STIBOR is determined using a three-level hierarchical waterfall of input data contributed by a panel of credit institutions (panel banks) that are representative of the Swedish financial market. A panel bank’s contribution is based on executed transactions, when available, and on a combination of other sources of information and mathematical techniques when transactional evidence is insufficient. The calculation process of a panel bank’s contribution toward STIBOR is divided in two distinct steps:

Step 1      A measure of the contributing panel bank’s cost of funds is calculated by means of an input data priority waterfall.

Step 2      A Bid to Offer Spread, which reflects the difference between an estimated cost of funds’ rate and STIBOR’s underlying interest, is added to the panel bank’s cost of funds as determined in Step 1.

To the greatest extent possible a panel bank’s cost of funds is determined in Step 1 using panel bank contributed transactional evidence for input data. To ensure robustness in the absence of transactions the STIBOR Calculation Methodology follows a hierarchical waterfall consisting of three levels. These levels are employed progressively and, in the order, specified below:

• Level 1 consists of contributions based on transactions executed by the panel bank during the previous day that reflect the panel bank’s cost of funds.
• Level 2 consists of contributions derived from the evidence of Level 1 transactions, using interpolation, extrapolation, and the application of a Market Adjustment Factor (MAF).
• Level 3 consists of contributions based on CP and CD’s issuance prices, using data through the application of a combination of modelling techniques and the panel bank’s.

After an estimate of the panel banks’ cost of funds has been obtained in Step 1 the STIBOR determination process progresses to Step 2. In Step 2 the calculation system adds a Bid to Offer Spread (BOS), which represents the difference between the calculated cost of funds rate and STIBOR’s Underlying Interest.

SFBF has however defined two specific scenarios where panel banks may be allowed to alter their default BOS due to specific circumstances that require adjustment to the calculated COF rate under Step 1 of the STIBOR calculation methodology. Any adjustment of the default spread shall be verifiable and traceable.

The two specific scenarios are:

• Balance-Sheet Considerations – the additional cost related to the adjustment of the bank’s balance sheet for key reporting dates, most notably over year-end.
• Funding variances – specific market conditions may produce fundings at levels which is out of line with the panel bank’s internally modelled SEK term rate structure, based on the current and future expected levels of the Riksbank Policy Rate. Under such a scenario, an adjustment of the BOS will be required to contribute an offered rate in line with the percieved SEK term rate structure.

After all contributions have been calculated, STIBOR is determined as a trimmed arithmetic mean of the resulting rates, following the rules described in the waterfall calculation methodology.

The STIBOR Calculation Methodology document describes in detail the calculation process, but in summary it is the mathematical arithmetic mean (rounded to three decimal places) of the panel bank contributed input data, with topping and tailing applied depending upon the number of contributions received. The receipt by the SFBF of a number of panel bank contributions ensures that there is a sufficiency of input data to produce an accurate and reliable STIBOR output.

The Benchmark Oversight Committee (OC) has the responsibility to review the STIBOR Calculation Methodology annually. In reviewing the methodology, the OC considers the underlying market dynamics and the usage of STIBOR.