20.779
change, revision,

400
00:13:20.779 --> 00:13:22.779
and rethinking at any time.

401
00:13:22.779 --> 00:13:24.779
Please do not hold us to them.

402
00:13:24.779 --> 00:13:26.779
in perpetuity.