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28 July 2022

On 18 July 2022, the Association of Banks in Singapore (“ABS”) and the Steering Committee for SOR & SIBOR Transition to SORA (“SC-STS”) announced the finalisation of the key settings of the MAS Recommended Rate (“MRR”), that will apply as a contractual fallback reference rate in wholesale SOR contracts after 31 December 2024. SC-STS also provided supplementary guidance (“Supplementary Guidance”) to help market participants price the conversion of wholesale SOR contracts to SORA for the current period until 31 December 2024. These were set out in SC-STS’ response to the Consultation on Adjustment Spreads for the Conversion of Legacy SOR Contracts to SORA published on 18 May 2022. 

The key settings of the MRR and its Supplementary Guidance for active transition of legacy wholesale SOR contracts are as follows: 

  • The MRR for the respective tenors (overnight, one-month, three-months and six-months) will be computed as the sum of Compounded SORA-in-arrears and an MRR Adjustment Spread for the respective tenor. 
  • The applicable MRR Adjustment Spread will be determined using the historical median of the spread between SOR and Compounded SORA-in-arrears for the respective tenor, using a five-year lookback period ending 18 July 2022. 
  • The Supplementary Guidance will apply to active transition of SOR corporate loans, bonds and derivatives contracts to SORA until 31 December 2024. The applicable adjustment spread for interest rate periods until 31 December 2024 should be computed from a linear interpolation between the Reference Spot Spread and the applicable MRR Adjustment Spread for interest rate periods after 31 December 2024. The Reference Spot Spread will be determined using the historical median of the spread between SOR and Compounded SORA-in-arrears for the respective tenor, using a six-month lookback period ending 18 July 2022. 
  • The Supplementary Guidance is to be applied directly to the transition of unhedged loans (i.e. without need for further negotiations on pricing), and can serve as a reference starting point for counterparty discussions on the transition of bilateral derivatives and hedged loans.

SC-STS’ guidance provides clarity on the pathway for the eventual transition of all legacy SOR contracts to SORA and will further facilitate the industry’s transition away from SOR ahead of its discontinuation after 30 June 2023.

SC-STS said that it will issue further guidance on technical and implementation issues, and introduce an online adjustment spread calculator to support the application of the Supplementary Guidance. Both are expected to be published by end-September 2022. 

Reference materials 

The following materials are available on the ABS website www.abs.org.sg: