To reinforce the shift to a Singapore Overnight Rate Average (“SORA“)-centered SGD interest rate landscape and provide additional guidance on cessation timelines, the Steering Committee for SOR & SIBOR Transition to SORA (“SC-STS“) published a report on 31 March 2021 (“Report“) announcing the following new timelines for financial institutions (“FIs“):
1. FIs to cease usage of Swap Offer Rate (“SOR“) in new derivatives contracts by end-September 2021 and recommend FIs to cease usage of Singapore Interbank Offered Rate in financial products by end-September 2021;
2. SC-STS to retain the original end-2024 end-date for Fallback Rate (SOR) despite SOR now set to be discontinued later in mid-2023 and that a Fallback Rate (SOR) publication period of three years is not necessary. The Fallback Rate (SOR) was designed as an interim fallback solution for residual contracts which are unable to transition to SORA in time; and
3. FIs to aim to substantially reduce their SOR exposures (both cash and derivative) to corporates to 20% by end 2022. All contracts that continue to reference SOR as at end-2022 should minimally incorporate appropriate contractual fallbacks.
These new timelines are in addition to the earlier timelines announced by SC-STS in October 2020 for shifting new cash market use away from SOR into SORA.
In this Update, we provide a summary of the above three key implications following recent developments globally and locally concerning SORA transition for FIs set out in the Report.
For more information, click here to read the full Legal Update.
