Osttra Launches Cross-Currency Swap Service for Libor Transition
Posted by Colin Lambert. Last updated: June 8, 2023
Osttra says it has successfully delivered the first cross-currency swap conversions of USD/SGD swaps from SOR to SORA as part of an effort to help aid the transition from Ibor-based benchmark to risk-free rates (RFRs).
The firm says the service will expand to cover other indices subject to cessation in the coming months and is “an industry first” that facilitates the multilateral conversion of uncleared cross-currency swaps away from legacy benchmarks to alternative RFRs.
The conversion process generates overlay transactions, in the form of market standard interest rate swaps and overnight index swaps, which are submitted to clearing, minimising 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 11 market participants, whilst a second conversion was performed by 21 participants ahead of central counterparty (CCP) conversion for the SGD SOR benchmark. Osttra says 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.
“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,” says Andrew Ng, group head, treasury and markets, DBS Bank. “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.”
The new conversion service is delivered by Osttra’s TriReduce and TriBalance, while connectivity to CCPs for the overlay swaps is provided via the firm’s MarkitWire. It adds the process has been carefully coordinated with a highly engaged group of market participants.
“This partnership paves the way for a smooth Ibor transition for SOR/SORA, says Leslie Foo, group head, 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.”
Vikash Rughani, business manager at Osttra TriReduce and TriBalance, adds, “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. 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.”
