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MAS takes initiatives to support adoption of SORA

Chris Hamblin, Editor, London, 14 August 2020

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The Monetary Authority of Singapore is taking several steps to induce private banks and other firms to start using the Singapore Overnight Rate Average, the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank Singapore dollar cash market in Singapore between 8.00am and 6.15pm.

The industry, in the shape of the Association of Banks in Singapore or ABS, the Singapore Foreign Exchange Market Committee or SFEMC and the Steering Committee for SOR Transition to SORA or SC-STS, is looking forward to ceasing to use the Singapore Interbank Offered Rate or SIBOR in three or four years, shifting mainly (but not exclusively) to the use of SORA.

For any given business day, SORA (which the MAS administers, it being the central bank as well as the regulator and promotional agency) will be published by 9.00am on the next business day. The fresh initiatives aim to promote greater activity in SORA markets, safeguard the benchmark’s integrity and make the market feel more confident about using it.

First, the MAS will issue SORA-based floating rate notes every month, starting in a week's time on Friday 21st. This will broaden the suite of money-market instruments that the regulator uses to manage banking system liquidity. It will also facilitate the adoption of SORA as a floating-rate benchmark, provide a pricing reference for SORA cash products (these include floating rate notes, syndicated loans and commercial and retail loans) and encourage hedging activities through the SORA derivatives market.

Second, the regulator aims to make more data available. It has published the main features and calculation methods for SORA already in a document entitled SORA - Key Features and Calculation Methodology. Soon it will also publish daily statistics involving SORA that include aggregate volume and the highest/lowest transacted rates, compounded SORA rates for 1-month, 3-month and 6-month 'tenors' and a SORA Index (a daily data series representing the returns from earning compounded interest each day at the daily SORA rate) that will facilitate the calculation of Compounded SORA over specified periods. The Compounded SORA rates and SORA Index will provide market participants with a way of calculating rates for given 'tenors' to which they can easily refer in new SORA products.

Third, the MAS has prescribed SORA as a financial benchmark in accordance with the Securities and Futures Act (SFA). This ought to ensure that it can take regulatory/enforcement action, including criminal and civil action, against such market misconduct as the provision of a false or misleading appearance to the price, value, performance or rate of SORA, or the dissemination of any information that is false or misleading to the benchmark administrator.

Finally, the regulator has issued a Statement of Compliance with the IOSCO (International Organisation of Securities Commissions) Principles for Financial Benchmarks for SORA. It has recently changed the methodology behind SORA (partly by broadening the scope of eligible transactions) to make it more representative. Previously, SORA was based only on brokered unsecured overnight interbank Singapore dollar cash transactions provided by brokers. It now captures both brokered and bilateral interbank transactions whose details some banks report to the MAS.

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