Hong Kong’s exchange operator plans to develop a term structure based on the Secured Overnight Financing Rate (SOFR) for the market’s local risk-free rate. Hong Kong’s current chosen LIBOR replacement, known as Honia, is based on unsecured transaction data submitted by five brokers. The suggested solution involves using SOFR to derive a proxy OIS curve for pricing Hong Kong basis swaps. Bipin Patel, group Risk Officer at Hong Kong Exchanges and clearing, says the idea has support with dealers. “We’ve discussed this in the HKEX forum [and] we feel like everyone is now convinced by the approach,” Patel says. “It is not a bad idea, and there are limited options anyway.”

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