28 April 2021

On 31 March 2021, the Steering Committee for SOR & SIBOR Transition to SORA (“SC-STS”) published the Timelines to Cease Issuance of SOR and SIBOR-linked Financial Products (“Report”), which sets out new industry timelines to cease the issuance of SOR derivatives and SIBOR-linked financial products by end-September 2021. SC-STS had outlined plans to provide additional guidance on these cessation timelines in February 2021 to reinforce the shift to a SORA-centred SGD interest rate landscape.

The Report states that by end-September 2021:

  • All financial institutions and their customers should cease usage of SOR in new derivatives contracts, except for specified purposes relating to the risk management and transition of legacy SOR positions to SORA.

This complements existing industry timelines to reduce the stock of outstanding SOR products ahead of SOR’s discontinuation in mid-2023, including to cease usage of SOR in new cash market products by end-April 2021, and for all banks to substantially reduce their gross exposures to SOR derivatives by end-September 2021. 

  • All financial institutions and their customers should cease usage of SIBOR in new contracts.

This is consistent with the preparation for the discontinuation of the less widely used six-month SIBOR by March 2022, and the widely used one-month and three-month SIBOR benchmarks by end-2024. There is no immediate impact on existing SIBOR loans. Banks will reach out to their customers at the appropriate time and provide sufficient notice for customers to consider switching these loans to other alternative loan packages.

The Report notes that in preparation for this shift to SORA, most Domestic Systemically Important Banks (D-SIBs) have started to offer a full suite of SORA-based products, while other banks should be ready to offer new SORA-based products by end-April 2021.

While SOR remains available until mid-2023, liquidity in SOR derivatives markets has started to decline and this trend will likely accelerate with the new cessation timeline on the use of new SOR derivatives. SC-STS therefore strongly encourages market participants to take active steps to transition their SOR derivatives, loans and other contracts to SORA in 2021 when the liquidity conditions in the SOR-SORA basis swap markets is still expected to remain conducive. Market participants that are unable to actively transition contracts by end-2022 should incorporate appropriate fallback arrangements and expect increasing difficulties in managing such positions as liquidity in SOR markets declines further.

It was previously announced that Fallback Rate (SOR) would be published for about three years following the expected discontinuation of SOR after end-2021 (i.e. until end-2024). With SOR now set to be discontinued later in mid-2023, more existing legacy SOR transactions would be able to mature and the need for extended Fallback Rate (SOR) arrangements would be much lower. SC-STS will therefore retain the original end-2024 end-date for Fallback Rate (SOR).

Reference materials

The following materials are available on the website of the Association of Banks in Singapore www.abs.org.sg: