OSTTRA announced it has delivered the first cross-currency swap conversions of USD/SGD swaps from SOR to SORA. The service will expand to cover other indices subject to cessation in the coming months.
OSTTRA has been working with the industry since 2021 to enable market participants to overcome the complex challenge of transitioning from legacy Libor benchmarks to new risk-free rates (RFRs). The latest service, an industry first, facilitates the multilateral conversion of uncleared cross-currency swaps away from legacy benchmarks to alternative risk-free rates (RFR).
The conversion process generates overlay transactions, in the form of market standard interest rate swaps and overnight index swaps, which are submitted to clearing, minimizing the risk and present value (PV) impact. Any remaining PV impact from the overlay trades is settled in cash between the participants of the conversion run, making the process market risk neutral.
The first multilateral conversion, for USD/SGD swaps, was completed by eleven market participants, whilst a second conversion was performed by twenty-one participants ahead of CCP conversion for the SGD SOR benchmark. The service is also available to customers with legacy benchmark exposure in cross-currency swaps referencing other indices subject to cessation, including those in MXN, PLN, ZAR and CAD.
The new conversion service is delivered by OSTTRA triReduce and triBalance, while connectivity to CCPs for the overlay swaps is provided via OSTTRA MarkitWire. The process has been carefully coordinated with a group of market participants.
“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,” said Andrew Ng, group head for Treasury & Markets at DBS Bank, in a statement. “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.”
“OCBC Bank is proud to have participated in the inaugural CCS conversion in the SGD rate derivative market,” said Kenneth Lai, head of Global Treasury at OCBC Bank, in a statement. “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.”
“UOB has been actively working with OSTTRA and is pleased to have participated in the Bilateral USD/SGD Cross-Currency Swaps conversion from SOR to SORA. This partnership paves the way for a smooth IBOR transition for SOR/SORA,” said Leslie Foo, group head for Global Markets at UOB. “We are very 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.”
“Our engagement with the industry over the last two years highlighted that market participants are committed to finding innovative solutions to reduce their exposure to legacy benchmarks,” said Vikash Rughani, business manager at OSTTRA triReduce and triBalance, in a statement. “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.”