Singapore unveils transition roadmap for new interest rate benchmark

SORA will replace the current key benchmark by end-2021.

The government has introduced its new interest rate benchmark for the SGD cash and derivatives market, dubbed as the Singapore Overnight Rate Average (SORA), an announcement revealed.

Managed by the Steering Committee for SOR Transition to SORA (SC-STS), SORA will replace the current key benchmark SOR after London Interbank Offered Rate (LIBOR) retires by end-2021.

The move was set out together with its response to feedback received from its consultation report released by the Association of Banks and Singapore Foreign Exchange Markets Committee (ABS-SFEMC) on 30 August 2019.

“To this end, its work in the next few months will be focused on readying market conventions and infrastructure, building liquidity in SORA markets, engaging early adopters on pilot product
structures for SORA usage in the cash markets, and helping customers’ transition legacy contracts,” said Samuel Tsien, ABS and SC-STS Chairman.

The Monetary Authority of Singapore (MAS) will explore the publication of SORA averages for various tenors and/or a SORA index by H2 2020, as stated in the consultation paper.

SC-STS also stated that they will publish guidance on the use of compounded SORA rates in various cash market products in 3Q 2020, as well as a customer segmentation study to identify the types of products and market segments that could benefit from the use of compounded SORA rates.

They also plan to provide industry guidance on the appropriate approach for cash market fallbacks to market participants by mid-2020, which include bonds and business loans.

Overall, SC-STS noted that there was broad support for SORA to replace SOR. Respondents acknowledged that the move from SOR to SORA was aligned with the global transition from London Interbank Offered Rate (LIBOR) to overnight risk-free rates (RFR).