Proposals to anchor Sibor more closely to market moves and enhance its robustness and integrity were jointly released yesterday by the ABS Benchmarks Administration Co (ABS Co) and the Singapore Foreign Exchange Market Committee (SFEMC).
They 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.
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 said they will continue to explore longer-term alternatives to 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," their statement said.
Welcoming the proposals, a spokesman for 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."
• To calculate Sibor using:
• transactions in the underlying market,
• transactions in related markets and
• expert judgment This will provide greater clarity and facilitate consistency across panel banks that submit input for the calculation of Sibor.
• To expand the underlying reference market from interbank lending to include other wholesale funding transactions.
Given that Sibor is intended to reflect banks' unsecured funding costs, this inclusion would reflect the structural shift in banks' funding sources after the global financial crisis.
• To discontinue the 12-month Sibor due to a lack of underlying market transactions and as this benchmark tenor is not widely referenced.
The key proposed enhancements include calculating Sibor using the waterfall methodology: transactions in the underlying market, transactions in related markets, and expert judgement. This will provide greater clarity and facilitate consistency across panel banks that submit input for the calculation of Sibor.
In line with other jurisdictions was the proposal 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.
Another proposal is to discontinue the 12-month Sibor due to a lack of underlying market transactions and the fact that this benchmark tenor is not widely referenced.
The SFEMC, which is co-chaired by the banking industry and MAS, aims to foster Singapore's growth as a leading international financial centre for transactions in foreign exchange, money market, fixed income and derivatives instruments.