Methodology for Determining Effective Rates


In determining the interest that account holders are paid on cash credit balances and assessed on debit balances, each currency is assigned a benchmark or reference rate. The reference rate is determined from short term market rates but capped above/below widely used benchmark fixings. This document explains how effective rates are determined.


Reference Rates

Reference rates are determined in a three step process from market implied rates that are capped above/below traditional benchmark fixings.

1. Market implied rates
For market pricing we look at short term Forex swap markets. As most of the transactions involve the U.S. Dollar, Forex swap prices of currencies vs. the U.S. Dollar will be sampled over a pre-determined time period referred to as the “Fixing Time Window” that is intended to be representative of liquid hours and primary turnover. The specific swap tenor and fixing windows used depend on the currency. Using the best bid and ask from a group of up to 12 of the largest Forex dealing banks, implied non-USD short-term rates (generally Overnight (T/T+1, Tom Next (T+1/T+2) or Spot Next (T+2/T+3) ) will be calculated. At the Fixing Time Window close, these calculations will be sorted with the lowest and highest disregarded and the remainder averaged to determine the Market implied Fixing Rate.

2. Traditional benchmark fixings
For traditional benchmarks we look at fixings. Such Rates are often determined by either bank survey or actual transactions. The London Inter-Bank Offered Rate (LIBOR), for example, is determined by surveying a panel of banks for the rate at which they could borrow funds from other banks of at a specific time each day.

3. Reference Rates
The final reference rates are then determined by using the market implied rate as described in 1 but capped by a certain amount above/below the traditional benchmark fixing as described in 2. The caps can change at any time without explicit prior notice and are listed in below table 5. along with relevant currency and benchmark fixing.

a. Assume the market implied overnight rate for GBP is 0.05%. The Libor fixing overnight GBP is 0.20%. The effective rates is then equal to the market implied rated of 0.05% as it still is within the 0.25% cap of the Libor fixing at 0.20%.
b. If for example the market implied rate for CNH was 1.1% but the fixing for the same period was 1.5% then the effective rate would be capped at below 0.25% of the benchmark fixing at 1.25% (1.5% Fixing - 0.25% cap).

Note:  Caps (can change any time without explicit prior notice)

Currency Benchmark Description Cap Below2 Cap Above2
USD Fed Funds Effective (Overnight Rate)  0.00% 0.00%
USD 11 am GMT USD LIBOR (used only for USD-CFDs, Gold and Silver Borrow Fees)  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 Franc LIBOR (Spot-Next rate) 1.00% 1.00%
CNY/CNH CNH HIBOR Overnight Fixing Rate (TMA) 3.00% 3.00%
CZK Prague ON Interbank Offered Rate 1.00% 1.00%
DKK Danish Tom/Next Index 1.00% 1.00%
EUR EONIA (Euro Overnight Index Average) 1.00% 1.00%
GBP GBP LIBOR (Overnight Rate) 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 JPY LIBOR (Spot-Next rate) 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%


2 Caps or the deviation for the effective rate allowed above or below the benchmark fixing can change at any time without explicit prior notice.