OSTTRA launches cross-currency swap (CCS) conversion from Libor to risk-free rates

Rick Steves

“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.”

OSTTRA has announced the launch of a service for cross-currency swap (CCS) conversion from Libor to risk-free rates, with the first conversion being USD/SGD swaps from SOR to SORA.

The service will expand to cover other indices subject to cessation in the coming months.

Multilateral conversion of uncleared cross-currency swaps away from legacy benchmarks

Transitioning from legacy Libor benchmarks to new risk-free rates (RFRs) has been a complex challenge to overcome and OSTTRA has been working on a solution since 2021.

The newly launched cross-currency swap (CCS) conversion service facilitates the multilateral conversion of uncleared cross-currency swaps away from legacy benchmarks to alternative risk-free rates (RFR).

According to OSTTRA, 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.

Innovative solutions to reduce exposure to legacy benchmarks

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.

Andrew Ng, Group Head, Treasury & Markets, DBS Bank, said: “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. 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.”

Kenneth Lai, Head, Global Treasury, OCBC Bank, commented: “OCBC Bank is proud to have participated in the inaugural CCS conversion in the SGD rate derivative market. 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.”

Leslie Foo, Group Head, Global Markets, UOB, added: “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. 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, said: “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.”

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.

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