The issuing of loans and securities linked to the Swap Offer Rate (SOR) that mature after end-2021 will need to cease by next April, in a push by a financial industry-led committee to shift away from the use of SOR to the Singapore Overnight Rate Average (Sora) in financial products.
To support this, all domestic systemically important banks (D-SIBs) should be ready to offer new Sora-based products to customers by end-February. The rest of the banks have until end-April. And by end-September, all other banks are to have substantially reduced gross exposures to SOR derivatives.
These series of industry timelines, announced yesterday, aim to steadily reduce exposures to SOR before end-2021, in preparation for US dollar (USD) Libor and SOR discontinuation while ensuring that Sora-based products are available to meet financing needs.
Singapore is in the midst of its move from SOR to Sora as the new interest rate benchmark, on the back of the discontinuation of the London Interbank Offered Rate (Libor) at the end of next year, which would affect SOR as it uses the USD Libor in its computation.
SOR is used in pricing of bonds and loans to large institutions with hedging requirements. It is also the reference benchmark in Singapore dollar (SGD) derivatives.
Close to $1.4 trillion notional value of outstanding SGD derivatives contracts referencing SOR, and about 12,000 SOR contracts in SGD cash markets amounting to $95 billion will mature after the end of next year, and will need to transition.
Sora was selected as the new interest rate benchmark as it was found to be the "most robust and suitable alternative", underpinned by a deep and liquid overnight funding market.
After end-April 2021, Sora is expected to be the de facto floating rate benchmark for all institutional SGD financing activity.
The steering committee for SOR transition to Sora or SC-STS - consisting of industry, associations and the Monetary Authority of Singapore (MAS) - yesterday published a set of market guides to help users prepare for the shift and for adoption of Sora across a range of financial products including derivatives, floating rate notes, business and retail loans.
They include a report on how Sora can be used in loans to meet the various needs of financial firms, large corporates, small and medium-sized enterprises and retail customers.
A Sora market compendium gives market participants a comprehensive overview of Sora market conventions across derivatives, floating rate notes, business and retail loans.
A Sora guide targeted at corporate users and a pamphlet for retail customers will also be published with links to relevant other information for these user groups.
Mr Samuel Tsien, chairman of the Association of Banks in Singapore and SC-STS, said the committee has largely completed the key technical preparation and laid the foundation for widespread use of Sora in a full range of financial products.
"This will pave the way for an orderly and smooth transition from the legacy use of SOR to Sora as the new benchmark for SGD markets," said Mr Tsien, who is also the group chief executive officer of OCBC Bank.
He urged market participants to take immediate steps, including making operational and system changes, staff training and client outreach, to prepare for the shift from SOR to Sora.
MAS deputy managing director Jacqueline Loh, a member of the SC-STS, said that the central bank expects all market participants to reduce their exposures to SOR, and to actively promote the understanding of and migration to Sora financial products.
"This will ensure that our financial system is well-prepared for the transition to Sora, through the development of a deep and efficient Sora-centred SGD market," she said.
THE BUSINESS TIMES
