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     FrontPage Edition: Sat 13 May 2006

MAS launches SGS electronic bond trading platform


MAS Launches Electronic Trading Platform for SGS, and Introduces New Standing Facility for S$ Transactions

The Monetary Authority of Singapore (MAS) has launched an electronic bond trading platform for Singapore Government Securities (SGS), and introduced a new standing facility for Singapore dollar transactions.
These initiatives are part of MAS' efforts to enhance the sophistication and efficiency of Singapore's financial markets.
SGS Electronic Bond Trading Platform
Jointly developed by MAS, Bloomberg and the SGS Primary Dealer community, the Singapore Government Securities Electronic Bond Trading platform (SGS E-Bond platform) is part of an overall effort by MAS to introduce greater price transparency to financial markets.
The first phase of the SGS E-Bond platform went live in July 2005. Under this phase, last-traded prices and trade volumes by SGS Primary Dealers would be automatically and instantly available on Bloomberg.
The next phase, which was implemented on 3 May 2006, features a quote-driven electronic order book for price providers to leave their bids and offers. By publishing pre-trade prices, this enhancement brings the market to an even higher level of transparency.
The new platform will boost investor confidence by promoting more efficient price discovery. This will increase the resilience and transparency of the market and bring about a more robust yield curve.
The initiative will help attract more issuers and investors to participate in the Singapore dollar bond market as well as improve the resilience of the market in times of stress.
MAS Standing Facility
MAS will introduce a Standing Facility on 1 June 2006 that will allow SGS Primary Dealers to initiate Singapore dollar deposit or borrowing transactions with MAS on an interest-paying overnight basis.
The facility will fine-tune the management of Singapore dollar liquidity by making use of information available to SGS Primary Dealers to adjust the aggregate supply of Singapore dollars. This will help moderate intra-day interest rate volatility and ease potential frictional demand for Singapore dollar liquidity.
The MAS Standing Facility is unique [1] in that interest rates under the Facility will be based on a market-determined rate. This is determined on a daily basis via an auction of overnight clean borrowing from Primary Dealers in the morning of each working day through MAS' daily money market operations.
The weighted average of successful bids will form the reference rate for that day. The rate at which Primary Dealers may borrow from the facility will be 50 basis points above the day's reference rate, while the deposit rate will be 50 basis points below the reference rate.
The introduction of the Standing Facility does not represent a departure from MAS' exchange-rate based monetary policy, and does not constitute a mechanism for interest rate targeting.
1 Other central banks base borrowing or deposit rates around a fixed policy rate set by the central bank

Source: Press Release 10 May 2006

SGS Market. In 1998, MAS initiated a series of measures to facilitate the development of bond markets in Singapore. One such initiative was the creation of a deep and liquid government benchmark yield curve to serve as a benchmark for private sector debt issuance. Over the period from 1997 to 2005, total outstanding SGS has almost quadrupled to about S$78 billion as at end-2005. Daily SGS trading volume is approximately S$1.7 billion, almost five times that in 1997.
Monetary Policy. Singapore's monetary policy has since 1981 been focused on the exchange rate. MAS manages the Singapore dollar exchange rate against a trade-weighted basket of currencies of its major trading partners and competitors, within an undisclosed target band. The MAS intervenes in the foreign exchange market to prevent excessive fluctuations in the S$ exchange rate, consistent with the prevailing exchange rate policy and underlying economic fundamentals. To complement its exchange rate policy, MAS conducts money market operations to ensure that there is an appropriate level of liquidity in the banking system. Money market instruments used for this purpose are mainly foreign exchange swaps, direct borrowing and lending transactions with banks, as well as SGS transactions. With an open capital account, MAS does not pursue interest rate or money supply targets.

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