DBS and Standard Chartered have executed the industry’s first interbank option trade referencing the Singapore Overnight Rate Average (SORA).
In a joint press statement dated May 28, the banks disclosed that the interbank option trade was done on behalf of a global real estate group to manage the potential market risk arising from a SORA interest rate option.
The SORA interest rate option is designed to help clients which have loan facilities referencing SORA mitigate their downside risk in the event the compounded daily SORA rate turns negative.
The trade comes as Singapore transitions to SORA as its main interest rate benchmark. All financial institutions have ceased to offer new loan products referencing the existing Swap Offer Rate (SOR) since the end of April 2021. Additionally, the Singapore Interbank Offered Rate (SIBOR) will cease to be used in new loan products by the end of September 2021.
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The banks say the interbank option trade signifies the continued maturity of Singapore’s SORA markets as industry adoption grows and liquidity deepens.
“What we achieved today marks a significant milestone in widening the breadth of SORA derivatives necessary for a robust and liquid benchmark,” says Andrew Ng, group head of treasury & markets at DBS.
Daniel Koh, global head of treasury markets at Standard Chartered, says the bank will continue collaborating with peers to develop financial products that support customers’ transition to SORA.
