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3. Bank Calculation Methodology

No: 43041880 Date(g): 13/12/2021 | Date(h): 9/5/1443

Effective from Dec 26 2021 - Dec 25 2021
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3.1SAIBOR and SAIBID will be based on contributor bank submissions, determined using a standardized waterfall methodology, as summarized below.
 
 SAIBID SubmissionSAIBOR Submission
Level 1
Where a SAIBOR contributor bank has sufficient eligible transactions		Volume Weighted Average Price (VWAP) onlyVWAP plus Spread Percentage
Level 2
Where a SAIBOR contributor bank has insufficient eligible transactions to make a Level 1 submission		VWAP (including credit spread adjustment)VWAP (including credit spread adjustment) plus Spread Percentage
Level 3
The SAIBOR contributor banks may only provide a Level 3 submission if there are insufficient eligible transactions to make a submission at Level 1 or Level 2. If there are transactions that would be eligible for Level 1 or Level 2, except that they took place prior to a move in policy rates, then the process described below under SAMA Policy Rate Moves shall be followed for the purpose of Level 3.		Subject to process described SAMA Policy Rate Moves below, expert judgment will estimate the VWAP that would have been calculated had unsecured eligible transactions occurred in the last business day.Subject to process described in SAMA Policy Rate Moves below, expert judgment will estimate the VWAP that would have been calculated had unsecured eligible transactions occurred in the last business day and will include the Spread Percentage

3.2
The key terms set out in the above table and subsequently in this document will be defined as following:
 
■Spread Percentage: As of the date of this Circular, the Spread Percentage is 16 per cent and represents the difference between SAIBOR and SAIBID across all relevant tenors for the most recent five years of publicly available data. The Spread Percentage will be applied to each submission in order to create the SAIBOR submission. The appropriateness of the level of Spread Percentage will be reviewed regularly on at least an annual basis and more frequently if required by market conditions. Under the review process, the benchmark administrator will consult with the panel of contributing banks and will amend the Spread Percentage subject to approval by SAMA.
 
■Spread Cap: the Spread Percentage may be subject to a cap to be introduced and specified at the discretion of SAMA should market conditions require it. Following any such introduction of a Spread Cap, it shall be reviewed regularly on at least an annual basis and more frequently if required by market conditions. Under the review process, the benchmark administrator will consult with the contributing banks and will introduce or amend (as relevant) the Spread Cap subject to approval by SAMA.
 
■Credit Spread Adjustment (Level 2): Saudi Riyal repo transactions used in Level 2 may be collateralized with any type of Saudi Riyal fixed income security. Such a secured transaction will typically be priced at a lower rate than an equivalent unsecured transaction. In order to maintain consistency with Level 1 submissions and the objective of SAIBOR, a contributor bank will use expert judgment to include a suitable credit premium in the VWAP created from the secured repo transaction(s) before making the Level 2 submission. Expert judgment may not be used for any other purpose for a Level 2 submission and is subject to the submission procedures and recording keeping requirements described under "Expert Judgment" below. The credit premium should reflect the nature and credit quality of the collateral used in the repo transaction(s) and result in a submission rate that is equivalent to an unsecured transaction rate.
 
■Business Day: A "business day" for the purposes of a SAIBOR submission is defined as the 24 hour period from the start of the submission window on the previous business day until the start of the submission window on the current day of the submission.
 
■Expert Judgment:
 
 -Where expert judgment is used, the panel banks have the flexibility to determine its own expert judgment approach.
 
 -Expert judgment approach must be properly documented in the SAIBOR internal submission procedures developed by each SAIBOR contributor bank. These submission procedures are subject to appropriate internal governance processes1. Each contributor bank will notify SAMA and the benchmark administrator of its submission procedures by no later than 31 December 2021 and at least annually thereafter. In addition, each contributor bank will notify SAMA and the benchmark administrator following any significant change to its submission procedures. In each case, notice will be provided by a contributor bank by submitting a copy of its submission procedures to SAMA and the benchmark administrator2. When submitting such submission procedures to SAMA and the benchmark administrator each contributor bank shall include a statement stating that the version of the submission procedures provided has been approved by its Board or its Board delegated authority.
 
 -The SAIBOR internal submission procedures and records detailing the factors and judgment used in each daily submission must be available at all times to be shared with SAMA and/or the administrator upon request.
 
3.3Contributor banks are required to implement a process whereby the Head of Asset and Liability Management (ALM) or similar position in the bank (without any role in proprietary trading) takes the responsibility for submission of the SAIBOR/SAIBID rates on a daily basis to the benchmark administrator independently without any influence from the bank's Treasurer or the Deputy Treasurer. Banks are required to obtain SAMA's approval for individuals in these roles as per SAMA circulated requirements for Appointments to Senior Positions in Financial Institutions Supervised by the Saudi Central Bank using SAMA standard fit and proper application.
 
3.4Contributor banks must develop and implement reasonable submission procedures based on the applicable SAIBOR/SAIBID methodologies. The overall submission procedures should at a minimum include the following:
 
 ■Eligible transaction and other data inputs in calculating submissions
 
 ■Record the level of the waterfall used to calculate the submission;
 
 ■Procedures to detect and evaluate the bona-fide nature of such transactions and inputs;
 
 ■Policies guiding and detailing the use of expert judgment, including documentation;
 
 ■Maintaining reports, records and underlying documentation supporting submissions;
 
 ■Procedures for pre-submission validation of eligible inputs and procedures for review by senior staff to check inputs before submission.
 
3.5The submission procedures should be approved by the Board or Board delegated authority and should be consistently applied. Each contributor bank should ensure that its Internal Audit Department undertakes an annual review of the process and of the methodologies and report to the relevant contributor bank's Senior Management, Audit Committee and the Board on the compliance with the established policies and procedures.
 

1 For the avoidance of doubt, each contributor bank's submission procedures shall property document its SAIBOR and SAIBID submission procedures in respect of the SAIBOR and SAIBID contributions to the benchmark administrator as detailed further in paragraph 2.4 below, including (but not limited to) eligible transaction and other data inputs in calculating submissions for Level 1, 2, and 3 submissions and policies guiding and detailing its expert judgment approach.
2 Copies of each contributor bank's submission procedures should be provided to: (1) SAMA at the following email address: BankingDataSection@SAMA.GOV.SA; and (2) the benchmark administrator at the following email address: FRCompliance@lseg.com.