LCH Launches Central Clearing for Derivatives Referencing SORA

The launch is heralded as a major milestone to deepen liquidity and catalyse the growth of the SORA market. StanChart was party to the first cleared derivatives trade referencing SORA.

LCH has become the first clearing house to offer central clearing for Singapore Dollar interest rate swaps referencing SORA (Singapore Overnight Rate Average).

SORA is published by MAS (Monetary Authority of Singapore), and reflects the volume-weighted average rate of SGD unsecured overnight interbank lending transactions in Singapore. SORA was identified last August as “the most robust and suitable” alternative interest rate benchmark for SOR derivatives, which will be impacted when LIBOR is discontinued at end-2021 as SOR uses USD LIBOR in its computation

LCH implemented clearing for SORA OIS (overnight indexed swaps) and SORA-SOR basis swaps in collaboration with stakeholders in Singapore and the wider market, in response to customer demand as the industry continues to adopt alternative interest rate benchmarks. LCH also offers clearing in €STR swaps, SOFR swaps, SONIA futures and SARON swaps.

“The introduction of clearing derivatives referencing SORA is another important milestone in the global efforts to move to alternative reference rates,” said LCH head of Asia Pacific Kate Birchall. “We are pleased to bring these efforts to fruition by being the first to offer these new cleared products to our members and their clients to facilitate increased efficiencies.”

The SC-STS (Steering Committee for SOR Transition to SORA) – established by MAS last August to lead the transition effort – issued a separate statement welcoming the launch by LCH, saying the move will help to deepen liquidity in OTC SORA derivatives and catalyse the growth and development of the overall SORA market.

“Central clearing arrangements allow wholesale market participants to transact through a single central counterparty, instead of bilaterally with each other. This helps to mitigate counterparty credit risks, and allows participants to undertake greater volumes of transactions, while reaping operational and cost synergies,” the SC-STS says.

“Enabling central clearing arrangements for SORA OIS and SORA-SOR basis swaps will catalyse interbank activity in these derivative products, and anchor SORA’s role as the replacement benchmark for SOR.”

Implementing central clearing arrangements for SORA derivatives has been a key priority in SC-STS transition roadmap, published in March to facilitate the development of a deep and liquid SORA market.

“This is a major milestone – it is an important enabler that will allow key local and international banks to step up their efforts to build a vibrant SORA derivatives market,” said Daniel Koh, Chair of the Derivatives Sub-Group of the SC-STS.

“This will help broaden participation in SORA derivatives trading, enhance price discovery, and facilitate the transition of legacy SOR derivatives to SORA.”

Koh is also the global head of treasury markets at Standard Chartered Bank, which – with OCBC Bank – was party to the first LCH cleared derivatives trade referencing SORA.

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