FINANCIAL SERVICES | Staff Reporter, Singapore

SC-SCTS outlines SOR's role as fallback rate

Transition from SOR to SORA is expected before end-2021.

The Steering Committee for SOR Transition to SORA (SC-SCTS) has outlined the role played by Fallback Rate (SOR) in the on-going transition from SOR to SORA and reiterated its support for the use of SOR as the primary fallback reference rate for SOR derivatives.

Market participants are expected to transition from SOR to SORA well ahead of end-2021, according to the transition roadmap set out by SC-SCTS.

There could, however, be scenarios where market participants are unable to complete the transition for all their contracts despite best efforts, in which case SOR will serve as the fallback rate, the committee added.

The International Swaps and Derivatives Association (ISDA) is expected to launch its IBOR Fallback Protocol soon.

SC-SCTS also emphasised that Fallback Rate (SOR) is intended solely as a fallback reference rate and is not intended for usage in new derivative contracts. As the SGD derivatives market has adopted SORA as its key reference rate, contracts referencing Fallback Rate (SOR) will likely become illiquid, challenging to value, and difficult to transition from.

To limit the reliance on Fallback Rate (SOR) and pre-empt any possible bifurcation of the market between SORA and Fallback Rate (SOR), the Committee announced that Fallback Rate (SOR) will only be published for about three years following the fallback trigger, after which time Fallback Rate (SOR) is expected to be permanently discontinued.

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