On 2 February 2021, the Singapore Steering Committee for SOR & SIBOR Transition to SORA (SC-STS) set out key steps to further advance the industry transition to a SORA-centered SGD interest rate market by end-2021. It also published an updated SC-STS Transition Roadmap 2021/22 with priorities for 2021/2022.
The SC-STS noted that whilst the recent ICE Benchmark Administration (IBA)consultation (which closed on 25 January 2021) proposed extension for LIBOR discontinuation to 30 June 2023 will provide more time for the transition of legacy contracts, authorities in the UK and US have reiterated that the use of LIBOR in new contracts is to cease as soon as possible. Accordingly these key measures and updated transition roadmap by the SC-STS, take into account the IBA consultation and proposed timeline:
1) Broadening and deepening liquidity in SORA markets
Key initiatives will be expanded to facilitate price discovery across longer tenors and support further growth of SORA markets. They include extending central clearing of SORA derivatives for transactions of up to the 21-year tenor (up from the 5-year tenor currently); expanding the MAS SORA derivatives auction parameters to cover more key industry participants and extend transaction tenors (up from the current 5-years to 20-years); and expanding the MAS SORA Floating Rate Notes (FRN) programme to include 1-year and 2-year tenors, from the 6-month tenor currently.
2) Early cessation of new SOR and SIBOR contracts
The SC-STS reaffirmed its industry guidance (issued in October 2020) for lenders and borrowers to cease the use of new SOR-linked cash market products by end-April 2021.
In the coming months, the SC-STS will also set out guidance on timelines to cease the use of SOR in new derivatives contracts and to cease the use of SIBOR in new loan contracts.
3) Supporting active transition of SOR-linked legacy contracts
Whilst the likely discontinuation of SOR in mid-2023 (following from IBA’s proposals on USD LIBOR) provides a longer runway for existing SOR-linked contracts to mature and to manage the transition of legacy contracts that mature after mid-2023, the SC-STS encourages market participants to actively transition such contracts to SORA early and to take advantage of the window where liquidity in both SOR and SORA derivatives markets still exist. To support this effort, the SC-STS expects to publish a set of market guidance to support active transition of legacy SOR contracts to SORA by April 2021.