Majority of banks ready to trade SORA derivatives, says committee

Banks including OCBC and DBS have already made their first SORA-related activities.

The majority of the member banks in the Steering Committee for SOR Transition to SORA (SC-STS) are ready to trade Singapore Overnight Rate Average (SORA) derivatives, which is expected to pave the way for greater market participation and increased liquidity, the committee revealed in a press release.

Significant progress has been made over the past few months to facilitate the shift to SORA, the committee said. These include the launch of central clearing of over-the-counter SORA instruments, such as SORA OIS and SOR-SORA basis swaps in March.

OCBC Bank and Standard Chartered Bank both cleared their first OIS derivatives transaction using SORA as the interest rate benchmark in November 2019. Deutsche Bank and DBS completed another trade in the same month.

OCBC and Standard Chartered also booked the market’s first SGD SORA and USD SOFR Cross-Currency Swaps in February.

In May, DBS issued the first floating rate notes referencing SORA, amounting to $20m. The industry plans for more SORA issuances in 2020.

Good progress has also been made in the transition journey for bonds and perpetual securities, as well as business and syndicated loans, reports SC-STS.

“The existing SGD-denominated debt securities referencing SOR have been identified. These debt securities include floating rate notes, perpetual securities and capital instruments with features to reset interest rates based on SOR,” the announcement stated.

“Notices have been sent to the issuers of these securities informing them the impending transition of SOR to SORA and where necessary, to prepare for the transition by reviewing their deal documents, and to seek professional advice on the appropriate actions to be taken,” the committee added.

Meanwhile, the committee is currently mapping out the transition plan for existing SOR business and syndicated loans. The market guidance on an industry approach that will help banks transition from SOR to SORA is expected to be published by end-June 2021.

Recommendations on fallback language for existing SOR business and syndicated loans are expected to be published by Q3 2020 as well.

To enable SORA loan adoption, the recommended conventions and provisions for business loans referencing SORA are being finalised and will be made available later in the year, the statement said.

Banks are working on ensuring operational and systems readiness for the adoption of SORA in business loans, the committee added.

Meanwhile, to facilitate legacy transitions, contractual fallbacks for SOR derivatives are scheduled to be published in the coming months, in line with the International Swaps and Derivatives Association (ISDA) amended definitions and related protocol, according to SC-STS.

The Association of Banks of Singapore (ABS) plans to publish Adjusted SOR in Q3 to foster greater understanding of the fallback reference rate. This is expected to come after Bloomberg publishes indicative Adjusted Secured Overnight Financing Rate (SOFR), which is the fallback rate for USD LIBOR, and would be used as an input to the Adjusted SOR computation.

Further, the committee and ABS are conducting a survey amongst corporate customers on the use of SGD benchmark rates in banking products, with the goal of that various options on product structures and conventions for SORA loans can be provided that will be tailored to meet end customers’ needs. This survey is expected to be completed in July 2020.