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SGX Group to launch interest rate derivatives in 2H 2024
Derivatives franchise will expand to include futures linked to Singapore and Japan’s overnight interest rate benchmarks, to support strong emerging demand for more risk management tools in an uncertain interest rate environment
Singapore Exchange (SGX Group) will introduce short-term interest rate futures linked to the Singapore Overnight Rate Average (SORA) and Tokyo Overnight Average Rate (TONA), as global investors increasingly seek more transparent and cost-effective tools to hedge and trade fluctuations in interest rates.
Three-month SORA and TONA Futures contracts are targeted to be launched in the second half of this year, subject to regulatory approval. These contracts build upon SGX Group’s current suite of long-term interest rate futures – 10-year Full-Sized and Mini Japanese Government Bond (JGB) futures – which have attracted diverse international market participants.
SGX Group is driving the futurisation of OTC derivatives to enhance greater capital efficiency, price discovery and liquidity in Singapore’s Singapore Dollar (SGD) interest rates market. 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.
The three-month TONA Futures will also complement SGX Group’s portfolio of Japanese derivatives including JGB futures, SGX Nikkei 225 Index futures and options, as well as SGX USD/JPY FX futures. This comes on the back of 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.
KC Lam, Global Head of FX & Rates, SGX Group, said, “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. Our planned SORA and TONA Futures will complement our expanding multi-asset derivatives franchise and provide additional cross-margining tools for global participants.”
[1] SORA, published by the Monetary Authority of Singapore, is the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank Singapore Dollar (SGD) cash market in Singapore.
[2] TONA, published by the Bank of Japan, is the volume-weighted average of actual transactions in the Japanese Yen (JPY) unsecured overnight money market.
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