Association of Banks of Singapore (ABS) and Singapore Foreign Exchange Market Committee (SFEMC) proposals to improve the robustness of the market benchmarks and is calling for industry consultations and suggestions for improving the Sibor calculation methodology and scrapping the Sibor (12 month) due to lack of sufficient trading volume.
update 10th Dec 2017
Image Credits: Sibor Chart, ABS, iCompareLoan.com
Part of the reason for this review is due historically to LIBOR Rigging. As Libor is tied to almost US$350 trillion of derivatives, movement in Libor affects the pricing of these derivative financial products and billions could be made or lost due to Libor moves.
Sibor Is also rigged.
“The move comes a year after the MAS censured 20 banks in Singapore for trying to manipulate benchmark rates and ordered 19 of them to set aside reserves with the central bank — ranging from S$100 million to as much as S$1.2 billion each. The MAS found that 133 traders in the banks had tried to rig SIBOR, SOR, as well as foreign exchange benchmarks, although there was no conclusive finding that those attempts had succeeded.” (Today, 31st July 2014, https://www.todayonline.com/business/rate-rigging-be-criminal-offence-under-mas-proposed-law)
That makes is 20 out of 20 banks on the sibor reporting panel that is rigging the panel.
Sibor Reform What will it do?
The Sibor Reform will likely lead to Sibor being more widely used as a benchmark. This could cause the Sibor home loans to be more volatile for a period of time before stabilising. This could lead to momentary volatility in such home loans. In case you are worried, you can talk to a mortgage broker to assist you to switch out until there is more clarity on the situation about the Sibor reform.
Voice recording – Interview with 938 NOW – on 5th Dec 2017 with Keith De Souza.
PLAY the Recording of the Interview with 938 NOW about the significance of the SIBOR.
Sibor is based on Actual transaction and is volume weighted and hence is in less risk of being rigged successfully. The only problem is when there is insufficient transaction data and there will be times when there is insufficient market transaction data leading to wild fluctuation of the SIBOR or other benchmarks. In such a scenario, how would SIBOR be robust enough?
If we were to base derivative and foreign exchange related derivative and interest rate derivative products, then the underlying benchmark that goes into the calculation or valuation needs to be robust and accurate.
This has massive positive potential for Singapore as a Financial Derivative market that as the potential to underwrite and issue hundreds of billions of dollars worth of derivatives. Imagine what kind of fees and charges and financial benefit the issuing banks could make.
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