The Association of Banks in Singapore (ABS) and the steering committee for SOR & SIBOR transition to SORA have finalised the settings of the Monetary Authority of Singapore (MAS) recommended rate (or MRR).
The rate will serve as the contractual fallback reference rate in wholesale SOR contracts after Dec 31, 2024.
SOR stands for the Singapore Swap Offer Rate, while SIBOR stands for the Singapore Interbank Offered Rate. SORA stands for the Singapore Overnight Average.
The committee has also set out supplementary guidance to help market participants price the conversion of wholesale SOR contracts to SORA for the current period until Dec 31, 2024.
These were set out in the committee’s response to the consultation published on May 18.
The consultation in May had recommended for the adjustment spreads in the MRR to be determined by a five-year historical median of the spread between SOR and compounded SORA-in-arrears.
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There are four key settings of the MRR and its supplementary guidance for active transition of legacy wholesale SOR contracts.
First, the MRR for the respective tenors (overnight, one-, three- and six-month tenors) will be computed as the sum of compounded SORA-in-arrears and an MRR adjustment spread for the respective tenor.
Second, the applicable MRR adjustment spread will be determined using the historical median of the spread between SOR and compounded SORA-in-arrears for the respective tenor, using a five-year lookback period ending July 18.
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Third, the committee’s supplementary guidance will apply to active transition of SOR corporate loans, bonds and derivatives contracts to SORA until Dec 31, 2024.
The applicable adjustment spread for interest rate periods till Dec 31, 2024, should be computed from a linear interpolation between the Reference Spot Spread and the applicable MRR Adjustment Spread for interest rate periods after the same period.
The reference spot spread will be determined using the historical median of the spread between SOR and compounded SORA-in-arrears for the respective tenor, using a six-month lookback period ending July 18.
Finally, the committee’s supplementary guidance is to be applied directly to the transition of unhedged loans. This means that there will be no need for further negotiations on pricing. The guidance can serve as a reference starting point for counterparty discussions on the transition of bilateral derivatives and hedged loans.
The committee’s guidance is said to provide clarity on the pathway for the eventual transition of all legacy SOR contracts to SORA, and will further facilitate the industry’s transition away from SOR ahead of its discontinuation after June 30, 2023.
Wee Ee Cheong, deputy chairman and CEO of UOB, ABS Chairman and co-chair of the committee says, “We have proceeded to finalise the committee’s proposals on the MAS recommended rate and supplementary guidance for active transition, noting the strong support received from the consultation. This will provide banks and wholesale customers with a robust and transparent approach to transition their SOR contracts to SORA.”
Leong Sing Chiong, deputy managing director (markets and development) at MAS and co-chair of the committee adds, “Today’s confirmation of the key settings of the MAS recommended rate and supplementary guidance brings us closer to completing the industry wide transition away from SOR. I strongly urge all market participants to leverage the committee’s recommendations to actively transition their legacy SOR exposures to SORA, as we draw closer to SOR’s discontinuation in June next year.”
