CME will update the PA/Discounting protocol for CME cleared SGD IRS to SORA to take effect at close of business on February 24, 2023.

The Singapore Dollar (SGD) Swap Offer Rate (SOR) is scheduled to be discontinued after June 30, 2023. To support market participants wishing to reduce their exposure to SOR as they seek to transition to the successor Singapore Overnight Rate Average (SORA), subject to regulatory review, Chicago Mercantile Exchange Inc. (CME) will facilitate a transition to SORA price alignment and discounting for certain CME cleared IRS contracts denominated in SGD.

This initiative follows CME’s successful previous transitions of certain other CME cleared OTC IRS products to successor risk-free rate (RFR) price alignment and discounting (PA/Discounting) in 2020 and 2021, for example, those IRS denominated in Euros and U.S. Dollars, in each case ahead of the scheduled wider industry transition of outstanding IRS to reference the relevant RFR.

SORA is the average rate of overnight SGD borrowing transactions by banks in Singapore, calculated by reference to the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank SGD cash market in Singapore between 8am and 6.15pm, Singapore time. SORA is administered and published by the Monetary Authority of Singapore (MAS) and is accessible at no charge on the MAS website.

Publication of SORA by MAS began on July 1, 2005. SORA is computed by MAS based on actual transactions and meets the standards of international best practice set out in the IOSCO Principles for Financial Benchmarks.

As part of regulatory and industry initiatives to transition away from certain key interbank offered rates (IBORs) and interest rate benchmarks, on August 30, 2019 the Association of Banks in Singapore and the Singapore Foreign Exchange Market Committee (“ABS-SFEMC”) recommended SORA as the most suitable and robust benchmark to replace SOR for interest rate derivatives denominated in SGD. MAS established the Steering Committee for SOR & SIBOR Transition to SORA, comprising senior representatives from key banks, relevant industry associations and MAS, to provide strategic direction and oversee the industry transition from SOR and the Singapore Interbank Offered Rate (“SIBOR”) to SORA (“SC-STS”).

As part of the “single day” approach to the Transition and to mitigate the economic effects of the change in PA/Discounting protocol, “legacy” contracts in affected products will be subject to a mandatory cash adjustment process on the date of the Transition. As part of that process, CME will implement an offsetting cash adjustment mechanism under which a cash amount equal and opposite to the change in net present value of each cleared trade affected by the change to SORA discounting will be applied to the relevant position holder account to ensure that net cash flows for position holders impacted by the change to SORA discounting are zero on the date of the Transition.

As with the USD IRS PA/Discounting Transition and the EUR IRS PA/Discounting Transition, the cash adjustment will be settled as part of the usual settlement variation (variation margin) cycle, calculated on the following Clearing Day after the Transition Date (in this case, Monday, February 27, 2023), and will be settled on the morning of Wednesday, March 1, 2023.

The Transition shall apply to all open positions in cleared swap contracts in SGD IRS outstanding on the Transition Date. Following the Transition, all CME cleared trades in affected products will be subject to SORA discounting, including existing cleared “legacy” swap contracts outstanding on the Transition Date and “new” contracts submitted for clearing after the Transition Date.

Trades in affected products submitted for clearing after the Transition Date shall not be subject to the cash adjustment mechanism.