The mechanics of moving from Sor to Sora

Interest rates in Singapore are determined by global developments given its exchange rate centred monetary policy framework. Against that, market-driven interest rate benchmarks, play an important role in the domestic financial system and the broader economy.

In Singapore, Sibor and Sor have served as the key interest rate benchmarks in Singapore dollar (SGD) financial markets for decades. They meet the needs of different user groups, with Sor used in pricing of bonds and loans to large institutions with hedging requirements, as Sor is also the reference benchmark in SGD derivatives, while Sibor is mainly referenced in banking products for smaller corporates and retail customers.

“In August last year, ABS and Singapore Foreign Exchange Market Committee(SFEMC) recommended a transition from Sor to Sora. This is necessary as Sor relies on USD Libor in its computation, and will not be sustainable when USD Libor ceases. In addition, Sora is a robust benchmark underpinned by actual transactions in a deep and liquid overnight unsecured SGD interbank funding market,” says Jacqueline Loh, deputy managing director of the Monetary Authority of Singapore (MAS), during a webinar on Sept 9.

MAS has started publishing, compounded Sora rates for one-month, three-month and six-month tenors, and a Sora Index on a daily basis.

MAS has also broadened its suite of money market instruments by issuing floating rate notes based on Sora. In June this year, MAS established a daily auction process for Sora Overnight Indexed Swaps and Sor-Sora Basis Swaps up to five years in tenor, to spur development in the Sora derivatives market.

Since Sor ceases at end-2021, and Sibor in 2024, MAS, together with the banks have to transition legacy contracts which mature after the end of 2021, from Sor to Sora. These include around $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.