Singapore: SOR Fallback Rate to Only be Available Temporarily

Fallback Rate (SOR), the primary fallback reference rate for SOR derivatives, will be permanently discontinued about three years following the fallback trigger.

Singapore’s SC-STS (Steering Committee for SOR Transition to SORA) has issued a statement reiterating its support for the use of Fallback Rate (SOR) as the primary fallback reference rate for SOR derivatives.

Fallback Rate (SOR) is an FX-implied rate like SOR, but uses the fallback for USD LIBOR (i.e. compounded SOFR plus spread adjustment) instead of USD LIBOR as input. Fallback Rate (SOR) will be administered by ABS Benchmarks Administration Co.

Under the SOR-to-SORA transition roadmap set out by the SC-STS, market participants should transition from SOR to SORA well ahead of end-2021, to ensure that parties to outstanding SOR transactions have good control over the timing and execution of their transition plans.

In scenarios where market participants are unable to complete the transition for all their contracts despite best efforts, they will have to have robust contractual fallbacks in place to address the risks of contractual frustration and settlement issues following the discontinuation of SOR, the SC-STS says.

As such, market participants should incorporate Fallback Rate (SOR) as the primary fallback reference rate for SOR derivatives by adhering to ISDA’s IBOR Fallback Protocol, which is expected to be launched soon.

SORA-based reference rates rank lower in the hierarchy of fallbacks and apply if Fallback Rate (SOR) is unavailable.

The SC-STS emphasises that Fallback Rate (SOR) is intended solely as a fallback reference rate, and is not intended for usage in new derivative contracts as it will likely become illiquid, challenging to value, and difficult to transition from.

To limit reliance on Fallback Rate (SOR), the SC-STS says the rate will only be published for about three years following the fallback trigger, following which Fallback Rate (SOR) will be permanently discontinued.

For new SGD derivatives contracts, market participants should reference SORA.

Further information on fallbacks for contracts that reference SOR, and the SC-STS’s transition plans can be found in a new section of the SC-STS website launched today (1 September).

To Top