Methodology for Determining Effective Rates
BACKGROUND
In determining the interest that account holders are paid on cash credit balances and charged on debit balances, each currency is assigned to our Reference Benchmark rate. Our Reference Benchmark rate is determined from short-term market rates but capped above/below widely used external reference rates or, where appropriate, bank deposit rates. This page explains how our Reference Benchmark rates are determined.
Reference Rates
Reference rates are determined using a three-step process. The rates are capped above/below traditional external reference rates. For currencies and our affiliates where Forex swap market pricing does not affect the rates we pay and charge our clients, Step 1 is omitted from the final rate determination.
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Market implied rates
For market pricing, we utilize short-term Forex swap markets. Since most of the transactions involve the US dollar, Forex swap prices of currencies vs. the US dollar are sampled over a pre-determined time period referred to as the "Fixing Time Window" that is intended to be representative of liquid trading hours and primary turnover. The specific swap tenor and fixing windows used depend on the currency. We use the best bid and ask from a group of up to 12 of the largest Forex dealing banks to calculate the implied non-USD short-term rates - generally Overnight (T/T+1), Tom Next (T+1/T+2) or Spot Next (T+2/T+3). At the Fixing Time Window close, these calculations are sorted with the lowest and highest rates disregarded and the remainder averaged to determine the market implied reference rate.
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Traditional external benchmark reference rates
For traditional benchmarks, we utilize published reference rates and, where appropriate, bank deposit rates. These rates generally are determined by either bank survey or actual transactions. The Hong Kong Inter-Bank Offered Rate (HIBOR), for example, is determined by surveying a panel of banks for the rate at which they could borrow funds from other banks at a specific time each day. In contrast, the US dollar Fed Funds effective rate is calculated as the weighted average of interbank lending rates transacted in the Fed Funds market.
The reform on interest rate benchmarks (IBOR reform), launched in 2013 by the G20 nations and conducted by regulatory authorities and public and private sector working groups, is gradually replacing bank survey based rates with new transaction driven reference rates.
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Our Reference Benchmark Rates
Our final Reference Benchmark rates are then determined by using the market implied reference rate, as described in 1. above, but capped by a certain amount above/below the traditional external benchmark reference rate as described in 2. above. For currencies and our affiliates where Forex swap market pricing is not relevant, our final Reference Benchmark rates are determined by using traditional benchmarks or bank deposit rates, capped as above. The caps can change at any time without explicit prior notice and are listed in the table below, along with relevant currency and benchmark reference rates.
Examples
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Assume the market implied overnight rate for GBP is 0.55%. The Sterling Overnight Index Average (SONIA) reference rate is 0.65%. The effective rate is then equal to the market implied rate of 0.55%, as it is still within the 1.00% cap around the SONIA reference rate at 0.65%.
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If, for example, the market implied rate for CNH was 4.5% but the overnight CNH reference rate for the same period was 1.0%, the effective rate would be capped at 2.0% above the CNH reference rate, or 3.0% (1.0% reference rate + 2.0% cap).
| Curreny | Benchmark Description | Cap Below1 | Cap Above1 |
|---|---|---|---|
| USD | Fed Funds Effective (Overnight Rate) | 0.00% | 0.00% |
| AUD | RBA Daily Cash Rate Target | 1.00% | 1.00% |
| AED | EIBOR, Emirates Interbank Offered Rate | 3.00% | 3.00% |
| CAD | Bank of Canada Overnight Lending Rate | 1.00% | 1.00% |
| CHF | Swiss Average Rate Overnight (SARON) | 1.00% | 1.00% |
| CNY/CNH | CNH HIBOR Overnight Fixing Rate (TMA) | 2.00% | 2.00% |
| CZK | Prague ON Interbank Offered Rate | 1.00% | 1.00% |
| DKK | Danish Tom/Next Index | 1.00% | 1.00% |
| EUR | Euro Short-Term Rate (€STR) | 1.00% | 1.00% |
| GBP | Sterling Overnight Index Average (SONIA) | 1.00% | 1.00% |
| HKD | HKD HIBOR (Overnight rate) | 1.00% | 1.00% |
| HUF | Budapest Interbank Offered Rate | 1.00% | 1.00% |
| ILS | Tel Aviv Interbank Offered O/N Rate | 1.00% | 1.00% |
| INR | Central Bank of India Base Rate | 0.00% | 0.00% |
| JPY | Tokyo Overnight Average Rate (TONAR) | 1.00% | 1.00% |
| KRW | Korean Won KORIBOR (1 week) | 0.00% | 0.00% |
| MXN | Mexican Interbank TIIE (28 day rate) | 3.00% | 3.00% |
| NOK | Norwegian Overnight Weighted Average | 1.00% | 1.00% |
| NZD | New Zealand Dollar Official Cash Daily Rate | 1.00% | 1.00% |
| PLN | WIBOR (Warsaw Interbank Overnight Rate) | 1.00% | 1.00% |
| SAR | SAIBOR Saudi Arabia Interbank Offered Rate | 3.00% | 3.00% |
| SEK | SEK STIBOR (Overnight Rate) | 1.00% | 1.00% |
| SGD | Singapore Dollar SOR (Swap Overnight) Rate | 1.00% | 1.00% |
| TRY | TRLIBOR (Turkish Lira Overnight Interbank offered rate) | NO CAP | NO CAP |
| ZAR | South Africa Benchmark Overnight Rate on Deposits (Sabor) | 3.00% | 3.00% |
1 Caps or the deviation for the effective rate allowed above or below the benchmark fixing can change at any time without explicit prior notice.