Transition of interest rate benchmarks

GLOBAL BENCHMARKS TRANSITION

Interbank offered rates (IBORs) are widely used interest rate benchmarks for various financial products, including but not limited to loans, bonds and derivatives. IBORs rely on rates submitted by panel banks. To improve the robustness and integrity of financial benchmarks, regulatory authorities around the world have announced the transition from IBORs to overnight risk-free rates (RFR) underpinned by actual transactions. LIBOR — the London Interbank Offered Rate — is expected to be discontinued after 31 December 2021.

The benchmarks transition is a complex process. Regulatory authorities and financial institutions involved in the transition are committed to ensuring a smooth transition for all end-users, given the impact it has on existing and new financial products.

These are the new benchmarks that have been identified:

	Current Benchmark	New Benchmark
United Kingdom	GBP LIBOR	SONIA - Sterling Overnight Index Average
United States	USD LIBOR	SOFR - Secured Overnight Financing Rate
Euro Area	EUR LIBOR	ESTER - Euro Short-Term Rate
Switzerland	CHF LIBOR	SARON - Swiss Average Rate Overnight
Japan	JPY LIBOR	TONA - Tokyo Overnight Average Rate
Singapore	SGD SOR	SORA - Singapore Overnight Rate Average

IMPACT ON SINGAPORE DOLLAR SWAP OFFER RATE (SOR)

SOR is a commonly used benchmark in Singapore. It is defined as the synthetic rate for deposits in SGD, which represents the effective cost of borrowing the SGD synthetically by borrowing USD for the same maturity, and swapping out the USD in return for the SGD. Given that SOR utilises the USD LIBOR in its computation, the cessation of USD LIBOR after 31 December 2021 will directly affect the sustainability of SOR.

The Association of Banks in Singapore (ABS) and Singapore Foreign Exchange Market Committee (SFEMC) have identified the Singapore Overnight Rate Average (SORA) as the most suitable interest rate benchmark to replace SOR. SORA has been published by the Monetary Authority of Singapore (MAS) since 2005, and is a robust benchmark that is underpinned by a deep and liquid overnight interbank funding market.

WHAT DOES IT MEAN FOR YOU

How will payments under my products be affected?

If payments under a product is calculated by reference to LIBOR or SOR and if such rate is permanently discontinued, the relevant contract needs to be reviewed to assess if the relevant consequences are specified in the terms of the contract. If not, parties will have to agree to apply a new benchmark or a “fallback” replacement rate in place of LIBOR or SOR upon its discontinuation so that the contract can continue to be effective.

Will I be disadvantaged because of the new benchmarks?

We are working to ensure that the transition is of minimal impact to you, financially or otherwise. Depending on the product being affected, the transition approaches may differ according to market developments and industry guidance. We will contact you to assist with the transition in due course.

Depending on how the fallback replacement rate compares to LIBOR or SOR, payments under that contract may be more or may be less than they would otherwise have been.

FREQUENTLY ASKED QUESTIONS

I hold investment products which reference LIBOR/SOR. What action is required?

There is no immediate action required. We will be notifying you in due course of the actions that you may be required to take as part of the transition.

Please also look out for relevant notices from the issuer.

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Would my loans be affected by this transition?

If you have loans referencing SOR, the loans will be affected by this transition.

There is no immediate action required from you unless you wish to reprice or restructure these loans before the industry wide exercise where we will contact you to transition to other loan packages which do not reference SOR.

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What is the market’s transition plan for existing and new swap and derivatives contracts referencing benchmarks such as LIBOR and SOR, which shall permanently cease in end 2021?

Once details on the fallback rates and calculation methodology are finalised, ISDA will publish one or more supplements to the 2006 ISDA Definitions (Revised 2006 ISDA Definitions).

New swap and derivatives contracts entered into on or after the effective date of the Revised 2006 ISDA Definitions shall be deemed to have applied the fallback rates by incorporating by reference the Revised 2006 ISDA Definitions into the swap and derivatives contracts.

ISDA has also published a related protocol (ISDA Protocol) that market participants can adhere to amend legacy swap and derivatives transactions entered into prior to the effective date of the Revised 2006 ISDA Definitions.

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How will my outstanding swap or derivatives contracts be affected by the transition?

If you have outstanding swap and/or derivatives contracts referencing LIBOR and/or SOR that mature beyond end 2021, we will reach out to you in due course to discuss the transition to replace or amend such contracts referencing

LIBOR and/or SOR to reference the fallback replacement rates set out in the Revised 2006 ISDA Definitions before end-2021.

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How will the change in benchmark affect my loan repayment?

The transition from LIBOR/SOR to another benchmark could lead to some changes to your loan repayment, depending on market conditions at that point in time.

We will reach out to you in due course to discuss options that are available to you as a borrower.

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See more frequently asked questions here

A primer on new benchmark rates

Meet the replacement rates and get an understanding of what is being done in the US, UK, Europe and Singapore summary.

Learn more

QUICK LINKS

Need more information? Visit these websites.

Benchmarks transition from LIBOR: The IOSCO’s Statement on Communication and Outreach to Inform Relevant Stakeholders Regarding Benchmarks Transition

USD LIBOR transition: Alternative Reference Rates Committee

Sterling LIBOR transition: Bank of England

Transition from SOR to SORA: Association of Banks in Singapore

Steering Committee for SOR Transition to SORA (SC-STS): Association of Banks in Singapore

Disclaimer

This communication is solely for information purposes only and should not be construed as an offer or solicitation for the subscription, purchase or sale of any products, securities or financial instruments or to participate in any particular trading strategy. Whilst the information contained herein has been compiled from sources believed to be reliable and we have taken all reasonable care to ensure that the information contained in this communication is not untrue or misleading at the time of publication, we cannot guarantee and we make no representation as to its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or view contained in this communication is subject to change without notice. We are under no obligation to update or keep current the information contained herein.

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