Page 7 of 12  The Derivatives Workstream has proposed market conventions for interest rate swaps, whose floating leg will use compounded ZARONIA period average rates that will be determined in accordance with the ISDA methodology. While the use of compounded risk-free rates is fairly common in global markets, it does present a significant change in our market.
Firstly, the nature of ZARONIA as an overnight rate will enable the introduction of Overnight Index Swaps (OIS). In this regard, the Derivatives Workstream has proposed market conventions that largely align with international best practice. Secondly, as ZARONIA will track the evolution of actual interest rates, the need for hedging risk using Forward Rate Agreements (FRAs) will largely diminish.