MAS to ensure banks' smooth transition to Sora by end-2021

The Monetary Authority of Singapore (MAS) will be stepping up supervisory engagement to ensure that banks in the Republic are well prepared to transition to a new interest rate benchmark by the end of next year.

Singapore is in the midst of its move from Swap Offer Rate (SOR) to the Singapore Overnight Rate Average (Sora). This comes on the back of the discontinuation of the London Interbank Offered Rate (Libor) at end-2021, which would affect SOR as it uses the US-dollar Libor in its computation.

Ms Jacqueline Loh, MAS’ deputy managing director for markets and development, said yesterday that banks which do not keep pace with industry transition timelines potentially expose themselves to additional market, liquidity, operational, technology and legal risks.

The banks can also expect to have more “intensive supervisory engagement” at the senior management level, she added.

She was speaking at the Association of Banks in Singapore’s virtual roundtable session on Singapore dollar (SGD) interest rate landscape changes, attended by over 1,500 participants from the financial industry, businesses and the media.

SOR is used in the pricing of bonds and loans to large institutions with hedging requirements, as it is also the reference benchmark in SGD derivatives.

Sora was selected as the new interest rate benchmark as it was found to be the “most robust and suitable alternative”, underpinned by a deep and liquid overnight funding market.

Ms Loh flagged that the transition of legacy contracts will be a key part of the work of the industry-led steering committee on SOR transition to Sora in the remaining months.

Close to $1.4 trillion notional value of outstanding SGD derivatives contracts referencing SOR, and around 12,000 SOR contracts in SGD cash markets amounting to $95 billion, will mature after end-2021 and will need to transition.

Focusing on a smooth transition is a key pillar, but the main challenge is to encourage market participants to shift from a SOR-based market that is still deep and liquid, to the nascent but developing Sora-based market, she said.

To do so, MAS will expand its inaugural $500 million Sora floating-rate notes issuance following the “strong market response”, through increasing the issuance sizes and lengthening the range of tenors. More details will be announced later this year.

Guidance on deadlines to cease the usage of SOR in new financial products will also be outlined by MAS and the steering committee next month.


The sooner we take steps to front-load this change management process, the more likely we can create a virtuous cycle, which facilitates a smooth transition to Sora.

MS JACQUELINE LOH, MAS’ deputy managing director for markets and development, referring to the transition to Singapore Overnight Rate Average.

Preparing early at the individual-firm level is another key pillar she listed for a smooth transition. This includes identifying risk exposures, putting in place appropriate contractual fallbacks, ensuring systems’ readiness, understanding the features of new Sora products and, ultimately, transacting in these products, Ms Loh said.

Several such loans are already in the market, such as the three local banks completing Sora commercial loans with early adopters like CapitaLand and Wilmar.

“Riding on these successful pilots, we hope to see more banks start originating new Sora loans across the broader industry,” she said.

Finally, communication between banks and customers is key for a smooth transition, she added, noting that MAS expects lenders to engage customers in a clear, timely and transparent manner.

Singapore is now at a “critical juncture” in its interest rate benchmark reform, Ms Loh noted.

“The sooner we take steps to front-load this change management process, the more likely we can create a virtuous cycle, which facilitates a smooth transition to Sora,” she said.

“Conversely, if we delay the shift until it is too late, this would have implications on future market efficiency and financial stability at the industry level, and higher risks at the individual-firm level.”


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