South African Reserve Bank publishes final draft market conventions for ZARONIA-based non-linear derivatives

The South African Reserve Bank has published a final draft white paper prepared by the Market Practitioners Group’s Derivatives Workstream setting out recommended standard market conventions for South African Overnight Index Average (ZARONIA)-based non-linear interest rate derivatives. The paper aims to provide a consistent baseline for on-the-run interbank trading and screen quoting of ZARONIA-referenced caplets and floorlets, spot- and forward-starting caps and floors, and swaptions as part of the transition away from the Johannesburg Interbank Average Rate (Jibar), while noting that the recommendations are not intended to prescribe or limit bespoke contracting. The recommendations cover product definitions, calendars and date generation (ZAJO calendar, Modified Following, Backward end-of-month algorithm), day count (ACT/365 Fixed), and rate and cashflow mechanics including a compounded annualised cumulative floating rate based on ZARONIA with a one-business-day publication lag (and calculation lag aligned to it), no lockout/lookback/observation shift adjustments, and a two-business-day payment lag. It also proposes quote and settlement conventions, including three quoting formats (premium, Black log-normal volatility and Normal Bachelier volatility), spot premium with a two-business-day lag for caps and floors, and forward premium with no lag for swaptions (subject to stated exceptions), alongside assumptions commonly used in the market such as a USD, zero-threshold Credit Support Annex with SOFR as the collateral rate. The release includes an accompanying Excel pricing template and notes a later model correction dated 2025-08-04 that amends the Cap-Floor sheet cell J29 formula to reference G29#.