Indonesia’s central bank is in talks with counterparts in Singapore and Malaysia as it monitors the use of non-deliverable forward contracts on the rupiah and determines whether tighter rules are needed.
Bank Indonesia will continue to track transactions in the derivatives to see whether they are having an impact on the local currency market, Deputy Governor Halim Alamsyah told reporters in Jakarta today. “We have several options in terms of regulations,” he said.
The Monetary Authority of Singapore began a probe of the Association of Banks in Singapore in September to ascertain whether there was any manipulation of benchmarks, including daily fixings that are used to settle NDFs. Bank Negara Malaysia has started requiring the nation’s banks use a ringgit reference rate set domestically to settle foreign-exchange contracts, a person familiar with the matter said on Jan. 29.
The Association of Banks in Singapore compiles reference rates used to settle forward transactions involving the currencies of Singapore, Indonesia, Malaysia, Thailand and Vietnam. The fixings are based on an average of quotes submitted by the global banks that make up its membership and can be influenced if participants collude.
The group’s rupiah fixings were as much as 2.6 percent weaker than prevailing exchange rates quoted by banks in Indonesia during January. The two levels converged today for the first time in more than six weeks as the onshore spot rate fell as low as 9,778 per dollar and the association’s reference rate rose 0.3 percent to 9,769.
Singapore’s central bank said in a statement in September that it asked lenders who are part of the rates-setting panel to review the process for non-deliverable foreign-exchange contracts. Banks should report irregularities immediately and take disciplinary action against any staff involved, it said.
Banks including UBS AG and Royal Bank of Scotland Group Plc have suspended some traders in Singapore amid the central bank’s probe, which includes money-market benchmarks.
Unlike foreign-exchange forward contracts, where two parties agree to physically exchange currencies at a set rate at a specific date in the future, NDF traders settle the net position in U.S. dollars. Who pays and how much at the end of the contract is determined by reference to a fixing, which in some jurisdictions is set by a survey of banks.