DBS and Standard Chartered have executed the industry’s first interbank option trade referencing the Singapore Overnight Rate Average (SORA).
The banks made the trade behalf of a global real estate group to manage the potential market risk arising from a SORA interest rate option, according to joint announcement on Friday.
The 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.
New Benchmark
Singapore is moving towards using SORA as its main interest rate benchmark. Financial institutions have stopped offering new loan products referencing the existing Swap Offer Rate (SOR) since April 2021, and the Singapore Interbank Offered Rate (SIBOR) will not be used in new loan products by the end of September 2021.
The announcement highlighted the growing range of instruments to ease the adoption of SORA-based financing solutions, as industry adoption grows and liquidity deepens. «Furthermore, the development of an active interest rate option market enables the creation of structured products to better serve wealth and institutional investors,» it said.
