SGX to Re-Launch Interest Rate Derivatives

Singapore Exchange (SGX) has announced it will reintroduce short-term interest rate futures linked to the Singapore Overnight Rate Average (Sora), and the Tokyo Overnight Average Rate (Tona) the risk-free rates in Singapore and Japan that replaced the Ibors as part of the global benchmark reform process. SGX last supported IRD contracts pre-Libor reform.

Three-month Sora and Tona Futures contracts are targeted to be launched in the second half of this year, subject to regulatory approval. The former is published by the Monetary Authority of Singapore, and is the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank Singapore Dollar (SGD) cash market in Singapore, while Tona is the volume-weighted average of all transactions in the unsecured Japanese overnight money market and is published by the Bank of Japan.

SGX says the futures will be a new hedging tool for market participants to manage their exposure to interest rate risks, amid growing issuance of SGD cash market products that reference Sora. It adds the Tona futures will also complement its portfolio of Japanese derivatives and will launch amid market expectations that Japan’s negative interest rate policy will come to an end, together with rising interest in the world’s third largest government bond market and record-highs in the Nikkei 225 equity benchmark.

“The uncertain interest rate environment, coupled with inflation and volatility in the macroenvironment, has increased the appeal and usage of interest rate derivatives as a cost-effective, transparent hedging and trading tool,” says KC Lam, global head of FX and Rates, SGX Group. “Our planned Sora and Tona futures will complement our expanding multi-asset derivatives franchise and provide additional cross-margining tools for global participants.”