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Rules for fixing the SWAP reference rate fixing

An Interest Rate Swap (IRS) is a contract for exchanging interest payments in the same currency from variable to fixed interest or vice versa. At the time of entering the contract, a notional principal as well as conditions for the variable and fixed “legs” in the swap are agreed upon. The principal is not exchanged and the only element that is physically paid for by the two parties that have entered a swap is the difference between the fixed and variable interest payment of the principal at the time of settlement.

SWAP reference rate fixing
This document describes the procedures for reporting, calculating and publishing the Danish SWAP reference rate fixing.

Participating banks report their mid-rates for all maturities from two to ten years against a six month CIBOR and follow the practice on the Danish reference swap market (value; t+2, day-count convention; 30/360, banking days; Copenhagen, modified following) on all Danish banking days.

Each supporter should ensure that their SWAP reference rate fixing reflects an interest level that is as realistic as possible. No SWAP reference rate supporter is obliged to enter agreements for their set fixing with other supporters.

The SWAP reference rate is fixed by each supporter with four decimals. The fixing takes place at 11.00AM and is sent to the current estimator by 11:10AM.

Reporting occurs using the technical set-up adopted by the committee.

Calculating reference rates
The SWAP reference rate fixing is calculated immediately after 11.10AM. All supporters will immediately receive an email, which states supportersown rates. If the supporter deviates by more than 3bp from the median, this will also be stated in the email. The supporter subsequently has the option of rectifying any errors before 11.20AM.

Immediately after 11.20AM a final calculation of reference rates will be conducted and only rates that the estimator receives by 11.20AM at the latest will be included. The option of rectifying errors is calculated as an exceptional case.

Calculating the SWAP reference rate is based on daily reporting from participating banks and savings banks based on the following:

Fixing and reporting takes place on all Danish banking days.
Supporters who are London residents are not obliged to fix quotas on UK bank holidays.
An average interest rate is calculated, in which each financial institution’s rates are equally weighted on the basis of current reports.
A SWAP reference rate fixing is calculated for each individual period. The calculation’s starting point is taken from the number of supporters. With eight or more supporters, the two highest and two lowest rates are left out and a simple average of the remaining rates is calculated. With seven to four supporters the highest and lowest rates are left out and a simple average of the remaining rates is calculated. Reference rates are not calculated if there are fewer than four supporters.
On UK banking days there is a requirement of minimum three supporters. If there are only three supporters on these days, all of the set rates will be included in calculating the average.
Only rates that are reported on time enter the fixing.
If inadequate reporting is due to errors such as system errors and not due to an oversight, it can be counted in given circumstances, if the individual supporter contacts the estimator before rates are calculated at 11:20AM.
Reporting that deviates markedly from the median will be sorted out before the fixing is calculated. 

The calculated SWAP reference rate will be published with four decimals at 11:30AM.

Individual supporters' rates will be published on Finance Denmark’s website.

The rules for fixing the SWAP reference rate are available on Finance Denmark’s homepage.

Distribution of competencies
Finance Denmark carries out the administration of the SWAP reference rate fixing system. Finance Denmark enters agreements as a vendor that collects, calculates and publishes the daily fixings.

The committee
In connection with CIBOR and SWAP reference rate fixing a committee has been set up. The main aim of the committee is to ensure the quality of CIBOR and SWAP reference rate supporters and their quotas

Members of the committee are appointed by Finance Denmark’s board of directors. Eligibility requires an employment relationship with a CIBOR or SWAP reference rate supporter. If the employment relationship is terminated, membership of the committee will be automatically terminated. The supporter can subsequently choose to nominate a new person as a member of the committee. Eligibility for the committee requires thorough knowledge of the Danish financial market and that the person in question does not fix CIBOR or SWAP reference rates on a daily basis. Finance Denmark is the secretariat for the committee and participates in its meetings without voting rights.

The committee handles all questions concerning SWAP reference rates, including appointing the circle of supporters. The rules for this are stated under “Rules for participating as reference rate supporters on the interest swap market”.

Current supporters
There are currently the following SWAP reference rate supporters:

Danske Bank, Copenhagen
Jyske Bank, Silkeborg
Nordea Bank, Copenhagen
Nykredit Bank, Copenhagen
SE Banken, Copenhagen

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Finance Denmark is an business association for banks, mortgage institutions, asset management, securities trading and investment funds in Denmark. Our members are mortgage institutions, banks, savings banks, cooperative savings banks, Danish branches of foreign banks, asset managers, Danish securities dealers and investment funds. 

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