This blog was co-authored by Eric Geldenhuys, candidate attorney at Norton Rose Fulbright South Africa

The Observation Period refers to the period for which the Interest Period which has been moved or shifted back in whole by 5 Business Days. We can observe the published daily ZARONIA rate which applies to any current Business Day, using the rate published from 5 Business Days earlier.

ZARONIA is only published on Business Days. It follows that it is not published on non-Business Days such as weekends or public holidays. Observation Shift refers to the date when a published ZARONIA rate will be weighted and applied to a non-Business Day such as a weekend day or a public holiday.

When and for how long will a rate apply?

What is the difference between a ‘look back’ without Observation Shift and a ‘look back’ with Observation Shift?

In the context of what has been termed ‘Lookback without Observation Shift’ we focus on the non-Business Days of the Interest Period.

Lookback without Observation Shift means that the applicable interest rate, published 5 Business Days earlier, is applied to a Business Day in that Interest Period until the next Business Day in that Interest Period. This means, and it follows, that such rate will also apply to the non-Business Days that occur in the Interest Period, within the period between those mentioned Business Days in that Interest Period.

In the context of what has been termed ‘Lookback with Observation Shift’ we focus on the non-Business Days of the Observation Period.

Lookback with Observation Shift means that the applicable interest rate, which is sourced from a Business Day in the Observation Period, will be applied to that Business Day in the Observation Period until the next Business Day in that Observation Period. This means, and it follows, that such rate will also apply to the non-Business Days that occur in that Observation Period within the period between Business Days in that Observation Period.

The MPG and LMA recommended convention for South Africa is a Lookback without Observation Shift.