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Thread: Remote chance of Sibor manipulation: ABS

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    Default Remote chance of Sibor manipulation: ABS

    http://www.businesstimes.com.sg/sub/...08740,00.html?

    Published February 17, 2012

    Remote chance of Sibor manipulation: ABS

    Good governance, stability of Sing$ interest rate and liquidity cited

    By EMILYN YAP


    (SINGAPORE) The Association of Banks in Singapore (ABS) is confident about the design of the Singapore Interbank Offered Rate (Sibor) - a key interest rate here - even as banks face accusations of manipulating rates in other parts of the world.

    While the method for computing the Sibor is similar to those for other benchmark rates such as the Libor in London, there is little chance of banks here colluding, said ABS director Ong-Ang Ai Boon.

    The Libor, produced by the British Bankers' Association, is used as a global benchmark for US-dollar interest rate derivatives, whether for plain vanilla or structured products, she noted. 'A one-point move in the Libor can affect trillions of dollars of financial products, so there's a higher chance of things happening. It has a high risk and reward factor,' she said.

    But in Singapore, 'due to strong governance, stability of the Singapore dollar interest rate and general liquidity, the likelihood of such occurrences is remote'.

    The Sibor reflects the interbank cost of funds - how much it would cost banks to borrow from one another - and has become a benchmark rate for home loans and commercial loans. It is derived from a poll of banks from Mondays to Fridays.

    In London, Tokyo and Europe, regulators are investigating if banks worked together to fudge the Libor, Tibor and Euribor by submitting inaccurate quotes to influence the prices of derivative products.

    The probes have implicated financial institutions such as the Royal Bank of Scotland and UBS, and have cast doubt over the pricing of trillions of dollars of financial products.

    'The investigations in other countries have not affected us,' Mrs Ong said, adding that ABS has no plans to change the way it computes the Sibor.

    To come up with the Singapore-dollar Sibor, Thomson Reuters helps ABS obtain rates from 17 banks every day. Contributors include the three local banks and foreign players such as ANZ, and all of them must have a minimum rating of 'A' from at least one credit rating agency.

    The contributed rates are ranked in order, and those in the top and bottom quartiles are left out. The average of the remaining quotes - which must come from at least eight banks - will be the day's Sibor.

    ABS launched a consultation exercise in 2009 to evaluate the Sibor polling method. It validates the rates daily and every year, the ABS Financial Markets Standing Committee council reviews the contributing banks and recommends them to the ABS council for endorsement.

    Elsewhere, there have been attempts to come up with replacements for the traditional interbank offered rates. According to Reuters, ICAP created the New York Funding Rate by surveying at least 16 anonymous banks daily.

    But no method is perfect. 'Anonymity is a double-edged sword. Publishing the identities of the contributor banks makes them accountable for the rates they quote,' Mrs Ong said.

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