How Singapore’s New Rate Will Change the S$3.5tr Derivatives Market

With the first interest rate swap transaction referencing the new Singapore Overnight Rate Average, the island state hopes to stay ahead of regional peers.

The long, drawn-out death of the Interbank Offered Rate (IBOR), which has been felt across the world, continues. But Singapore is pushing ahead with the new rates in a way that could give its derivatives market the edge.

The first Singapore dollar interest rate swaps referencing the Singapore Overnight Rate Average (SORA) was recently cleared between Standard Chartered and OCBC.

Although derivate transactions rarely make headline news, the move to use SORA is a milestone for the S$3.5 trillion ($2.5 trillion) Singapore dollar derivatives market.

The rate at which banks lend to each other has been on its last legs since the summer of 2018 following an international scandal surrounding the London Interbank Offered Rate (LIBOR). Very quickly, Andrew Bailey, chief executive of British financial regulatory body the Financial Conduct Authority, drew a line in the sand.

“I hope it is already clear that the discontinuation of LIBOR should not be considered a remote probability black swan event. Firms should treat it is as something that will happen and which they must be prepared for,” he said.

UK financial regulators made it clear that LIBOR was on its way out and that the transition must complete by the end of 2021.

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