The Steering Committee for SOR & Sibor Transition to Sora (SC-STS) has set out key steps to further advance the industry transition to a Singapore overnight rate average (Sora)-centred SGD interest rate market by end-2021.

It plans take into account the recent consultation by ICE Benchmark Administration (IBA), which proposed extending the end-date for the widely referenced USD London interbank overnight rate (Libor) settings to June 30 2023.

The SC-STS noted that while the proposed extension for Libor discontinuation will allow more time for the transition of legacy contracts, UK and US authorities have continued to stress that the use of Libor in new contracts is to cease as soon as possible. The SC-STS has therefore published an updated transition roadmap that sets out the priorities for 2021/2022.

Three key Sora initiatives will be expanded to facilitate price discovery across longer tenors and support further growth of Sora markets:

• Central clearing of Sora derivatives for transactions will be extended up to the 21-year tenor, from the 5-year tenor currently

• The Monetary Authority of Singapore (MAS) Sora derivatives auction parameters will be expanded to cover more key industry participants, and transaction tenors will be extended to 20-years, up from 5-years currently

• The MAS Sora floating rate notes programme will be expanded to include 1-year and 2-year tenors, from the 6-month tenor currently.

The SC-STS reaffirmed its October 2020 industry guidance for lenders and borrowers to cease the use of new swap offered rate (SOR)-linked cash market products by end-April 2021. With new products increasingly referencing Sora, this will support further deepening of liquidity in Sora derivatives, as market participants manage and hedge interest rate risks.

The committee will also set out guidance on timelines to cease the use of SOR in new derivatives contracts, as well as to cease the use of Sibor in new loan contracts. It will finalise its guidance in the coming months, incorporating feedback from market participants. Together, these initiatives will reinforce the shift towards a Sora-centred landscape.

The likely discontinuation of SOR in mid-2023, following from IBA’s proposals on USD Libor, provides a longer time buffer for existing SOR-linked contracts to mature, and to manage the transition of legacy contracts that mature after mid-2023. Nevertheless, the SC-STS encourages market participants to actively transition such contracts to Sora early, taking advantage of the window where liquidity in both SOR and Sora derivatives markets still exist. To support this effort, the SC-STS will also publish by April 2021, a set of market guidance to support active transition of legacy SOR contracts to Sora.

“The likely extension of SOR’s end date to mid-2023 due to the extension of USD Libor cessation does not derail the industry’s efforts to develop a Sora-centred interest rate market,” says Samuel Tsien, chairman of the Association of Banks in Singapore and the SC-STS, and Group CEO of OCBC Bank. “In fact, we should take advantage of this longer runway to build a deep and robust Sora market. Key commercial banks will be ready this month to offer a full range of Sora-based cash products, to be followed by other banks by April.”

“Financial institutions, large corporations, smaller enterprises and retail consumers need to understand and come on board the Sora regime,” Tsien adds. “There will be no more new SOR-based cash products soon, and by the end of the year, banks will cease to offer new SOR derivatives or new Sibor products. I strongly urge all market participants to prepare your systems, staff and customers to use Sora, and not to adopt a wait-and-see attitude. The earlier you understand Sora and prepare for it, the better you are able to seize market opportunities.”