LIBOR Rigging scandal, what is risk of SIBOR being rigged?

[Dennis Ng]

With the LIBOR rigging scandal (LIBOR stands for London inter-bank offered rate, what is the chance of SIBOR (Singapore inter-bank offered rate) being rigged? Here's an article you can read more on this topic:

Friday, 6 July 2012
Sibor system is robust, says bank association
Rigging of local benchmark rate 'highly unlikely'
By Melissa Tan, The Straits Times, 5 Jul 2012

THE chances of bank staff here rigging the market's benchmark interest rate as occurred with the Libor in Britain are slim, according to the Association of Banks in Singapore (ABS).

The industry's lead body said the Monetary Authority of Singapore (MAS) pays close attention to Sibor and the ABS itself tightened procedures last October after the Libor scandal surfaced.

It is 'highly unlikely anyone will rig' Sibor, said ABS director Ong-Ang Ai Boon at a briefing yesterday.

Sibor (the Singapore Interbank Offered Rate) reflects the interest rate at which banks lend to each other and is commonly used as a benchmark rate for home loans.

The ABS sets Sibor daily with the help of financial news service Thomson Reuters, which obtains rates from 15 banks.

Contributors include the three local banks and foreign players such as Citibank. All must have a minimum rating of 'A' from at least one credit rating agency.

Libor is produced by the British Bankers' Association in a similar way.

But between 2005 and 2009, during the financial crisis, traders at Barclays and perhaps other banks were feeding in distorted data in the hope of rigging the final Libor number.

Mrs Ong-Ang noted that the MAS monitored Sibor 'very closely' during the global financial crisis.

She also pointed to the relatively small size of the Singapore housing loans market, and suggested that banks here are unlikely to have enough incentive to risk rigging Sibor.

'Sibor is domestic and just for limited usage... it is not an international benchmarking rate, unlike Libor,' added Mrs Ong-Ang.

Libor is used to set the pricing of trillions of dollars worth of derivatives and other financial instruments.

The Barclays role in the scandal brought a fine of £290 million (S$572.6 million) last week and has already claimed the scalps of chief executive Bob Diamond and others.

Several other banks in London have also been implicated.

Mrs Ong-Ang told a briefing: 'We knew about this (rate fixing) some time ago... We did have a look and we did tighten the escalation process (last October) such that if any banks go too way out for too often, there is a red flag and we'll call the bank.

'All the systems are in place. If there is any aberration in the rates, we know who to contact.

'We don't wait for something to happen then look for the fire extinguisher.'

Mrs Ong-Ang added that, earlier this year, the ABS asked Thomson Reuters to analyse bank submission trends to spot those who consistently submit outlier rates.

She also noted that given the small pool of players here, errant behaviour by banks is likely to be detected fairly quickly.

'It won't take that long for somebody to whistleblow.'

She also warned against 'alarmist' declarations, saying the Libor scandal has little impact on Sibor.

There is actually 'nothing wrong with the system' here, Mrs Ong-Ang said, adding: 'We needed to tighten up anyway after the global financial crisis. What we did (last year) was revisit and ensure more escalation. Our controls were there, it was as tight as can be.'

'Frankly, we have tightened as far as we can. Singapore is as best as can be.'


Data banks
THERE are 15 banks contributing data to set the Singapore Interbank Offered Rate (Sibor) for the financial year ending March 31, 2013:

- Bank of America
- Bank of Tokyo-Mitsubishi UFJ
- BNP Paribas
- CA-CIB
- Citibank
- Credit Suisse
- DBS
- Deutsche Bank
- HSBC
- ING
- JPMorgan Chase
- OCBC
- RBS
- Standard Chartered
- UOB

[lootster]

Hi Dennis, what do they mean by rig?

[Dennis Ng]

Hi Dennis, what do they mean by rig?

rig, means that someone try to control or manipulate the interest rates (in this case, LIBOR, London Inter-bank offered rates), set in London (Financial centre).

[lootster]

Hi Dennis, what do they mean by rig?

rig, means that someone try to control or manipulate the interest rates (in this case, LIBOR, London Inter-bank offered rates), set in London (Financial centre).

Thanks! Makes reading this article much clearer now

[Dennis Ng]

Published on Jul 19, 2012
MAS looking into the way Sibor is set
Move echoes that of other regulators around the world following Libor scandal

By Magdalen Ng

THE way the local interest rate benchmark is set is being assessed by the authorities in the light of the Libor scandal engulfing British bank Barclays.

The Monetary Authority of Singapore (MAS) said yesterday that the move follows similar steps being undertaken by regulators around the world. A spokesman said: 'Regulators in several international financial centres are looking into the setting of key market interest rate benchmarks by banks. MAS is doing the same in Singapore.'

The process of how banks help set the rate has come under intense scrutiny in recent weeks following the scandal surrounding the Libor or London interbank offered rate.

Barclays and possibly other banks rigged the rate in the years after the financial crisis hit in 2007, potentially distorting a key financial instrument that affects millions of people and trillions of dollars worth of loans.

Barclays was fined a record £290 million (S$571 million) last month.

The method used to set the Libor in Britain is similar to the one used for the Sibor or Singapore interbank offered rate. Each day, contributing banks submit rates at which they think they can borrow from other banks. Financial news service Thomson Reuters collates the information, removes the top and bottom 25 per cent, then averages the rest to derive the day's Sibor.

The process is overseen by the Association of Banks in Singapore (ABS).

ABS director Ong-Ang Ai Boon said yesterday by e-mail: 'The ABS conducted a review on the way Sibor is set last year. The governance and processes are in place and the process is reasonably robust and circumspect.

'Nevertheless, we will continue to be diligent and vigilant to ensure compliance with the governance and procedures.'

One concern surrounding Sibor is that the number of banks taking part in the rate-setting process has fallen recently from 15 to 12. Royal Bank of Scotland has pulled out, while the Bank of America did not contribute to the rate panel on Monday.