Understanding Singapore Swap Offer Rate and Its Impact

The Singapore Swap Offer Rate is a crucial indicator of the country's monetary policy. It's the rate at which banks offer to swap Singapore dollars for a foreign currency, such as the US dollar.

The SOR is calculated by averaging the rates at which six local banks offer to swap Singapore dollars for US dollars. This means that the SOR is a representation of the market's expectation of the future value of the Singapore dollar.

The SOR has a significant impact on the Singapore economy, particularly on businesses and individuals with foreign currency-denominated loans. For instance, if the SOR rises, the value of the Singapore dollar increases, making it more expensive for businesses and individuals to repay their foreign currency loans.

LIBOR and SOR will be discontinued, affecting various financial products. The UK Financial Conduct Authority announced that all LIBOR settings will cease to be provided permanently or will no longer be representative from specific dates.

The transition from LIBOR to RFRs is a complex process, and regulatory authorities and financial institutions are committed to ensuring a smooth transition for all end-users. The benchmarks transition has a significant impact on existing and new financial products.

The current benchmark for Singapore dollar is SGD SOR, which is a synthetic rate for deposits in SGD. However, the cessation of USD LIBOR will directly affect the sustainability of SOR. The Association of Banks in Singapore (ABS) and Singapore Foreign Exchange Market Committee (SFEMC) have identified SORA as the most suitable interest rate benchmark to replace SOR.

The new RFRs are as follows:

The transition from SOR to SORA is already underway, with good progress made by regulators and the banking sector in Singapore.

Singapore has two benchmarks for interest rates: SGD SIBOR and SGD SOR (Swap Offer Rate).

Unlike most major currencies, SGD SIBOR doesn't trade in interest rate swaps. It's only SGD SOR that's reported versus indices like "SGD-SOR-Reuters" and "SGD-SOR-VWAP".

These indices are essentially the same, just with different names. You can check this on SDRView, which shows that SGD Interest Rate Swaps are reported versus SGD-SOR.

SGD SOR is also the only index that trades in Cross Currency Swaps. Given that SGD SIBOR doesn't trade, the ISDA consultation is relevant for virtually all SGD derivatives.

Here's a summary of the indices that trade in SGD Interest Rate Swaps and Cross Currency Swaps:

It's worth noting that LCH SwapClear and CME only clear SGD-SOR-VWAP.

Singapore has two benchmarks, SGD SIBOR and SGD SOR (Swap Offer Rate), but only SGD SOR is traded in SGD Interest Rate Swaps and Cross Currency Swaps.

SGD SIBOR doesn't trade, making the current ISDA consultation relevant for virtually all SGD derivatives.

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, which will be discontinued due to its reliance on USD LIBOR.

The transition from SOR to SORA is expected to be completed by end-2024, with SOR being discontinued together with USD LIBOR benchmark after end-2021.

Here are the new risk-free rates for major currencies:

The SGD Sor calculation methodology is quite interesting. The benchmark administrator provides plenty of transparency about the calculation methodology.

The calculation is based on real transactions, specifically FX Forwards, which are equal to the interest rate differential between the two currencies. If you know the interest rate in one of the currencies (in this case USD), then you can imply the other interest rate.

The FX Forwards are based on transactions that meet certain criteria, including a notional value of at least $1m, with at least one side in Singapore and both sides considered "interbank" counterparties. These transactions must also be electronically traded via an Approved Broker between 7:30am to 4:30pm Singapore time.

The benchmark administrator, ABS, even provides a worked example, which includes 9 trades in their calculation of the Volume Weighted Average. However, it's worth noting that these trades are for a 6 month tenor, which is relatively long for FX trades.

Here are the criteria for the transactions included in the SGD Sor calculation:

The Singapore Dollar Overnight SOR is a benchmark used in Singapore, defined as the synthetic rate for deposits in SGD, representing 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.

It utilises the USD LIBOR in its computation, which will cease to be provided permanently or will no longer be representative from the following dates: immediately after 31 December 2021, with respect to all Sterling Euro, Swiss Franc and Japanese Yen LIBOR settings, and the 1-week and 2-month USD LIBOR settings, and immediately after 30 June 2023, with respect to the remaining USD LIBOR settings.

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, which has been published by the Monetary Authority of Singapore (MAS) since 2005.

SORA is a robust benchmark that is underpinned by a deep and liquid overnight interbank funding market.

Here is a comparison of the new risk-free rates:

Singapore's financial landscape is changing, and one of the key areas of focus is the replacement of existing benchmarks with new risk-free rates. The Singapore Overnight Rate Average (SORA) is set to become the new benchmark for the Singapore dollar, replacing the Singapore Dollar Interbank Offered Rate (SIBOR) and the Singapore Dollar Swap Offer Rate (SOR).

The Association of Banks in Singapore has established a timeline for the discontinuation of SIBOR by end-2024, with SORA identified as the most suitable alternative reference rate. This change will impact virtually all SGD derivatives, given the lack of SIBOR activity in interest rate swaps.

The new risk-free rates have been identified, and they include SORA for the Singapore dollar. Here's a brief overview of the new risk-free rates:

These new risk-free rates will provide a more stable and reliable benchmark for financial transactions, and it's essential to stay informed about these changes to ensure a smooth transition.

The impact of the benchmark transition on investment products and credit facilities is significant.

Investment products that use LIBOR or SOR as a reference rate will be affected, including derivatives, floating rate notes, fixed income bonds, and other debt securities. Credit facilities that rely on LIBOR or SOR will also be impacted.

Investors should review their investment products and credit facilities to assess the consequences of the transition. This may involve reviewing the terms of the relevant contract to determine if the necessary actions are stated.

If you have investment products or credit facilities referencing LIBOR or SOR, held in custody with a third-party custodian, reach out to them about their benchmark transition plan.

The transition to SORA as the new benchmark in Singapore is expected to be completed by the end of 2024. The Association of Banks in Singapore, the Singapore Foreign Exchange Market Committee, and the Steering Committee for SOR & SIBOR Transition to SORA have established this timeline.

The Singapore Swap Offer Rate, or SOR, has been a widely used benchmark in the country's financial markets. It's used as a reference rate for various financial instruments, including interest rate swaps and loans.

The SOR is a floating rate, reset quarterly, at the initial credit spread plus 100 basis points above the three-month SGD Swap Offer Rate. This rate is published by the Singapore market.

Some examples of how SOR is used in financial instruments include interest rate swaps, loans, and bridging loan agreements. Here are a few examples:

As you can see, SOR plays a significant role in the Singapore financial market, and its use is widespread.

The SGD Swap Offer Rate is used in various financial contexts, and it's essential to understand how it's applied in different situations.

In some cases, the interest rate on a loan or agreement is tied to the SGD Swap Offer Rate, such as in the Bridging Loan Agreement, where interest is payable at a rate per annum equal to a margin of 0.4% over SGD Swap Offer Rate.

The loan's interest rate can also be based on the SGD Swap Offer Rate, as seen in the loan that has an interest rate at SGD Swap Offer Rate plus 1.000% per annum.

Here are some examples of how the SGD Swap Offer Rate is used in sentences:

SOR, or Singapore Overnight Rate, is an alternative to SIBOR, measuring the interbank money market rates. It's used to reflect the cost of borrowing SGD synthetically.

As of December 2018, SOR is measured and published for periods of overnight, 1 month, 3 month, and 6 month.

The Association of Banks in Singapore sets SOR, just like SIBOR, and it's publicly available for everyone to see.