Calculation Methodology For Fallback Rate (sor)


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CALCULATION METHODOLOGY FOR FALLBACK RATE (SOR)
ABS Benchmarks Administration Co. Pte Ltd [email protected] Last updated: 07 August 2020

Description
Calculation Methodology

Calculation Methodology for Fallback Rate (SOR)
The synthetic rate for deposits in Singapore Dollar (SGD), which represents the effective cost of borrowing the SGD synthetically by borrowing U.S. Dollar (USD) for the same maturity, and swapping out the USD in return for the SGD.
Overnight Fallback Rate (SOR) is based on actual transactions in the USD/SGD FX swap market and the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York.
1-month, 3-month and 6-month Fallback Rates (SOR) are based on actual transactions in the USD/SGD FX swap market and a USD interest rate calculated pursuant to contractual fallbacks for USD LIBOR in the 2006 ISDA Definitions updated July 2020 (i.e. term adjusted SOFR plus the Spread Adjustment, and known as Fallback Rate (SOFR)).
Fallback Rates (SOR) are published in arrears, following after the publishing of the relevant USD interest rate inputs by the Federal Reserve Bank of New York and by Bloomberg. Fallback Rates (SOR) will be published for each Original SOR Rate Record Day i.e.
• for every Singapore, London and New York Business Day on which an Overnight SOR would have been published with respect to an Overnight Fallback Rate (SOR); and
• for every Singapore and London Business Day on which a 1-month, 3-month and 6-month SOR would have been published with respect to 1-month, 3month and 6-month Fallback Rates (SOR).
Each Fallback Rate (SOR) published will be tagged to a unique Original SOR Rate Record Day.
The Administrator shall calculate and determine the Fallback Rate (SOR), for each maturity matching each Tenor specified below (each a “calculation period”), on each Business Day as follows:
FALLBACK RATE (SOR) =

{[(Spot Rate + Forward Points) X (1+ USD Rate X #days)] -1} X 365 X 100

Spot Rate

360

# days

Where:

USD Rate means



For the overnight tenor, the latest available SOFR as published by Federal

Reserve Bank of New York at around 8:00am, New York time, one Singapore

Business Day following the Original SOR Rate Record Day; and



For the 1-month, 3-month and 6-month tenors, the “all in” fallback rate i.e.

Fallback Rate (SOFR), which is the compounding of SOFR over the relevant

Calculation Methodology for Fallback Rate (SOR)

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period and an accompanying Spread Adjustment, as published on Bloomberg Screen with the Original IBOR Rate Record Day1 matching the Original SOR Rate Record Day. If such rate is unavailable, the “all in” fallback rate for the latest Original IBOR Rate Record Day shall be used.
#days means the actual number of days in the calculation period.
Spot Rate means, in relation to all Qualifying Transactions, the volume weighted average rate calculated as follows:
∑(SGD Principali *Spot Ratei) / SGD Aggregate Principal
SGD Principali means, in relation to a Qualifying Transaction, the notional amount of that Qualifying Transaction.
SGD Aggregate Principal means the aggregate notional amounts of all Qualifying Transactions.
Spot Ratei means, in relation to a Qualifying Transaction, the spot rate (or currency exchange rate) for the near leg of that Qualifying Transaction.
Forward Points means, in relation to all Qualifying Transactions, the volume weighted average rate calculated as follows:
∑(SGD Principali * Forward Pointi) / SGD Aggregate Principal
SGD Principali means, in relation to a Qualifying Transaction, the notional amount of that Qualifying Transaction.
SGD Aggregate Principal means the aggregate notional amounts of all Qualifying Transactions.
Forward Pointi means, in relation to a Qualifying Transaction, the difference between the spot rate (or currency exchange rate) for the near leg and the forward rate (or currency exchange rate) for the far leg of that Qualifying Transaction.
Please refer to Annex B below for an illustration of the calculation of 6-month “Spot Rate”, “Forward Points” and “Fallback Rate (SOR)”.

1 “Original IBOR Rate Record Day” refers to every London Business Day on which a 1-month, 3-month or 6-month USD LIBOR would have been published.

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Qualifying Transactions

Any Type of Trade on the Original SOR Rate Record Day which satisfies all of the following conditions:
(a) having a notional amount equal to or exceeding the Minimum Notional; (b) with at least one counterparty in Singapore; (c) electronically routed and captured through a Reporting Broker2; (d) traded during the Qualifying Window; (e) with maturities matching the Tenors specified below; and (f) traded between interbank counterparties.

Type of Trades Qualifying Window

USD/SGD FX Swaps (with maturities matching the Tenors specified below)
USD/SGD FX Swaps that are booked daily from 7:30:00am to 4:29:59pm, Singapore time on the Original SOR Rate Record Day.

Minimum Notional Tenors Day Count

USD 1,000,000
Overnight, 1 month, 3 months and 6 months
SGD – Actual/365 USD – Actual/360

No. of Decimal Points

Fallback Rate (SOR): 5 decimal places, round to nearest SGD Spot Rate: 4 decimal places, round to nearest Forward Points: 6 decimal places, round to nearest

Day/Time of Benchmark Publication
Please refer to Annex C for more details on Fallback Rate (SOR) publication schedule.

Fallback Rates (SOR) will be published in arrears for every Original SOR Rate Record Day) i.e.
• for every Singapore, London and New York Business Day on which an Overnight SOR would have been published with respect to an Overnight Fallback Rate (SOR); and
• for every Singapore and London Business Day on which a 1-month, 3-month and 6-month SOR would have been published with respect to 1-month, 3month and 6-month Fallback Rates (SOR).

Fallback Rate (SOR) will be published on Singapore Business Days3.

In addition to the Fallback Rate (SOR), the Forward Points and Spot Rate, for each tenor will also be published.

Publication Time Spot Rate:

4:45pm, Singapore time, on the day of the USD/SGD FX swap transactions (i.e. Original SOR Rate Record Day) as published

2 A “Reporting Broker” refers to an inter-dealer broker that has been selected by ABS Co. to provide information on
Qualifying Transactions and listed on ABS Co.’s directory: https://abs.org.sg/docs/library/panel_abs_sgd_sibor_sor_01072019.pdf.
3 While multiple Fallback Rates (SOR) for the same tenor may be published on the same day, each Fallback Rate (SOR) will be tagged to a unique Original SOR Rate Record Day. Likewise, there could also be good Singapore Business Days where no Fallback Rate (SOR) will be published.

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Forward Points: Fallback Rate (SOR):

on Reuters screen under the heading “SGD Reference” 4:45pm, Singapore time, on the day of the USD/SGD FX swap transactions (i.e. Original SOR Rate Record Day) as published on Reuters screen under the heading “SGD Fwd Pts” Prior to or at 9:15am, New York Time (9:15pm or 10:15pm, Singapore time) Overnight, 1-month, 3-month and 6-month Fallback Rates (SOR) will be published respectively 1-day and approximately 1-month, 3-month, and 6-month in arrears.

Annex A provides the general approach adopted in the Fallback Rates (SOR) publication and examples to demonstrate how the publication date for a 6-month Fallback Rate (SOR) is determined with respect to conventional SOR Interest Rate Swap (IRS) period end dates.

Fallback Rate (SOR) Publication Page Corrections to Rate
Please refer to Annex D for more details on Fallback Rate (SOR) Restatement/Re-fix Policy.

Refinitiv - FBKSORFIX, Bloomberg - ABSI
Any correction to the Forward Points and Spot Rate must be published within 90 minutes following the Publication Time, on the day of the USD/SGD FX swap transactions (i.e. Original SOR Rate Record Day).
Any correction to the Fallback Rate (SOR) will be published at 9:00am Singapore time on the following day.

Methodological Fallback (No qualifying USD/SGD FX swaps transactional data for VWAP calculation)
Note: The publication of the Rate for the preceding Business Day is a calculation methodology fallback procedure to address periods where USD/SGD FX swaps transactional data may not be available, and is not intended to invoke any contractual fallback in transactions between counterparties that reference the Fallback Rate (SOR) as the Fallback Rate (SOR) is still published.

Methodological Fallback Trigger: In respect of any tenor, a Methodological Fallback Trigger occurs if there is no Qualifying Transaction traded during the Qualifying Window.
Methodological Fallback Procedure: 1. If the Methodological Fallback Trigger occurs in respect of any tenor, the Fallback Rate (SOR) for that tenor for the preceding Business Day shall be published. 2. The Methodological Fallback Procedure in Paragraph 1 above can be invoked for a maximum of 2 consecutive Business Days. 3. If the Methodological Fallback Trigger continues to occur on the 3rd consecutive Business Day, the Administrator shall calculate a substitute rate for that tenor as follows:
A - B
Where:

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“A” means a rate equal to Compounded Singapore Overnight Rate Average (SORA) (published on the 3rd , 4th or 5th consecutive Business Day of the Methodological Fallback Trigger respectively) for an equivalent tenor, provided that “A” means SORA for the purposes of calculating a substitute rate for Overnight Fallback Rate (SOR).

“B” means a rate equal to Compounded SORA minus Fallback Rate (SOR) (both as previously published on the Business Day preceding the day the Methodological Fallback Trigger first occurred).

Tenor

Compounded SORA – Fallback Rate (SOR) Spread

Fallback Rate (SOR) ON* SORA – Fallback Rate (SOR) ON

Fallback Rate (SOR) 1M Compounded SORA 1M – Fallback Rate (SOR) 1M

Fallback Rate (SOR) 3M Compounded SORA 3M – Fallback Rate (SOR) 3M

Fallback Rate (SOR) 6M Compounded SORA 6M – Fallback Rate (SOR) 6M

* SORA will be used to calculate the substitute rate for Fallback Rate (SOR) ON.

4. The Methodological Fallback Procedure in Paragraph 3 above can be invoked for a maximum of 3 consecutive Business Days.

Methodological Fallback (Permanent Discontinuation of USD Rate)
Note: The publication of the Rate for the preceding Business Day is a calculation methodology fallback procedure to address periods where the Fallback Rate (SOFR) is not available permanently, and is not intended to invoke any contractual fallback in transactions between counterparties that reference the Fallback Rate (SOR) as the Fallback Rate (SOR) is still published

USD Rate in the event of a permanent discontinuation of Fallback Rate (SOFR):
Pursuant to the Supplement to the 2006 ISDA Definitions dealing with the permanent discontinuation of the Fallback Rates, upon the occurrence of a Fallback Index Cessation Event with respect to Fallback Rate (SOFR), ABS Co. shall seek to incorporate the fallback rate for Fallback Rate (SOFR) into the computation of Fallback Rate (SOR).
Further fallbacks to Fallback Rate (SOFR) include any rate recommended by the Federal Reserve (Fed Recommended Rate), the Overnight Bank Funding Rate (OBFR) and the Federal Open Market Committee (FOMC) Target Rate.
Calculation Procedure for 1M, 3M and 6M Fallback Rates (SOR) in the event of a permanent discontinuation of Fallback Rate (SOFR):
For avoidance of doubt, in the event of a permanent discontinuation of Fallback Rate (SOFR), the calculation methodology for 1-month, 3-month and 6-month Fallback Rates (SOR) shall remain unchanged except that the USD Rate is replaced by the applicable contractual fallback rate to Fallback Rate (SOFR). The publication time of the Fallback Rate (SOR) may differ depending on the publishing time of the Fed Recommended Rate, OBFR or FOMC Target Rate (as the case may be).

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Annex A:
General Approach to Fallback Rate (SOR) Publication
• The intention is to have a Fallback Rate (SOR) made available for: o every Singapore, London and New York Business Day on which an Overnight SOR would have been published; and o every Singapore and London Business Day on which a 1-month, 3-month and 6-month SOR would have been published;
also known as “Original SOR Rate Record Day” and “Original SOR Fixing Day”4. There shall only be one Fallback Rate (SOR) for each tenor corresponding to a particular Original SOR Rate Record Day.
• The 1-month, 3-month and 6-month Fallback Rate (SOR) will be published with an approximately 1-month, 3-month or 6-month lag, respectively. This is because Fallback Rate (SOFR) is published in-arrears and would only be available after the accrual period. Overnight Fallback Rate (SOR) will use SOFR published by Federal Reserve Bank of New York directly in replacement of overnight USD LIBOR with a delayed publication on T+1.
• Publication of Fallback Rate (SOR) for that unique Original SOR Rate Record Day, after accounting for the lag, will be on a day that is two Singapore Business Days before the earliest Period End Date5 that requires this Fallback Rate (SOR) for payment and settlement purposes. Fallback Rates (SOR) will be published at 9.15am New York time (9.15pm or 10.15pm Singapore time), following shortly after SOFR publication by Federal Reserve
4 “Original SOR Fixing Day”, as defined in the updated 2006 ISDA Definitions, means in respect of a Reset Date, the day that is two Singapore and London Business Days preceding that Reset Date. It is also the Trade Date of the underlying USD/SGD FX swaps. 5 “SGD SOR Interest Rate Swap (IRS)” refers to a standard SGD interest rate swap transaction where the interest payment date(s) occur on good Singapore Business Days, subject to adjustment in accordance with Modified Following Business Day Convention (as defined in the 2006 ISDA Definitions). In this context, the “earliest Period End Date” refers to a good Singapore Business Day, subject to adjustment in accordance with Modified Following Business Day Convention, that is 1 (one), 3 (three) or 6 (six) calendar months after the earliest Reset Date (which is yet to be adjusted in accordance with any Business Day Convention), such that the Original SOR Rate Record Day would be two Singapore and London Business Day prior to this earliest Reset Date. For example, for an Original SOR Rate Record Day of 18 February 2021 (Thursday), the earliest Reset Date prior to any Business Day Convention adjustment is 20 February 2021 (Saturday). Accordingly, the “earliest Period End Date” for Fallback Rate (SOR) with Original SOR Rate Record Day 18 February 2021 (Thursday) is 1 (one), 3 (three) or 6 (six) calendar months after 20 February 2021 (Saturday), subject to adjustments in accordance with Modified Following Business Day Convention. For avoidance of doubt, the earliest Period End Dates in the example are 22 March 2021 (1-month, adjusted in accordance with Modified Following Business Day Convention from 20 March 2021 Saturday), 20 May 2021 (3month) and 20 August 2021 (6-month).
7 Calculation Methodology for Fallback Rate (SOR) (Version as at 07 August 2020)

Bank of New York and Bloomberg’s usual publication timing for Fallback Rate (SOFR). Each Fallback Rate (SOR) published will be tagged to a unique Original SOR Rate Record Day.
• Where available on the date of Fallback Rate (SOR) publication, the Fallback Rate (SOFR) with Original IBOR Rate Record Day matching the Original SOR Rate Record Day, will be used. If the Fallback Rate (SOFR) with Original IBOR Rate Record Day matching the Original SOR Rate Record Day is unavailable on the date of Fallback Rate (SOR) publication, then the Fallback Rate (SOFR) with the latest Original IBOR Rate Record Day for the same tenor will be used.
• It is possible for multiple Fallback Rates (SOR) of the same tenor to be published on the same day, with each Fallback Rate (SOR) tagged to a unique Original SOR Rate Record Day. Likewise, there could also be good Singapore Business Days when no Fallback Rate (SOR) will be published.
Illustration of Fallback Rate (SOR) publication date with respect to conventional SOR Interest Rate Swap period end dates
Assuming we are seeking the 6-month Fallback Rate (SOR) for an SGD SOR IRS that resets semi-annually on every 20th of February and August, for the IRS period starting 22 February 2021 (as 20 February 2021 is a non-Singapore Business Day, the IRS Period Start Date is shifted to 22 February 2021) and ending 20 August 2021, the Original SOR Rate Record Day (Original SOR Fixing Day) would have been on 18 February 2021. A 6-month Fallback Rate (SOR) would be needed on 18 August 2021, two Singapore Business Days prior to the SOR IRS Period End Date, 20 August 2021. This example is illustrated in Figure 1 below.
In order to produce the 6-month Fallback Rate (SOR) on 18 August 2021, the inputs i.e. the relevant FX forward points and spot rate and Fallback Rate (SOFR) required are:
1. The USD/SGD FX forward points and spot rate from Original SOR Rate Record Day, 18 February 2021, will be used to compute Fallback Rate (SOR) – these are the same FX data points that would have been used to calculate the 18 February 2021 6-month SGD SOR. The underlying
8 Calculation Methodology for Fallback Rate (SOR) (Version as at 07 August 2020)

USD/SGD FX swaps will be traded on 18 February 2021 with FX Swap Value Date on 22 February 2021 and FX Swap Maturity Date on 23 August 2021 (as 22 August 2021 is a non-Business Day, the maturity date is shifted to 23 August 2021).
2. The Fallback Rate (SOFR) corresponding to the Original IBOR Rate Record Day 18 February 2021, published by Bloomberg, is expected to be computed using: o 6-month Adjusted SOFR6 – compounding the daily SOFR observations over the business days from Accrual Start Date7 on 18 February 2021 to Accrual End Date on 18 August 2021. The final SOFR observation on 17 August 2021 will be published by Federal Reserve Bank of New York on 18 August 2021 at 8:00am New York time (8pm/9pm Singapore time) and the 6-month Adjusted SOFR will be published within 45 minutes of the SOFR publication. o Spread adjustment will be calculated using a historical median approach over a five-year lookback period8. This Spread adjustment for that tenor will be fixed upon the first to occur of (i) an announcement of discontinuation of that USD LIBOR tenor, or (ii) announcement that USD LIBOR for that tenor will be non-representative at a future date.
With the above inputs, the Fallback Rate (SOR) for Original SOR Rate Record Day 18 February 2021 will be calculated and published by 9:15am New York time (9:15pm/10:15pm Singapore time) on 18 August 2021. Interest payments for contracts that use the 18 February 2021 6-month SGD SOR would typically be due no earlier than 20 August 2021.
6 “Adjusted SOFR” refers to the rate after compounding SOFR for the relevant accrual period. 7 In Bloomberg’s IBOR Fallback Rate Adjustments Rule Book (last updated 22 April 2020),
• “Accrual Start Date” means, with respect to an IBOR, its Reference Rate, Tenor and a Rate Record Day, the Reference Rate Business Day that is the Offset Lag [means 2 (two)] number of Reference Rate Business Days immediately prior to the Accrual Spot Date.
• “Accrual End Date” means, with respect to an IBOR, its Reference Rate, Tenor and a Rate Record Day, if such Tenor is ‘1 Month’, ‘3 Months’ and ‘6 Months’, the Modified Following Convention Date with respect to the day that is 1 (one), 3 (three) or 6 (six) calendar months immediately succeeding the Accrual Start Date, respectively.
< https://data.bloomberglp.com/professional/sites/10/IBOR-Fallback-Rate-Adjustments-Rule-Book.pdf> 8 See Summary of responses to the ISDA Consultation on Final Parameters for the Spread and Term Adjustment (15 November 2019),
9 Calculation Methodology for Fallback Rate (SOR) (Version as at 07 August 2020)

Figure 1 - 20th Roll

17 Feb 2021 18 Feb 2021

19 Feb 2021 20 Feb 2021 21 Feb 2021 22 Feb 2021

… 16 Aug 2021 17 Aug 2021 18 Aug 2021

19 Aug 2021 20 Aug 2021

21 Aug 2021 22 Aug 2021 23 Aug 2021

Wed

Thu

Fri

Sat

Sun

Mon

… Mon

Tue

Wed

Thu

Fri

Sat

Sun

Mon

Original SOR Rate Record Day Original SOR Fixing Day

Weekend

SOR IRS Period

Start Date



SOR IRS Reset Date

SOR IRS Period End Date

Weekend

USD/SGD FX Forward Points and Spot Rate published on Original SOR Rate Record Day, 18 Feb 2021, to be used in 18 Aug 2021 Fallback Rate (SOR) computation

USD/SGD FX Swap Trade Date

USD/SGD FX Swap … Value Date

USD/SGD FX Swap Maturity Date

6M Adjusted SOFR Observation Period from 18 Feb 2021 to 17 Aug 2021 to be published on 18 Aug 2021

24 Aug 2021 Tue

Adjusted SOFR Accrual Start Date Original IBOR Rate Record Day

Adjusted SOFR



Accrual Spot Date

Adjusted SOFR Accrual End Date & 6M Fallback Rate (SOFR)Publication Date

Fallback Rate (SOR) calculated and published on 18 Aug 2021 corresponding to Original SOR Rate Record Day, 18 Feb 2021

6M Fallback Rate

(SOR) Publication

Date, 2 Singapore

Business Days



before SOR IRS

Period End Date

(20 Aug 2021)

1 BD

1 BD

Figure 2 demonstrates the applicability of the 6-month Fallback Rate (SOR) for Original SOR Rate Record Day 18 February 2021 to SGD SOR IRS that reset semi-annually on every 21st and 22nd of February and August.

These examples seek to show that there will only be one Fallback Rate (SOR) for each tenor corresponding to a particular Original SOR Rate Record Day and there can be good Singapore Business Days where no Fallback Rate (SOR) will be published.

• Semi-annual resets on every 21st of February and August

For the IRS period starting 22 February 2021 and ending 23 August 2021 (as 21 February 2021 and 21 August 2021 are non-Singapore Business Days, the IRS Period Start and End Dates are shifted to 22 February 2021 and 23 August 2021 respectively), the Original SOR Rate Record Day (Original SOR Fixing Date) would have been on 18 February 2021. While two Singapore Business Days prior to the SOR IRS Period End Date 23 August 2021 is 19

10 Calculation Methodology for Fallback Rate (SOR) (Version as at 07 August 2020)

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Calculation Methodology For Fallback Rate (sor)