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 an IBKR Reference Benchmark rate. The IBKR 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 IBKR 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 IBKR affiliates where Forex swap market pricing does not affect the rates we pay and charge our customers, Step 1 is omitted from the final rate determination.

1. 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.

2. 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. For example, LIBOR rates will cease to exist at the end of 2021 and will be replaced by new market accepted benchmarks.

3. IBKR Reference Benchmark Rates

The final IBKR 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 IBKR affiliates where Forex swap market pricing is not relevant, the final IBKR 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

a. 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%.

b. 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).

Currency
Benchmark Description
Cap Below1
Cap Above1
USD
Fed Funds Effective (Overnight Rate)2
0.00%
0.00%
AUD
RBA Daily Cash Rate Target 
1.00%
1.00%
CAD
Bank of Canada Overnight Lending Rate 
1.00%
1.00%
CHF
Swiss Average Rate Overnight (SARON)3
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)3
1.00%
1.00%
GBP
Sterling Overnight Index Average (SONIA)3
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)3
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%
RUB
RUONIA (Ruble Overnight Index Average)
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)
3.00%
3.00%
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.
2 For USD-CFDs, Gold and Silver Borrow Fees, LIBOR is used as external benchmark until December 31st 2021.
3 New external benchmarks are applied from January 2022. Until December 31st 2021 LIBOR is used as external benchmark.