"Killing and Eating of Chickens is Highly Unlikely" says Fox Guarding Hen House

In the midst of the libor interest rate rigging scandal that broke out recently, ABS (Association of Banks Singapore) director, Mrs Ong-Ang Ai Boon says that the rigging
of Sibor (set by ABS) "is highly unlikely". In all things and especially those things related to financial matters, the maxim: "Trust but verify" is increasingly
a MUST.

The fact that the only a small pool of players are involved in setting the Sibor is NOT a safeguard against malfeasance. If anything, it facilitates collusion in rigging activity as all players will be well known to each other and familiarity breeds, in this case, mischief. At a minimum, alarms should be flashing for anti-competitive behaviour.

Saying that the incentive to rig the Sibor rate is low because of the "small size of Singapore's housing loan market" is being disingenuous at best. I don't think Mr Fox is going to turn up his nose at a chance of a chicken meal just because the hen is skinny! If so, why did the banks lobby for the HDB housing loans to be liberalised? I believe in the past, it was exclusively a HDB business.

A good step to minimise the incentive to rig the Sibor rate is to ensure that banks that set the rate are not allowed to trade in any instruments that depend on the level that rate is set. Ie: their prop desk traders are verboten to trade in any such instruments in the market. The conflict of interest is just too great.

The other is of course to do a thorough audit of the banks to prove conclusively that no such illicit activity had occured. If it is as Mrs Ong-Ang had said, the affected banks should have no objections. As it is, I think some of the banks on the list are already guilty for rigging the libor rate.

Interestingly enough, only ABS responded to this issue and not MAS, the regulator. I'm sure MAS had similar faith that investment companies kept their hands off their client's segregated funds. But as the MF Global scandal showed, that faith is misplaced. Are you STILL sleeping MAS? While you are sleeping, our reputation as a well regulated financial centre is slipping down the drain...

But whatever, I'm sure Mr Khaw would be okay with it.