SGX to launch Singapore and Japan-linked interest rate derivatives in 2H2024 - Singapore News

Source: The Independent
Author: Mary Alavanza

SINGAPORE: In the second half of the year, Singapore Exchange Group (SGX) will launch Singapore and Japan-linked interest rate derivatives to broaden its portfolio.

This is in response to the growing demand among global investors for more transparent and cost-effective instruments to manage fluctuations in interest rates, The Edge Singapore reports.

On March 11, SGX announced its plan to launch short-term interest rate futures linked to the Singapore Overnight Rate Average (SORA) and Tokyo Overnight Average Rate (TONA) in the latter half of 2024.

The goal is to address the increasing need for risk management tools in an uncertain interest rate environment.

SORA, published by the Monetary Authority of Singapore (MAS), represents the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank Singapore Dollar (SGD) cash market.

Meanwhile, TONA, issued by the Bank of Japan (BOJ), reflects the volume-weighted average of actual transactions in the Japanese Yen (JPY) unsecured overnight money market.

The proposed three-month SORA and TONA Futures contracts are slated for launch in the latter part of this year, subject to regulatory approval.

These contracts will complement SGX Group's existing suite of long-term interest rate futures, including the 10-year Full-Sized and Mini Japanese Government Bond (JGB) futures, which have attracted diverse international market participants.

According to SGX, this expansion aims to promote the futurisation of over-the-counter (OTC) derivatives, enhancing capital efficiency, price discovery, and liquidity in Singapore's Singdollar interest rates market.

The introduction of "SORA 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.

The contract will augment SGX Group's Singapore product shelf including its flagship SGX MSCI Singapore Index Futures and SGX USD/SGD Full-Sized and Mini FX Futures," SGX noted.

Similarly, the three-month TONA Futures will supplement SGX Group's Japanese derivatives portfolio, including SGX Nikkei 225 Index futures and options, JBG futures, and SGX USD/JPY FX futures.

This strategic move aligns with market expectations of a potential end to Japan's negative interest rate policy, increasing interest in the world's third-largest government bond market, and record highs in the Nikkei 225 equity benchmark.

Mr KC Lam, SGX Global Head of FX & Rates, emphasised the appeal of interest rate derivatives in the current macro environment.

Mr Lam stated, "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."