DBS, StanChart execute Singapore's first Sora-referenced interbank option trade

The interbank trade was done on behalf of an undisclosed global real estate group.
The interbank trade was done on behalf of an undisclosed global real estate group.PHOTO: ST FILE

SINGAPORE (THE BUSINESS TIMES) - DBS Bank and Standard Chartered have successfully executed Singapore's first interbank option trade referencing the Singapore Overnight Rate Average (Sora).

The interbank trade was done on behalf of an undisclosed global real estate group to manage the potential market risk arising from a Sora interest rate option, both banks said in a joint statement on Friday (May 28).

The Sora interest rate option - which both parties say is another industry first - helps clients with loan facilities referencing Sora mitigate their downside risk in the event the compounded daily Sora rate turns negative.

DBS group head of treasury and markets Andrew Ng said the interbank option trade by both banks marks a "significant milestone in widening the breadth of Sora derivatives necessary for a robust and liquid benchmark".

"By progressively offering more types of Sora derivatives, DBS is committed to ensuring a successful industry transition to Sora," he added.

StanChart global head of treasury markets Daniel Koh said: "We will continue to collaborate with our peers to develop more innovative financial products that can support our clients' smooth transition to Sora and meet the industry's guided timelines."

Singapore is in the midst of its transition from the Swap Offer Rate (SOR) and the Singapore Interbank Offered Rate (Sibor) to Sora as the new interest rate benchmark. SOR is the benchmark used to price derivatives and business loans in the Republic. It references United States dollar London Interbank Offered Rate (Libor) in its computation.

The cessation of the widely referenced USD Libor was earlier slated to be end-2021, but administrator ICE Benchmark Administration recently proposed to delay its discontinuation to mid-2023 as the industry faces challenges in switching.