Many Singaporean might not understand SORA, since there are many terminations about this. Therefore, it is necessary to find information related to this and get a suitable explanation. So that in case you need to perform anything related to this termination, you will know what to do and how it works. For further information on SORA Singapore, see the following article.
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About SORA
SORA is an abbreviation from Singapore Overnight Average Rate. This is a term where most banking shall now since it has close relation with a banking transaction. So that to get the overview of this thing is necessary.
SORA is the average rate of borrowing transaction performed during an overnight cash market between banks using the Singapore Dollar. Therefore, it is necessary to get the information of this value in case performing a banking transaction at night.
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History of SORA
The history of SORA in Singapore started in 2019 were in August, 30th the Association of Banks in Singapore told their preference to use the rate as a benchmark. This statement is also supported by the Singapore Foreign Exchange Market Committee which mentions that this benchmark is better than using SOR for the interest rate derivatives of the Singapore Dollar. Where SOR refers to Singapore Dollar Swap Offer Rate.
Through this background, the Money Authority of Singapore or MAS then established a steering committee for SORA. In which the member consists of banks representative, industry association, and MAS. This is to help with any strategic decision and manage the transition from using SOR as a benchmark to SORA.
Calculation Methodology of SORA
Not only needs to know about SORA, but to perform calculation methodology to cover the rate is necessary. Since it is important to give an overview for rate reference in banking transactions every day. That is why one of the must-understand things is the approach for this methodology.
The basic calculation of this rate is using the volume-weighted average. Together with this calculation, normally the daily publication from SORA will be included aggregate volume, higher transaction rates, lower transaction rates, data sufficiency, and short-term contingency agreement.
To get sufficient report, data sufficiency to meet shall include 5 banks with eligible transactions, 10 numbers of eligible transactions, and a minimum of 500 million Singapore Dollars.
While for contingency, will be conducted if that requirement cannot be achieved. The contingency is calculated based on the different rates from MAS and the actual trade. Therefore, it is usually shown on the MAS webpage.
The Benefit of Using SORA
As mentioned before there are many advantages of using SORA as the benchmark rate. So that it is then selected among other rates in Singapore. Utilizing this value as a benchmark can result in the following benefits:
• It has long historical time series to include as a parameter since it includes various technical analyses, risk management trend models, trading purposes, and asset-liability pricing. So that it is a good base for various financial products in Singapore.
• Since it uses an average rate then it can consider more stable than other available benchmarks. Such as compared with SOR which is mostly exposed to various market factors. So that the fluctuation and its volatility are considered high.
• SORA is also in line with various global development markets not only in Singapore but also internationally. Therefore, this benchmark will be able to give a significant impact on the financial market, especially in Singapore.
• It also benefits the cash market products such as business loans or bonds. Therefore, it can help to manage a good standard in Singapore for the long term of period.
SORA Reporting
The next important thing that also needs to know is the reporting from SORA. To publish the report will be not as easy as it thought. Since there are several things to be concerned about, such as performing validation, checking errors, and many more. That is why publishing the report needs good cooperation between the banks, SORA committee, and MAS. Otherwise, without suitable collaboration then it wouldn’t lead to a suitable report to publish.
Handling Error on SORA
Sometimes some errors may happen due to trade errors while using SORA as a benchmark. While any transaction using this benchmark shall be reported accordingly to MAS. Therefore, handling the error becomes one necessary thing to do whenever this specific case is happening in the transaction.
To help with the issue, usually, there will be a report re-publish with correction on the error. In general, an error is considered to happen if the points are more than two basis points from SORA. This will be performed on the same day, not more than 12.00 PM. Since bank transactions shall be reported on 9.00 AM to MAS.
While MAS will publish it at 12.00 PM. Once it is published, no amendments will make. However, a summary of information related to the error will be given by MAS for transparency.
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By reading the above overview and information, now the termination of SORA becoming more clear. So that in case this will be needed in your banking transaction, you will aware of the meaning and advantages. With a proper availability of this rate, it will help to give a suitable rate benchmark. So that it can automatically control a good value of rate.
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