The Swiss Average Rate Overnight (SARON) has been selected as the Alternative Reference Rate (ARR) in Switzerland. What was the rationale behind the selection and what future challenges should be considered? Author: Simon Woods
Where is CHF LIBOR used today?
What is the ARR for CHF LIBOR?
For Switzerland, the ARR for CHF LIBOR is the Swiss Average Rate Overnight (SARON). SARON is administered by SIX Swiss Exchange and based on transactions and binding quotes from the CHF interbank overnight repo market. The National Working Group on Swiss Franc Reference Rates recommended SARON as the most resilient and reliable rate to be used for CHF derivatives and other financial contracts. SARON has already been used as a replacement for the Tomorrow/Overnight Interest Swaps (TOIS) benchmark since December 2017.
Although the Swiss market has valuable practical experience from the TOIS to SARON transition at the end of 2017, the LIBOR transition will be on a significantly larger scale, encompassing the entire market. Consequently it is going to be significantly more complex and time consuming.