Singaporean banks could abandon Malaysian forex reference rate

Government study confirms attempts at rate fixing.

A review by Singapore late last year into rates set by The Association of Banks in Singapore uncovered attempts by some traders to manipulate Singapore's rate fixings for certain currencies.

The findings have led to anger among central bankers in Malaysia and Indonesia and confirms concerns about the impact of offshore speculation on their own spot currency markets.

Banking sources said ABS will adopt a plan that will end the daily publication of a ringgit spot price for settling derivative contracts. No final decision, however, has been made on whether to discontinue the offshore ringgit rate but discussions are continuing about how to reform the system.

Since 2010, the Singapore fixing has consistently quoted the rupiah at rates against the dollar that are weaker than the onshore rates, with the spread widening as far as 250 rupiah at the start of this year. The spread between onshore and offshore rates for the ringgit fixing is usually close to zero.

The derivatives priced against the reference rates, or non-deliverable forwards, are used by companies, investors and traders to hedge currency risk in countries where capital controls restrict foreign money flows.

With the end of Singapore's ringgit rate, banks trading ringgit NDFs will likely refer to a benchmark published by the foreign exchange industry association in Malaysia.