OSTTRA releases cross-currency swap conversion service ahead of Libor cessation
08 June 2023 UK
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OSTTRA has released a service to migrate cross-currency swaps from Libor benchmarks to new risk-free rates.
The company, which houses the MarkitServ, Traiana, TriOptima, TriReserve and Reset products and is co-owned by CME Group and S&P Global Market Intelligence (formerly IHS Markit), claims that this service is the first in the industry to support the multilateral conversion of uncleared cross-currency swaps from legacy interest-rate benchmarks to alternative risk-free rates.
The first multilateral cross-currency swap conversion for US dollar-Singapore dollar swaps — from the Singapore Swap Offer Rate (SOR) to the Singapore Overnight Rate Average (SORA), a benchmark rate administered by the Monetary Authority of Singapore — was completed by 11 market participants, with a further 21 participants completing a second conversion prior to the central counterparty conversion for the SGD SOR benchmark.
This change has become necessary, given the discontinuation of USD Libor at the end of June, following the commitment by the UK regulatory authorities that the Libor benchmark would no longer be supported beyond the end of 2021.
SOR references USD LIBOR in its calculation methodology, hence the push to transition from SOR to an alternative risk-free rate, notably SORA.
OSTTRA indicates that the conversion service is delivered via its triReduce and triBalance products, with OSTTRA MarkitWire providing connectivity to CCPs for the overlay swaps.
The conversion process is managed through overlay trades, using standard interest rate swaps and overnight index swaps, which are presented for clearing to minimise present value impact. Any remaining PV impact, OSTTRA says, is cash settled between participants, making the conversion market-risk neutral.
This solution is available to customers with cross-currency swaps referencing other indices subject to cessation, including those CAD, MXN, PLN and ZAR. OSTTRA indicates that it is likely to extend the service to other indices subject to cessation in months ahead.
Commenting on the service release, Vikash Rughani, business manager at OSTTRA triReduce and triBalance says: “Our engagement with the industry over the past two years highlighted that market participants are committed to finding innovative solutions to reduce their exposure to legacy benchmarks.
“We are pleased to provide our non-cleared conversion service to help market participants overcome the technological and operational challenges of implementing fallback procedures and waiting until the deadlines for the respective legacy rates.”
Andrew Ng, DBS Bank’s group head of treasury and markets, adds: “As one of the largest market makers in SGD derivatives, DBS is actively working with OSTTRA to convert its bilateral SOR cross currency swaps into SORA in preparation for a smooth industry transition to SORA.
“Through close collaboration with key industry players, an innovative solution was developed to reduce legacy SOR positions in the industry in line with regulatory requirements.”
Leslie Foo, group head of global markets at UOB, comments: “This partnership paves the way for a smooth IBOR transition for SOR/SORA. We are encouraged by this collaboration and look forward to working closely with the industry participants and OSTTRA in the future development of the SGD derivatives markets.”
Kenneth Lai, head of global treasury at OCBC Bank, adds: “We remain committed to working with the industry and our clients towards the transitioning of SOR to SORA, and the overall development of Singapore as a key financial centre.”
The company, which houses the MarkitServ, Traiana, TriOptima, TriReserve and Reset products and is co-owned by CME Group and S&P Global Market Intelligence (formerly IHS Markit), claims that this service is the first in the industry to support the multilateral conversion of uncleared cross-currency swaps from legacy interest-rate benchmarks to alternative risk-free rates.
The first multilateral cross-currency swap conversion for US dollar-Singapore dollar swaps — from the Singapore Swap Offer Rate (SOR) to the Singapore Overnight Rate Average (SORA), a benchmark rate administered by the Monetary Authority of Singapore — was completed by 11 market participants, with a further 21 participants completing a second conversion prior to the central counterparty conversion for the SGD SOR benchmark.
This change has become necessary, given the discontinuation of USD Libor at the end of June, following the commitment by the UK regulatory authorities that the Libor benchmark would no longer be supported beyond the end of 2021.
SOR references USD LIBOR in its calculation methodology, hence the push to transition from SOR to an alternative risk-free rate, notably SORA.
OSTTRA indicates that the conversion service is delivered via its triReduce and triBalance products, with OSTTRA MarkitWire providing connectivity to CCPs for the overlay swaps.
The conversion process is managed through overlay trades, using standard interest rate swaps and overnight index swaps, which are presented for clearing to minimise present value impact. Any remaining PV impact, OSTTRA says, is cash settled between participants, making the conversion market-risk neutral.
This solution is available to customers with cross-currency swaps referencing other indices subject to cessation, including those CAD, MXN, PLN and ZAR. OSTTRA indicates that it is likely to extend the service to other indices subject to cessation in months ahead.
Commenting on the service release, Vikash Rughani, business manager at OSTTRA triReduce and triBalance says: “Our engagement with the industry over the past two years highlighted that market participants are committed to finding innovative solutions to reduce their exposure to legacy benchmarks.
“We are pleased to provide our non-cleared conversion service to help market participants overcome the technological and operational challenges of implementing fallback procedures and waiting until the deadlines for the respective legacy rates.”
Andrew Ng, DBS Bank’s group head of treasury and markets, adds: “As one of the largest market makers in SGD derivatives, DBS is actively working with OSTTRA to convert its bilateral SOR cross currency swaps into SORA in preparation for a smooth industry transition to SORA.
“Through close collaboration with key industry players, an innovative solution was developed to reduce legacy SOR positions in the industry in line with regulatory requirements.”
Leslie Foo, group head of global markets at UOB, comments: “This partnership paves the way for a smooth IBOR transition for SOR/SORA. We are encouraged by this collaboration and look forward to working closely with the industry participants and OSTTRA in the future development of the SGD derivatives markets.”
Kenneth Lai, head of global treasury at OCBC Bank, adds: “We remain committed to working with the industry and our clients towards the transitioning of SOR to SORA, and the overall development of Singapore as a key financial centre.”
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