March 19, 2020 / 7:40 AM / in 11 days

Singapore prepares move to new interest rate benchmark

SINGAPORE, March 19 (Reuters) - Banks in Singapore aim to start active Singapore Overnight Rate Average (SORA) derivatives trading in the second half of the year, as the city-state prepares a transition to new benchmark interest rates in line with a global trend, industry and regulatory officials said on Thursday.

Singapore’s banking body said last year that it would shift away from using Singapore dollar swap offer rates (SOR) as a key benchmark because of a likely discontinuation of the London Interbank Offered Rate, which heavily influences SOR.

“It is critically important for Singapore’s financial industry to achieve a smooth transition to SORA in advance of the likely discontinuation of SOR after end-2021,” said Samuel Tsien, chairman of the Association of Banks in Singapore.

An industry-led group formed by the Monetary Authority of Singapore last year to oversee the transition is getting market conventions and infrastructure ready, building liquidity in SORA markets and preparing pilot product structures for SORA usage in the cash market this year, officials said.

The benchmark rates are embedded in at least hundreds of billions of financial contracts from home loans to complicated derivatives.

Banks in Singapore are expected to begin pricing loans using SORA on a pilot basis this year, officials said.

Once dubbed the world’s most important number, Libor was discredited after the 2008 financial crisis when authorities in the United States and Britain found traders had manipulated it to make a profit.

As a result, regulators and the financial industry have worked to create different benchmarks. (Reporting by Anshuman Daga; Additional reporting by Alun John)

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