Singapore Publishes Timelines, Guidance to Support Transition to SORA

Under the timelines, all lenders and borrowers will stop issuing SOR-linked loans and securities that mature after 2021 by end-April 2021.

The Steering Committee for SOR Transition to SORA (SC-STS) has announced industry timelines to support a coordinated shift away from the use of the SOR in financial products, and to concurrently accelerate usage of SORA.

Under the new timelines, all lenders and borrowers will cease issuance of SOR-linked loans and securities that mature after end-2021 by end-April 2021.

To support this, all seven Singapore D-SIBs should be ready to offer a full-suite of SORA-based products to their customers by end-February 2021. Non D-SIBs should be ready by end-April 2021.

For loans and floating-rate notes that mature after end-2021 but have not yet moved to SORA, fallbacks should be hardwired into most contracts by end-June 2021.

For banks that have expressed a need for forward-looking term rates, the SC-STS suggests the use of compounded SORA in advance (rather than in arrears), specifically for trade financing, supply chain financing and retail loans.

For financing provided to SMEs and mid-sized corporates, compounded SORA in advance is only suggested in cases where repayment certainty is required. Otherwise, all other lending products for businesses – including large corporates and financial institutions – should use fixed rates or compounded SORA in arrears.

All banks will have incorporated hardwired fallbacks in SOR derivatives when ISDA’s protocol becomes effective on 25 January 2021, so that gross exposures to SOR derivatives, including centrally cleared interbank transactions, are substantially reduced by end-September 2021 (i.e. to 20 percent of exposures recorded at May 2020).

The timelines seek to steadily reduce exposures to SOR well before end-2021, in preparation for the discontinuation of USD LIBOR and SOR, while ensuring that SORA-based products are available to meet the financing needs of customers, the SC-STS said.

“After end-April 2021, SORA is expected to be the de facto floating rate benchmark for all institutional SGD financing activity. The timelines mirror guidance by the Financial Stability Board [FSB] and national working groups in other key jurisdictions globally [US, UK, Japan] for the transition away from LIBOR.”

To support the industry-wide transition to SORA, the SC-STS has also published a set of market guides to help users prepare for the shift away from SOR, and for adoption of SORA across a range of financial products, including derivatives, floating-rate notes, business and retail loans.

  • a report on customer segments and preferences, setting out how SORA can be used in loans, to meet the various needs of financial firms, large corporates, SMEs, and retail customers
  • a SORA market compendium, providing market participants with a comprehensive overview of SORA market conventions across derivatives, floating-rate notes, business and retail loans, and outlining considerations for contractual and technical specifications of SORA products and contractual fallbacks for relevant SOR contracts
  • an end-user checklist providing non-financial corporates, investment firms, insurers and other buy-side participants with a list of key steps needed to effectively implement the transition from SOR to SORA, and from LIBOR to alternative reference rates (produced in collaboration with ACTS, IMAS and LIA)

A SORA guide targeted at corporate users and a pamphlet for retail customers will also be published with links to other relevant information for these user groups.

“With the release of this market guidance today, the SC-STS has largely completed the key technical preparation work and laid the foundation for widespread adoption of SORA in a full range of financial products,” said Samuel Tsien, Chairman of the ABS (Association of Banks in Singapore) and the SC-STS. “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.”

Tsien strongly urged market participants to take immediate steps to prepare to shift from reliance on SOR to SORA, including operational and system changes, staff training and client outreach. “This will ensure continued access to key funding markets beyond end-April 2021 when usage of SOR in new cash market contracts will effectively cease.”

MAS (Monetary Authority of Singapore) expects all market participants to take clear and proactive steps to reduce their exposures to SOR, and to actively promote the understanding of and migration to SORA financial products, according to Managing Director Jacqueline Loh.

“This will ensure that our financial system is well-prepared for the transition to SORA, through the development of a deep and efficient SORA-centered SGD market.”

As at December 2019, Singapore banks had cash product exposures to SOR worth SGD 170 billion, about half of which was from business loans, and derivatives exposure to SOR worth about SGD 2.1 trillion.

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