First trade closed with SORA, the replacement for SOR

Singapore

OCBC Bank and Standard Chartered have completed Singapore's first overnight indexed swap derivatives transaction using the Singapore Overnight Rate Average (SORA) as the interest rate benchmark, paving the way for further adoption of the alternative rate.

SORA is the average rate of unsecured overnight interbank SGD transactions brokered in Singapore. Singapore is transitioning from the use of the Sing-dollar Swap Offer Rate (SOR) to SORA over the next two years, as the scandal-tainted London Inter-bank Offered Rate (Libor) is due to meet its end after 2021.

SOR - a benchmark used to price derivatives and business loans here - will be impacted, given the demise of Libor as the Singapore rates benchmark uses the US-dollar Libor in its computation.

The OCBC-StanChart trade completed is a one-year interest rate swap fixed against SORA, they said on Thursday.

In a joint statement, the two banks said that Singapore - as a leading financial centre in Asia - provides a wide range of hedging instruments that financial market participants can benefit from.

Daniel Koh, global head of treasury markets, StanChart, said: "This marks a key first step in our efforts in Singapore to develop a vibrant and active interest rate derivatives market based on SORA."

Lam Kun Kin, head of global treasury and investment banking, OCBC Bank, said that with this first derivatives transaction involving the use of SORA, the banks hope to set out the market conventions for SORA-based products and to develop some baseline activity for market participants to gain confidence in SORA. "The financial industry needs to come together to build a liquid market to allow for an easier transition to SORA."

Libor has been used as a reference rate for loans and derivatives. But the UK Financial Conduct Authority in 2017 said it would abandon Libor, the interest-rate benchmark on which trillions of transactions globally are priced.

This followed the rigging scandal in 2012, which led to some US$9 billion in fines levied on banks for attempting to manipulate Libor, rocking the credibility of the major benchmark.

The manipulation concerns ran alongside the problem that while Libor is the dominant benchmark for pricing of loans and derivatives, it has not reflected many actual transactions in the post-crisis period.

The situation left Libor vulnerable to the manipulation that occurred in 2012. Other major markets - including the US, UK, and Japan - have selected their alternative rates as well.