How the ISDAfix benchmark is calculated

Leading benchmark for fixed rates on interest rate swaps

ISDAfix, the leading benchmark for fixed rates on interest rate swaps, was established in 1998 by the International Swaps and Derivatives Association.

The ISDAfix benchmark rate allows traders to agree the pricing for interest rate swaps before they expire, without the need to call active dealers for quotes. ISDAfix is also used to help dealers mark their swaps portfolios to market.

Interest rate swaps are derivatives products used to help manage potential exposure to risk in interest rates. They allow two parties to exchange one stream of interest payments for another, over a set period of time.

At present, ISDAfix provides rates for the euro, Hong Kong dollar, Japanese yen, sterling, the Swiss franc and the US dollar.

The rate is based on submissions from a panel of 16 banks, which submit the rate at which they would buy and sell a benchmark swap with a notional value of $50m each day before 11am Eastern time.

Since 2002, ICAP has collected the US dollar quotes and the rate is calculated by Thomson Reuters, which eliminates the four highest and the four lowest and derives the average of the remaining rates. The result is usually an average of eight quotes, assuming every bank participates.

For all other currencies, Thomson Reuters does both the collection and the calculation of rates.

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Suggestions below based on International Swaps & Derivatives Association