Proposals to enhance Sibor announced by ABS, Singapore forex committee

PROPOSALS to anchor Sibor more closely to market moves and enhance its robustness and integrity were jointly released on Monday by the ABS Benchmarks Administration Co Pte Ltd (ABS Co) and the Singapore Foreign Exchange Market Committee (SFEMC).

The two groups also issued a consultation paper to seek feedback on their proposals to improve the most widely used reference rate for home loan packages in Singapore

The Sibor, or Singapore Interbank Offered Rate, is based on the interest rates used by banks in Singapore when lending unsecured funds to each other. It is administered by the Association of Banks in Singapore (ABS) through its fully-owned subsidiary ABS Co, with Thomson Reuters as the calculation agent.

The proposals include changes in methodology for calculating Sibor and scrapping the little-used 12-month Sibor rate.

ABS and SFEMC also said they will continue to explore longer-term alternatives to the Sibor which would involve efforts to further develop the breadth and depth of the Singapore dollar money markets.

"In the meantime, ABS-SFEMC considers it important to strengthen the robustness of Sibor to the extent possible," they said in a media release.

Welcoming the proposals on Monday, a spokesman from the Monetary Authority of Singapore (MAS) said, "The ABS-SFEMC proposals seek to anchor Sibor to transaction data to the extent possible, and have taken guidance from international standards set by the Financial Stability Board and the International Organisation of Securities Commissions.

"These proposals, along with MAS' upcoming regulatory framework for financial benchmarks, will enhance the robustness and integrity of the Sibor benchmark setting process."

The key proposed enhancements are:

1. To anchor reliance on market transactions by calculating Sibor using the following waterfall methodology: (a) transactions in the underlying market, (b) transactions in related markets, and (c) expert judgement. This will provide greater clarity and facilitate consistency across panel banks that submit input for the calculation of Sibor.

2. In line with other jurisdictions, to expand the underlying reference market from interbank to include other wholesale funding transactions. Given that Sibor is intended to reflect banks' unsecured funding costs, the inclusion reflects the structural shift in banks' funding sources after the global financial crisis.

3. To discontinue the 12-month Sibor due to a lack of underlying market transactions and as this benchmark tenor is not widely referenced.

The ABS-SFEMC consultation paper can be found at www.abs.org.sg/industryguidelines/rate-setting-benchmarks.

The SFEMC, which is co-chaired by the banking industry and MAS, aims to foster the growth of Singapore as a leading international financial centre for transactions in foreign exchange, money market, fixed income and derivatives instruments.