The regulator said that the financial industry and its stakeholders have a critical role to play to achieve a successful transition from the Swap Offer Rate (SOR) to Singapore Overnight Rate Average (SORA).
«MAS fully supports the industry’s shift towards a new SORA-centered interest rate landscape,» Jacqueline Loh, MAS deputy managing director (Markets & Development), said on Tuesday, highlighting the measures MAS has taken to lay a foundation for SORA and encourage its adoption.
At a roundtable on SGD interest rate landscape changes, organized by the Association of Banks in Singapore (ABS), Loh encouraged banks to launch SORA-based products to broaden its adoption by both the retail and commercial segments. She also called on industry players to focus on achieving a «smooth and well-coordinated» transition and for banks to engage customers in a clear, timely and transparent manner amid the transition.
Going forward, MAS will extend the auction tenors, and make available this process to the wider inter-dealer market, Loh said, adding that the MAS Steering Committee is planning to recommend an appropriate timeline to stop the usage of SOR in new loans and issuances before December 2021.
Risk-Free Approach
SORA is a backward-looking overnight rate used in the inter-bank market on cash placements for one day only that carries almost no credit risk premium and no term premium. In contrast, SIBOR and SOR are forward-looking term rates charged between banks for 1-month, 3-month, or 6-month placements and borrowings.
The SORA-centered approach is aligned with the development that risk-free rates are being used across the global markets as new benchmark rates for financial markets.
«All other major financial markets globally are moving toward a more transparent risk-free rate centered approach. Singapore, as a leading financial center, needs to do the same,» ABS chairman and OCBC CEO Samuel Tsien, who also chairs the steering committee for SOR transition to SORA, said at the session.
