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

Bryan Wu
Bryan Wu • 3 min read
SGX Group to launch Singapore and Japan-linked interest rate derivatives in 2H2024
The short-term futures will be linked to the Singapore Overnight Rate Average (SORA) and Tokyo Overnight Average Rate (TONA). Photo: Albert Chua/The Edge Singapore
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Singapore Exchange Group (SGX)  will expand its derivatives franchise to include futures linked to Singapore and Japan’s overnight interest rate benchmarks as global investors pursue more transparent and cost-effective tools to hedge and trade fluctuations in interest rates.

On March 11, SGX announced that it would introduce short-term interest rate futures linked to the Singapore Overnight Rate Average (SORA) and Tokyo Overnight Average Rate (TONA) in the second half of 2024 to support the strong emerging demand for more risk management tools in an uncertain interest rate environment. 

Published by the Monetary Authority of Singapore (MAS), SORA is the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank Singapore Dollar (SGD) cash market in Singapore, while the Bank of Japan’s (BOJ) TONA is the volume-weighted average of actual transactions in the Japanese Yen (JPY) unsecured overnight money market.

The 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, such as the  10-year Full-Sized and Mini Japanese Government Bond (JGB) futures, which have attracted diverse international market participants.

SGX says the move will drive the futurisation of over-the-counter (OTC) derivatives to enhance greater capital efficiency, price discovery and liquidity in Singapore’s Singdollar interest rates market. 

See also: MSCI announces five deletions for Singapore including CDL

“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,” says SGX.

The three-month TONA Futures will also complement SGX Group’s portfolio of Japanese derivatives including JBG 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.

See also: SGX total securities market turnover value down 15% y-o-y to $23.79 bil in March

SGX Global Head of FX & Rates KC Lam says “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,” he adds.

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