October 8, 2018 / 9:16 AM / 14 days ago

Swiss SIX Group licences SARON index to Eurex as Libor ebbs

ZURICH, Oct 8 (Reuters) - Swiss financial infrastructure company SIX Group has licensed the SARON interest rate index to Eurex as an underlying instrument for futures contracts as markets prepare to move away from long-time standard Libor, SIX said on Monday.

A national working group on Swiss franc reference rates, combining representatives of private-sector banks and the Swiss National Bank (SNB), proposed a year ago using the Swiss Average Rate Overnight (SARON) for secured loans as an alternative benchmark to Swiss franc Libor.

As of a year ago about 6 trillion Swiss francs ($6.05 trillion) of contracts used the London Interbank Offered Rate (Libor) as a benchmark, making it by far the most important interest rate for the Swiss economy.

The SNB also conducts monetary policy by steering interest rates in the Swiss franc money market, telling the market in what range it intends to keep three-month LIBOR.

But the Libor measure - a daily rate in a range of currencies - is on the way out after banks were fined billions of dollars for trying to manipulate it and the SNB has been looking at other options.

SIX launched SARON in 2009 after working with the SNB to develop it as a reference rate for the Swiss franc market.

“After the successful transition from the TOIS-fixing to SARON last year and the establishment of a SARON swap market, the launch of the futures on SARON mark an important step to support the transition from Swiss Libor towards SARON,” SIX index official Christian Bahr said in a statement.

Eurex official Lee Bartholomew said the money market segment was a growth opportunity in which SARON could play an important role.

SARON is a volume-weighted average reflecting actual transactions and binding quotes of the underlying Swiss repo market. SIX is responsible for the overall provision of the benchmark and its methodology.

The Swiss franc LIBOR target range is one of three elements of the SNB’s monetary policy strategy, along with its definition of price stability and its conditional inflation forecast.

The SNB has said it was looking at SARON and would support market participants during the rate benchmark transition process, but market participants were responsible for choosing alternative rates and ensuring a timely switch. ($1 = 0.9916 Swiss francs)

Reporting by Michael Shields Editing by David Goodman

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