LIBOR Transition Virtual Client Briefing Session 8 and 10 December 2020

PUBLIC

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Introductory Remarks

OUR PANEL

Kamini Ryan Rambausek Goh

Change Lead, Associate Director, IBOR Transition Rates Trading Programme

Arpit Tiak Peow Mehrotra Phua

Business Lead, Executive Director IBOR Transition Conduct, Financial Programme Crime and Compliance

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1. Introduction

1.1 Session Objectives

The primary objectives of this virtual briefing session is to update on: ▪ Regulatory and industry working group developments as we progress in the transition away from London Interbank Offered Rate (LIBOR) and other IBORs. ▪ Our Bank’s capabilities to transact in Risk-Free Rates (RFRs) and offer RFR-linked products.

1.2 Key outcomes

Help ensure you are kept up to date with the latest transition-related regulatory and market developments.

Help you understand the developments in key product groups including the Bank’s RFR product capabilities.

Help ensure you are aware of the important elements and considerations in your transition planning.

Help ensure you are clear on the next steps on the Bank’s engagement with you as we move into 2021.

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2. Transition Timelines: Journey to date

2.1 Key milestones

2017 2018 2019 2020

Q2 The Sterling Overnight Q3 The Financial Conduct Q4 The European Central Q1 SOFR index introduced. Index Average (SONIA) Authority (FCA): “markets Bank (ECB) publishes and the Secured need to end their reliance the Euro Short-Term Overnight Financing on LIBOR post 2021”. Rate (€STR) as RFR to Rate (SOFR) are replace the Euro Q3 Central Counterparty (CCP) announced to replace Overnight Index Average discounting switch from GBP and USD LIBOR (EONIA). EONIA to €STR respectively. Alternative Reference International Swaps and Q3 FCA announces they will Q3 “Dear CEO” letter jointly Q4 Q4 no longer compel banks issued by the FCA and Rate Committee (ARRC) Derivatives Association to submit LIBOR. the Prudential Regulatory publishes summary of (ISDA) 2020 IBOR Authority (PRA) to 15 recommended fallback Fallbacks Supplement market participants. language to date for and Protocol USD cash products. Launch of the IBA Q4 Consultation

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2. Transition Timelines: IBA Consultation

2.2 IBA intention to consult on LIBOR setting cessation On 4 December 2020, ICE Benchmark Administration (IBA) has launched a consultation on its intention to cease the publication of LIBOR settings

What is the proposed LIBOR publication cessation timeline? The IBA consultation is intended to provide market participants with details on its intention to cease publication of LIBOR settings from the following proposed dates:

31 December 2021 30 June 2023 ▪ EUR LIBOR: All tenors1 All remaining USD LIBOR settings including: ▪ CHF LIBOR: All tenors ▪ USD LIBOR – Overnight, one month, and three, six and twelve months ▪ JPY LIBOR: All tenors ▪ GBP LIBOR: All tenors ▪ USD LIBOR: One week and two month tenors

How will the consultation work? The consultation is open to stakeholders including panel banks, industry bodies and end-users, who have until 25 January 2021 to provide feedback. The IBA will then publish a statement shortly afterwards summarising the responses to the consultation for all 35 LIBOR settings.

What does this mean for USD LIBOR? If the proposals are adopted, USD LIBOR settings will continue for all but two tenors until 30 June 2023. The FCA has published a statement supporting the IBA announcements, as “this will incentivise swift transition, while allowing time to address a significant proportion of the legacy contracts that reference USD LIBOR”. The Fed has also supported this move, as the IBA and FCA statements “lay out a path forward in which banks should stop writing new USD LIBOR contracts by the end of 2021, while most legacy contracts will be able to mature before LIBOR stops.”.

The continued expectation is that for new transactions, market participants should continue to actively transition away from LIBOR to RFR as soon as possible and no later than 31 December 2021. US regulators have also stated that entering into new USD LIBOR contracts after 31 December 2021 would create safety and soundness risks, and that firms should only expect very limited carve-outs for USD LIBOR use after end-2021. The FCA has also indicated that it will consult on restricting use of where a rate has known cessation date

1The tenors are: overnight, one week, one month and two, three, six and 12 months 4 PUBLIC

2. Transition Timelines: IBA Consultation

2.2 IBA intention to consult on USD LIBOR cessation extension Implications for LIBOR and remaining currencies due to IBA consultation

Subject to the consultation outcome, what are the implications for clients? Potential Implications ▪ Despite the possible extension to cessation of USD LIBOR, the industry is in the final stages of LIBOR’s demise with the consultation designed to provide additional time to remediate certain existing USD LIBOR contracts ▪ Following the conclusion of the consultation, a cessation announcement or cessation announcements of all tenors of USD, GBP, JPY, CHF and EUR LIBOR settings could trigger the calculation of spread adjustments with a fixing on that announcement date for all of the LIBOR settings ▪ Based on the consultation, USD LIBOR is likely to remain representative until their proposed cessation dates. Firms will need to consider implications arising from these staggered cessation dates ▪ An extension would allow in scope USD LIBOR contracts maturing prior to July 2023 to expire without need for remediation ▪ Clients with USD LIBOR exposures maturing beyond June 2023 are stilll likely to remediate their contracts, pending any solution that may be proposed by the Alternative Reference Rate Committee (ARRC) and/or regulators What should market participants do now? Next steps The extended timeline for certain USD LIBOR settings set out a clear path to support USD LIBOR transition, and should not be viewed as a delay to transition by market participants. As such priorities for firms should remain largely unchanged: New Transactions ▪ Market participants should continue to consider and execute new transactions in Risk-Free Rates (RFRs) where possible, and ahead of industry milestones to stop using LIBOR in new transactions ▪ Where firms trade LIBOR products, they must ensure that appropriate hardwired fallbacks are put into place Existing LIBOR Exposures ▪ Firms should analyse their contracts by tenor and currency to identify the population of USD LIBOR transactions that mature prior to 30 June 2023 and monitor the outcome of the IBA consultation to determine the next steps on these contracts ▪ Develop scenarios and contingency plans for consultation outcomes, such as impacts on transaction pricing, hedging costs, resource requirements for contract remediation and client communications 5 PUBLIC

2. Transition Timelines: Key Upcoming Milestones

2.3 Q4 2020 to End 2023 Regulators and industry bodies have set key milestones to ensure as smooth and orderly transition as possible. Upcoming are:

Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q4 2021 Targeted cessation of Targeted cessation of new Complete active Cease offering GBP Expected cessation Expected cessation new USD LIBOR GBP LIBOR cash conversion of LIBOR non-linear and of of USD LIBOR Floating Rate Notes issuances & linear GBP LIBOR cash cross-currency GBP,EUR,JPY,CHF (1w and 2M) (FRN) derivatives products derivatives LIBOR

Q4 2021 2022 2023 2020

Q4 2020 Q1 2021 Q2 2021 H1 2021 Q1 2022 H1 2023

KEY INDUSTRY MILESTONES INDUSTRY KEY Expected forward- Effective Date of ISDA Cease new USD LIBOR ARRC EBR Transition Expected cessation looking Term Fallbacks business loans, recommends provisions end of USD LIBOR SONIA Reference Supplement and securitisations and forward-looking (O/N,1M, 3M, 6M Rates Protocol derivatives2 SOFR term rate and 12M)

Today ILLUSTRATIVE

LIBOR RFR

6 2https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC-Best-Practices.pdf PUBLIC

3. Updates on Other IBORs

3.1 To Be Discontinued/Discontinued IBORs Beyond the transition of the five key LIBORs, there are a number of other jurisdictions undergoing their own interest rate benchmark review, some of which are noted below.

The Reserves Bank of India (RBI) noted a need to replace the Mumbai Interbank Forward Outright Rate India MIFOR (MIFOR), which uses USD LIBOR in its calculation, however no such replacement has been identified to date.

The Philippine Interbank Reference Rate (PHIREF) utilises USD LIBOR as a calculation input. However, no Philippines PHIREF alternative has been identified to date. The Bankers Association of the Philippines, PHIREF’s administrator, intends to establish a replacement reference rate for PHIREF.

The Singapore Interbank Offered Rate (SIBOR) is pending discontinuation in phases as follows; 12-month IBORs on January 2021, six-month after the end of 2021, one-month and three-month in 2024. The Swap Offer SIBOR & Singapore Rate (SOR) uses USD LIBOR in its calculation and therefore will be affected by a USD LIBOR SOR discontinuation. The Singapore Overnight Rate Average (SORA) has been identified the alternative benchmark

The Central Bank decided to stop publishing Sri Lanka Interbank Offered Rate (SLIBOR) from July 2020 and market participants are encouraged to transition to alternative rates such as the policy rate, Average Sri Lanka SLIBOR Weighted Call Money Rate (AWCMR), Average Weighted Prime Lending Rate (AWPR), or Treasury bill yields.

The Market Practitioners Group (MPG) raised concerns regarding Johannesburg Interbank Average Rate (JIBAR) in its current form, however until an alternative reference rate can be found, it will be reformed. The JIBAR & South Africa South African Reserve Bank implied that JIBAR may cease in 2024. In addition, the benchmark proposed as SABOR a replacement for South African Benchmark Overnight Rate (SABOR) is the South African Rand Overnight Index Average (ZARONIA), which is an unsecured overnight rate. The Bank of Thailand (BoT) has announced that all financial institutions must cease offering new Thai Baht To To Discontinued Be / Discontinued Interest Rate Fixing (THBFIX) products from 1 July 2021. BoT will temporarily publish the Fallback Rate Thailand THBFIX (THBFIX) for legacy contracts, but firms should be ready now to offer products linked to the Thai Overnight Repurchase Rate (THOR) 7 PUBLIC

3. Updates on Other IBORs

3.2 Reformed IBORs Beyond the transition of the five key LIBORs, there are a number of other jurisdictions undergoing their own interest rate benchmark review, some of which are noted below.

Bangkok Interbank Offered Rate (BIBOR) was reformed on 1 April 2015. BIBOR will co-exist with the Thailand BIBOR Thai Overnight Repurchase Rate (THOR) whilst the Thai Baht Interest Rate Fixing (THBXFIX) will be phased out in 2024.

The Jakarta Interbank Offered Rate (JIBOR) has been reformed as of January 2019. The Indonesia Indonesia JIBOR Overnight Index Average (INDONIA) will replace overnight JIBOR.

Hong The Hong Kong Interbank Offered Rate (HIBOR) will co-exist with the HKD Overnight Index Average HIBOR Kong (HONIA).

The People Bank’s of China (PBOC) on 31 August 2020 published a whitepaper on the development

Reformed priority of China's interbank benchmark interest rate system, noting that although Shanghai Interbank China SHIBOR Offered Rate (SHIBOR) shares similar characteristics to LIBOR being a quote-based rate, there are no plans to discontinue the rate.

The Bank-Bill Swap Rate (BBSW) will continue alongside the AUD Overnight Index Average (AONIA). Australia BBSW Reforms have also been undertaken to enhance the robustness of these benchmarks.

Canadian Dollar Offered Rate (CDOR) has been reformed and is intended to co-exist with the Canadian Canada CDOR Overnight Repo Rate Average (CORRA) however the six and twelve month CDOR tenors will be discontinued by 17 May 2021. The remaining tenors are not expected to cease.

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4. Updates on Key Markets: Developments in the East

4.1 IBOR Reform in the East There has been heightened regulatory focus over the course of 2020 on IBOR transition across the Asia Pacific region, particularly in Singapore, Japan and Thailand, whilst other nations such as China and India have also highlighted the need for reform.

Notable RFR issuances Regulatory communications

▪ Nov 2020 – OCBC Bank launched first SORA- ▪ The RBI has noted the need to replace MIFOR, with the overnight based green loan (SGD71 million). Mumbai Interbank Outright Rate (MIBOR) and the Market Repo ▪ Sept 2020 – DBS Bank and Industrial and Overnight Rate (MROR) as possible successors however no rate Commercial Bank of China, Singapore issued the has been specifically identified to date. first SORA-pegged club loan (SGD200 million).

▪ Oct 2020 – Siam Commercial Bank launched the ▪ The Hong Kong Monetary Authority (HKMA) has issued a note to market’s first THOR-linked structured notes. firms reiterating the importance of fair treatment of clients throughout ▪ Sept 2020 – Kasikornbank has completed the first the LIBOR transition. Firms are reminded to uphold the customer THOR Overnight Indexed Swap (OIS). protection principles set out in the Treat Customer Fairly Charter, Code of Banking Practice, and other applicable requirements.

Transition milestones

BNM – Complete operational readiness BNM – No new LIBOR deals assessment for RFRs BoJ – JPY Term rate publication BoJ – Complete staff training on LIBOR MAS – No new LIBOR deals after April BoT – End of THBFIX

Quarter 1 2021 Quarter 3 2021

Quarter 4 2020 Quarter 2 2021 Quarter 4 2021 BNM – LIBOR derivative contracts to have BoT – FI’s to offer THOR loans, insert fallbacks into fallback provisions LIBOR contracts and cease issuance of new LIBOR deals HKMA – FI’s to offer LIBOR alternatives MAS – Significantly reduce SOR derivatives BoJ – Significantly reduce LIBOR loans and bonds 9 PUBLIC

4. Updates on Key Markets: Developments in the West

4.2 IBOR Reform in the West The UK and US continue to lead transition efforts in the west, however the Swiss market has made significant progress in the issuance of RFR-linked products whilst in Europe the working group on euro risk-free rates is consulting on the Euro Interbank Offered Rate (EURIBOR) fallbacks. Notable RFR issuances

▪ Oct 2020 – The UK market saw a first-of-its-kind loan to ▪ Q1 2020 – The European Investment Bank (EIB) reference SOFR and SONIA from day-one, with the issued two SONIA-linked FRN’s worth GBP1 billion Standard Chartered involved in the GBP2.5 billion Revolving and GBP500 million Credit Facility (RCF) for Tesco PLC. ▪ Oct 2019 – EIB issue first €STR bond of EUR1 billion

▪ Nov 2020 – The Loan Market Association (LMA) has ▪ Oct 2020 – The Baloise Bank, Bank Zimmerberg and continued to publish its List of RFR referencing Nidwaldner Kantonalbank have launched SARON-linked syndicated and bilateral loans. mortgages. ▪ Sept 2020 – GlaxoSmithKline refinanced two ▪ Oct 2020 – Raiffeisen issued its first product featuring the revolving credit facilities linked to SONIA and SOFR SARON Floating Rate Notes fallback language prescribed compounded in arrears, involving 12 major banks. by the Swiss working group. .

Recent regulatory communications SOFR Stats (per CME November 2020 rates recap)

▪ The FCA has updated its Q&A’s on conduct risk for LIBOR USD820 USD327 98,000 transition regarding how firms can demonstrate a fair spread adjustment has been applied to contracts when actively billion billion contracts converting LIBOR contracts to RFRs.

▪ The ECB has published two consultations on the events that would trigger a EURIBOR fallback and which €STR-based rates would be most appropriate in the event of a fallback Issuances to Swaps cleared to Three-month Futures – scenario. date date average daily volume 10 PUBLIC

5. Updates on Key Markets: Loans

5.1 Loans Markets: Business Loans | Syndicated Loans Development of fallbacks for loan products gained significant momentum as the Loan Market Association (LMA) and the ARRC have provided further updates on documentation. What has been published? What it means for you? ▪ ARRC has published in arrears conventions for bilateral business ▪ The Bank is in the process of reaching out to clients loans and FAQs for business loans hardwired fallback language. with LIBOR-linked loans to communicate next steps and ▪ The LMA has published revised exposure draft switch facilities, discuss transition options. for lending transactions, along with term sheets for the use of ▪ From Q4 2020 onwards, any new LIBOR loans must Fallbacks compounded RFRs with the replacement of screen rate language. include the new contractual arrangements as for IBORs ▪ LSTA has recommended that loan amendment fees should be recommended by the Sterling RFR WG. waived, if the changes incorporate ARRC’s hardwired (or similar) ▪ The Bank will continue to reach out and provide fallback language. updates on further market developments. ▪ The Sterling RFR Working Group (RFRWG) has provided recommendations on the credit adjustment spread methodology for fallbacks in cash products and published a paper on active Transition of GBP LIBOR loans. ▪ For Bilateral loans and syndicated loans where the Bank is ▪ Transition away from LIBOR is comparatively slower in loan markets not the Agent Bank, SCB is ready to deal at-scale in new RFR New RFR than in derivatives and bonds markets. loans in SONIA/SOFR/ESTR/SORA across 20 booking Loans ▪ The Bank has concluded deals via participation in syndicated locations. facilities and have dealt bilateral RFR loans. ▪ For syndicated loans where SCB is the Agent Bank, SCB has the capability to support up to 10 lenders (at-scale capabilities expected to be in place by Q1 2021). Inclusion of fallbacks for USD Apr – No new SOR loans maturing beyond 2021 Expected cessation of GBP,EUR,JPY,CHF LIBOR bilateral loans Jun – No new USD LIBOR loans maturing beyond 2021 LIBOR and USD LIBOR (1w,2M) Quarter 1 2021 Quarter 3 2021 Quarter 2 2023 Industry Timelines Quarter 4 2020 Quarter 2 2021 Quarter 4 2021 Cease issuance of GBP LIBOR Bank of Japan (BoJ) targets USD LIBOR (O/N, 1M, 3M, 6M,12M) loans maturing beyond 2021 cessation of new LIBOR-linked loans Cessation 11 PUBLIC

6. Updates on Key Markets: Bonds

6.1 Bond Markets: Bonds | Floating Rate Notes | Securitisations Developments across the bond market have been led by different working groups and industry bodies. The International Capital Market Association (ICMA) and ARRC have issued guidance and publications on various fallbacks and market conventions. What has been published? What it means for you? ▪ ICMA published a quick guide to the transition for bond ▪ The Bank expects to reach out to its clients with markets while the International Capital Market Services LIBOR and other relevant IBOR-linked bonds in Association (ICMSA) published a potential timeline for bond early 2021 to communicate next steps and Fallbacks markets remediating exposures via consent solicitation. transition options. for IBORs ▪ ARRC published recommendations on more robust fallback ▪ The Bank will keep you informed throughout this languages for new issuances of USD LIBOR Floating Rate process and provide updates with regard to Notes and Securitisations. market developments.

▪ Sterling RFRWG has published a paper on Active Transition of GBP LIBOR bonds.

▪ New RFR bonds have been issued as well as a number of ▪ RFR-linked bonds may be offered on a case by New RFR consent solicitations to convert GBP LIBOR bonds to SONIA. case basis based on client needs. Bonds ▪ Market conventions for RFR bonds are still being developed ▪ Take note of publication of daily SONIA index e.g. Lookback, Payment Delay, Lockout. which began in August 2020.

ARRC targets cessation of ARRC targets cessation of Expected cessation of GBP,EUR,JPY,CHF new USD LIBOR FRNs new USD LIBOR securitisations LIBOR and USD LIBOR (1w,2M) Quarter 1 2021 Quarter 3 2021 Quarter 2 2023 Industry Timelines Quarter 4 2020 Quarter 4 2021 Quarter 2 2021 USD LIBOR (O/N, BoE targets cessation of new ARRC – No new USD LIBOR CLOs 1M, 3M, 6M,12M) GBP LIBOR cash issuance BoJ – significantly reduce LIBOR bonds Cessation 12 PUBLIC

7. Updates on Key Markets: Derivatives

7.1 Derivatives Markets: Swaps | Options | Futures | Forward Rate Agreements (FRAs) On 23 October 2020, ISDA published the 2020 IBOR Fallbacks Protocol and revised Supplement, effective 25 January 2021. This is a result of a series of consultations conducted by ISDA with industry participants and regulators and has an important role in driving consensus on fallbacks for derivatives. What has been published? What does this mean for you? ▪ Amended 2006 Definitions (the “Supplement”) reflects ▪ The Bank will reach out to its clients to updates to certain ‘floating rate options’ included in the understand their position regarding adherence Fallbacks existing 2006 ISDA Definitions. to the Protocol and next steps if bilateral for IBORs negotiations are preferred. ▪ 2020 IBOR Fallbacks protocol (the “Protocol”) allows for multilateral amendments to be made to legacy ▪ The Bank will be hosting virtual briefing contracts (to incorporate the amended floating rate sessions throughout Q4 2020 and will provide options) between adhering counterparties. more information and key considerations in relation to ISDA’s announcement. ▪ Both SOFR and SONIA have experienced high trade ▪ The Bank currently has capabilities across all count growth year to date as per ISDA’s benchmark active RFR markets in derivatives. Options on New RFR reports. RFRs (caps, floors or swaptions) may be offered Derivatives on a case-by-case basis. ▪ General positive trend of trading volumes in RFR-linked interest rate derivatives.

Publication of ISDA No new GBP LIBOR linear Significantly reduce SOR USD LIBOR (O/N, 1M, 3M, Supplement and Protocol derivatives maturing post 2021 derivative exposure 6M,12M) Cessation January 2021 Quarter 2 2021 Quarter 4 2021

Industry October 2020 Quarter 1 2021 Quarter 3 2021 Quarter 2 2023 Timelines Effective date of ISDA No new USD LIBOR Expected cessation of GBP,EUR,JPY,CHF Supplement and Protocol derivatives maturing post 2021 LIBOR and USD LIBOR (1w,2M)

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7. Updates on Key Markets: Derivatives

7.2 RFR adoption and Liquidity in key LIBOR markets ▪ SONIA-traded Interest Rate Derivative ▪ In Europe, EURIBOR continues to be ▪ Issuances in cash markets have also notional closing at USD13.8 trillion3 in Q3 the preferred benchmark. continued with Financial Institutions 2020, up from USD10.2 trillion in Q2 2020. (FI’s) and corporates continuing to adopt ▪ Following the CCP Discounting Switch SOFR and SONIA. ▪ Significant growth for SOFR and SONIA for EUR derivatives in July 2020, €STR trade count, recording at 413% and 108% trade count has increased by over 260% respectively vs Q3 2019 levels. in Q3 2020 vs Q2 2020.

▪ YoY SOFR trading volumes have grown 28% since Oct 2020.4

Year-to-Q3 2020: RFR issuances and volumes6 Monthly RFR Interest Rate Derivative notional and trade count5 400 450 350 402 400 3500 3500 300 350 3000 3000 300 2500 2500 250 250 2000 2000 200 200 1500 150 1500 150

TradeCount 1000 1000 100 100

Number of of issuancesNumber Volume (USD Billions) Volume(USD 500 500 50 50 25 0 0 0 3 0

€STR SONIA SOFR TradedNotional (USD Billions) Volume 2 20 334 Issuances 3 25 402 SONIA Notional SOFR Notional €STR Notional Volume Issuances SONIA Trade Count SOFR Trade Count €STR Trade Count

3 https://www.isda.org/a/Bi4TE/Transition-to-RFRs-Review-Q3-of-2020-and-Year-to-September-30-2020.pdf 4 CME Monthly Market Stats 5 Weekly ISDA SwapsInfo data 14 6 Bloomberg SOFR, SONIA and ESTR league tables PUBLIC

7. Our RFR Product Capabilities - Derivatives

7.3 What we can offer clients – Derivative Markets The Bank currently has capabilities across all active RFR markets in derivatives. Options on RFRs (caps, floors or swaptions) may be offered on a case-by-case basis.

Currency RFR Transaction-Based Overnight Secured Other Comments Products Available Tenor

Covers multiple repo ▪ Interest rate swaps market segments, (fixed vs SOFR) Up to 30 SOFR P P P allowing for future ▪ SOFR – USD LIBOR basis swaps years market evolution ▪ SOFR – Fed Funds basis swaps

Incorporates o/n Includes a volume- ▪ Interest rate swaps Up to 30 SONIA P P unsecured weighted trimmed (fixed vs SONIA) years transactions mean ▪ SONIA – GBP LIBOR basis swaps

Became the reference ▪ Interest rate swaps Up to 10 SARON P P P interbank overnight (fixed vs SARON) years repo in August 2009 ▪ SARON – CHF LIBOR basis swaps

Reflects the Complement existing ▪ Interest rate swaps wholesale euro benchmark rates, (fixed vs €STR) Up to 30 €STR P P unsecured o/n serving as a backstop ▪ €STR – EURIBOR years borrowing cost reference rate (or EUR LIBOR) basis swaps

Reflects the The BoJ calculates and ▪ Interest rate swaps Up to 30 TONA P P unsecured o/n publishes the rate on a (fixed vs TONA) years call rate market daily basis ▪ TONA – JPY LIBOR basis swaps

Reflects the ▪ Interest rate swaps unsecured o/n Published by MAS Up to 10 SORA P P (fixed vs SORA) interbank since July 2005 years ▪ SORA – SOR basis swaps funding market The product variants illustrate the most commonly traded products. If you are interested in more bespoke requirements, please reach out to your relationship manager for more information.

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8. New RFR-linked Loans

8.1 RFR based Calculation Method for Lending

For RFR loans, there are a range of options available to price and settle RFR interest payments as noted below: RFR Considerations Compounding: Takes into account the additional amount of interest Rate Simple: The averaged RFR in this convention is the simple arithmetic owed each day by applying the daily rate of interest both to the vs. Calculation mean of the daily RFRs. principal borrowed and the accumulated unpaid interest component. In arrears: Interest rate is known at the end of the payment period. In advance: Interest rate is set in advance at the start of the payment Therefore no cash flow certainty until end of the interest period, Cashflow period (i.e. LIBOR). Greater cash flow certainty for borrowers and larger smaller window for lenders to calculate final interest payments vs. Certainty window for lenders to calculate final interest payments however rate can however rate will fully reflect market conditions over the interest become “out of date”. period.

To allow for additional time to calculate and settle payments, market conventions have been proposed. The Bank has capabilities today to offer new RFR-linked loans and will continue to build capabilities based on development of preferred market conventions.

Calculation Bank Status Convention Description Methods

▪ The observation period for the interest rate calculation starts and ends a certain number of days prior to the interest period. Lag/Look-back Permitted ▪ This methodology is aligned to the derivative methodology with a five day lag period. ▪ This methodology is evidenced in the recent new RFR deals and the market appears to be coalescing to this option.

▪ The RFR is no longer updated (i.e. frozen) for a certain number of days prior to the end of an interest period (lock out period). Lock Out with ▪ The RFR rate of the day prior to the start of the lock out period is applied to calculate the interest for the lock out period. Permitted True Up ▪ Any interest rate differential between the actual rate for lockout period and the frozen rate for the RFR is accounted for (or “trued up”) in the next interest rate cycle.

▪ The interest payments are delayed by a certain number of days and are thus due X number of days after the end of an interest Permitted period. Delayed Billing ▪ The idea is to provide more time for operational cash flow management. ▪ Contact the IBOR Lending Working group to discuss this option.

Lock Out with no ▪ The RFR is no longer updated (i.e. frozen) for a certain number of days prior to the end of an interest period (lock out period). Not Permitted True Up ▪ The RFR rate of the day prior to the start of the lock out period is applied to calculate the interest for the lock out period.

Widely discussed in the market Convention discussed but there are no known contracts executed with this methodology 16 PUBLIC

8. New RFR-linked Loans

8.2 Illustration of RFR-based calculation method Below illustrates the different RFR interest rate methods outlined on the previous slide with an example of a three-month interest period. Clients can choose any interest period for the available calculation methods.

Sample timeline for a loan with 3-month interest settlement period

25th Dec 1st Jan 25th Mar 31st Mar 4th Apr 30th Jun 2020 2021 2021 2021 2021 2021

Treasury Pricing

Scenario Base Case Base

Lockout + No True up Stale rate

Lockout + True up Stale rate True up

Delayed Billing Delayed period

RFR Pricing Methodology

Lookback

Interest Interest Settlement Observation Stale rate True up of Stale Rate vs Actual Rate, Delayed period till Start Date End Date Date period period to be settled in next payment period settlement date 17 PUBLIC 8. Our RFR Product Capabilities - Lending and Trade Capabilities

8.3 What we can offer clients The Bank currently has capabilities across all active RFR markets in lending products. We are ready to support RFR pricing enquiries and can provide more granular product capabilities information upon request. Clients are encouraged to familiarise themselves with the RFR product suite and to consider transacting once ready.

Term Loan Overdrafts and Transaction Syndicated Currency LIBOR RFR Banking Products (Cash and Bilateral SC not as an SC as an Trade Products) Agent Agent

USD LIBOR SOFR Supported on a limited basis Trade finance products are short 20 booking locations are supported, GBP LIBOR SONIA and restricted dated in nature and are list available upon request. up to 10 dependent on the Term Rates. In lenders. the absence of RFR term rates, EUR LIBOR €STR current pricing will continue to apply. While we monitor the CHF LIBOR SARON market developments, RFR RFR Cash products may be offered on a case by pricing will be made available in case basis. line with the industry milestones JPY LIBOR TONA for GBP LIBOR and USD LIBOR. Supported subject to conventions as SOR SORA SOFR/SONIA/ESTR.

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9. Forward-looking RFRs

9.1 Background to Forward-looking term RFRs

Why are forward-looking term rates needed? When could they be available?

✓ In order to develop a forward-looking rate there first needs to be an ✓ The current RFR tenors are calculated using backward-looking active overnight derivatives market which these forward-looking rates observed overnight rates, this poses a number of challenges including: are derived from. Insufficient liquidity has been a concern noted by 1. Operational challenges for lenders and clients who cannot the ECB in developing a forward-looking RFR for the Eurozone. transact in backward-looking rates. ✓ Forward-looking term rates should be available by end 2020 (SONIA) 2. Backward-looking rates could create uncertainty and lack of and by H1 2021 for SOFR and JPY equivalents. No timeline has been visibility for borrowers on future interest payments which in announced for €STR while no forward-looking SARON is expected turn is problematic for cash flow management. from Switzerland due to a predicted lack of liquidity. 3. Unsuitable for certain derivatives (e.g. Caps, floors, Forward Rate Agreements (FRAs)). ✓ The RFRWG determined that approximately 90% of the Sterling LIBOR loan market can use SONIA compounded in arrears. However What should clients know when considering forward-looking term this methodology would not be appropriate for the remaining 10% RFRs? including: ✓ Regulators have emphasised clients should not wait for forward 1. Smaller/Retail clients - need simplicity or payment certainty. looking RFRs to become available if they can transact in RFRs compounded in arrears, and should continue liaising with their 2. Trade and working capital products - use discounted cash vendors to enhance their RFR systems and capabilities. flows, need a clear rate as clients often can’t access live market curves. 3. Export Financing/Emerging Markets – often need more time to make interest/principal payments. What do clients need to do in relation to forward-looking RFRs? 4. Islamic Banking - LIBOR and other relevant IBOR’s are ✓ Review current exposures and identify any where the RFR used in Islamic finance transactions as they are forward- compounded in arrears approach may not be possible or appropriate. looking rates which enables the floating rate to be set at the ✓ Assess operational/system readiness to use forward-looking term start of the calculation period for the contracts. It is RFRs once available/liquidity levels improve. significantly more challenging to use backward-looking rates, as the rate will not be known until the end of the calculation ✓ Contact their relationship manager if they have any questions. period. 19 PUBLIC

9. Forward-looking RFRs

9.2 Expected timelines for completion

US (SOFR) UK (SONIA) Japan (JPY) Europe (€STR)

Date ▪ Publication expected end H1 ▪ The RFRWG has noted they ▪ Expected publication date of final ▪ Publication timing TBD. 2021. intend on removing the “beta” tag production rates by end H1 2021. ▪ Testing to begin early 2021. to the current vendor rates by end 2020.

Vendors ▪ Currently unknown – RFP The following are all potential ▪ Quick Corp. The following providers are being process ongoing for a potential vendors: considered: vendor. ▪ ICE Benchmark administration ▪ IHS Markit (IBA) ▪ European Money Markets ▪ Refinitiv. ▪ Institute IBA (EMMI) ▪ FTSE Russell. ▪ Refinitiv ▪ FTSE Russell Status ▪ ARRC released a RFP for ▪ Beta term rates currently being ▪ QUICK Corp was chosen in Different vendors are beginning vendors to produce a rate for tested February 2020 following 2 market testing at different times: one and three months and if consultations, to commence ▪ IHS Markit - end of 2020 possible six months and a year. First published rates as follows: developing a prototype JPY term ▪ EMMI - start of 2021 ▪ IBA – 26 June 2020 rate to replace JPY LIBOR, ▪ Refinitiv and FTSE Russell have ▪ Refinitiv – 1 July 2020 based on JPY OIS. not indicated when they will start ▪ FTSE Russell – 06 July 2020 testing Calculation ▪ The ARRC has mentioned in its ▪ All three potential vendors utilise ▪ Waterfall structure based on five ▪ All four potential vendors utilise a methodology FAQs that the forward-looking a waterfall structure between two levels of Japanese OIS data. waterfall structure using OIS and SOFR should be based on a and four levels using SONIA OIS Executed transaction data is used futures data with between three liquidity derivatives market. quotes. first, followed by quote data if this and six levels. ▪ In the latest FAQs for the is not sufficient. ▪ EMMI IBA, Refinitiv and FTSE forward-looking RFP, the ARRC Russell are all using OIS data noted they have not specified and futures committed quotes that any particular source of from multilateral trading facilities transactions data for SOFR (MTFs) and exchanges. derivatives is preferred over ▪ In comparison IHS Markit is using another source, referring to OIS OIS and futures trade data. versus futures data.

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10. Client Readiness and Preparations

10.1 Checklist of Key Considerations The below points outline a summation of the key actions you should consider as part of the transition planning. The Bank has also published a “Checklist for Success” for you to avail of on the LIBOR Transition webpage.

Understand Key Developments ▪ Familiarise yourself with the Transition of LIBOR and other relevant IBORs, the Bank’s efforts to date and the potential impact to you. Assess Exposure ▪ Understand the extent of your business’ exposure to LIBOR and other relevant IBORs and quantify how much exposures mature beyond the end of 2021.

Determine Legal Impact ▪ Understand what the ISDA Protocol is and the impact it may have to legal and contractual documentation. Accounting Considerations ▪ Review your LIBOR and other relevant IBOR exposures and hedging relationships with regards to the International Accounting Standards Board (IASB) phase 2 amendments for benchmark reform.

Operational Considerations ▪ Upgrades to systems linked to LIBOR and other relevant IBORs to allow for trade bookings, treasury, reporting and develop pricing mechanisms based on RFRs. ▪ Develop plans to ensure all system and process changes are executed, tested, and validated in time for the transition. ▪ Assess the contractual terms and strength of fallbacks referenced. Understand the Risk & Treasury Impact ▪ Consider the implications on treasury and risk management systems and processes. Transfer to RFR Products ▪ Familiarise yourselves with the Bank’s RFR product capabilities and consider your suitability according to your business needs. Communicate with Impacted Parties ▪ Engage in conversations with your counterparties to discuss the impact of the transition on current arrangements. ▪ Raise awareness and educate relevant employees within the organisation. 21 PUBLIC

11. The Bank’s Response

11.1 Our Focus Standard Chartered acknowledges the importance of the transition and is responding with the following:

The Bank has established a global IBOR Transition Programme to consider all aspects arising from the transition and how any arising risks will be mitigated.

The Bank is actively participating in many of the industry working groups aimed at facilitating an orderly transition away from LIBOR, and continuously monitoring market developments in order to align to the best practice.

The Bank is continuously monitoring the ongoing developments associated with the transition and will align accordingly.

The Bank is ensuring our people understand the transition,. how it affects you and what is required going forward.

The Bank is committed to partnering with and assisting you through the transition.

The Bank has already introduced RFR-linked products and will continue to develop RFR capabilities.

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12. Next Steps

12.1 Next steps for you We will be engaging with you to support you in your transition to the RFRs, and to progress your preferred remediation options for your legacy LIBOR contracts. In the interim, below are the recommended actions and next steps to ensure a successful transition.

Understand the industry You should prepare yourself for potential changes as market participants adhere to targets on LIBOR product the product specific cessation timelines. cessation

Familiarise yourself with Understand the depth of the RFR markets and how the RFR products function, RFR markets and products paying particular attention to interest calculation methodologies and conventions.

When your operational systems and processes are ready, take steps to actively Operational readiness transition away from LIBOR and other relevant IBORs, by starting to transact in RFR products.

Understand the extent of your business’ exposure to LIBOR and other relevant Identify all of your LIBOR IBORs, review the transactions in your books, and identify the contracts linked to exposures these rates.

Where you need more information specific to you, please contact your Relationship Manager or email [email protected].

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13. Resources and Contacts

Below are some key resources and guidance to help support you in relation to your IBOR transition efforts.

Dedicated LIBOR Transition webpage

LIBOR Events webpage on Client Briefing Sessions

‘Checklist for Success’ – Standard Chartered’s LIBOR Transition readiness checklist

‘LIBOR Transition – What you need to know brochure on the current IBOR developments

ISDA Benchmark Reform at a Glance and Fallbacks Supplement and Protocol

ARRC’s Recommended Best Practices and Paced Transition Plan

RFRWG’s Priorities and Milestones

LMA’s Glossary of Terms and Guidelines

If you have additional queries on the transition, please reach out to your respective Standard Chartered point of contact or email [email protected] 24 PUBLIC

Appendix

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Appendix 1: Case Study – Mitigating Basis Risk

Mitigating Potential Basis Risks on a Floating Rate Portfolio

10Y GBP basis swap (GBP 3M LIBOR vs SONIA) Case 1: A corporate has GBP fixed rate bonds and entered into multiple fixed to float interest rate swap contracts to convert the bonds’ interest from fixed to floating (GBP 3M LIBOR + Spread)

Case 2: An institution invested in a portfolio of GBP fixed income instruments. In managing the interest rate risk, it entered into multiple fixed to float interest rate swap contracts to convert the return of the underlying bonds 3Y GBP basis swap from fixed to floating (GBP 3M LIBOR + Spread) 5Y GBP basis swap (GBP 3M LIBOR vs SONIA) (GBP 3M LIBOR vs SONIA)

▪ The LIBOR discontinuation presents a potential risk of valuation jump in both cases Problem ▪ Depending on the final transition methodology and levels being agreed upon after the transition, the cash flows and valuation of the swaps are likely to be based on the prevailing SONIA swap curve

▪ Clients can consider entering into a LIBOR/SONIA basis swap to hedge against the risk of valuation jump Solution ▪ In the past year, the GBP LIBOR-SONIA basis swap curve has flattened across the tenor (Chart) suggesting spreads are adjusting to historical median. This could be an opportunity to lock in basis and hedge against jump risk mentioned above

7. Source: Bloomberg 26 PUBLIC Appendix 2A: Case Study – Characteristics of an RFR Loan

SONIA Loan

Transaction Terms Risk Considerations GBP SONIA Loan ▪ Interest is based on fixings computed over the interest period and hence the interest amount is only known two business days before the payment8 Borrower Corporate A ▪ SONIA fixing exposure can be hedged in the swap and futures markets. As SONIA derivatives are still at a nascent stage, the liquidity of these markets Standard Chartered Bank (Hong Kong) Limited; or Lender may be lower and transactional costs may be higher compared to LIBOR Standard Chartered Bank (Singapore)Limited derivatives Tenor 5 years Interest Calculation of SONIA Loan Currency GBP ▪ SONIA Compound Rate is calculated based on SONIA rate compounded daily over the interest period, given that SONIA itself is an overnight rate, while the SONIA Compound Rate7 + Margin for the relevant Interest Rate interest period is at the Borrower’s option Interest Period Interest Period 7 days Example of Interest Amount Calculation ▪ Notional of GBP 10 million, interest rate of SONIA Compound Rate + Margin Day Count Act/365 ▪ Illustrative Interest Period is seven days, interest is payable two business days after the end of Interest Period. Day count convention of Actual/365 SONIA Compound Rate Formula ▪ Interest amount calculation for one interest period: Where, d = No of days in Calculation Period SONIAi =SONIA rate applicable on business day i ni = No of days for which SONIA rate applies

Day 1 - Monday Day 2 - Tuesday Day 3 - Wednesday Day 4 - Thursday Day 5 - Friday Day 6 - Saturday Day 7 - Sunday Day 10 – Wednesday SONIA: 0.72% SONIA: 0.70% SONIA: 0.68% SONIA: 0.71% SONIA: 0.73% (Interest Payment n: n: n: n: n: Date)

7SONIA Compound Rate is calculated by compounding SONIA daily over the interest period. 8The actual mechanics shall follow the Loan’s terms and conditions. It may be different to standard in SONIA market 27 PUBLIC Appendix 2B: Case Study – Characteristics of an RFR Floating Rate Note

SONIA Floating Rate Note Transaction Terms Description GBP SONIA Note ▪ Short-term FRN denominated in GBP issued by Standard Chartered Bank Standard Chartered Bank (Hong Kong) Limited; or (Singapore) Limited (A/A1/A) or Standard Chartered Bank (Hong Kong) Limited Issuer (A+/A1/--) Standard Chartered Bank (Singapore) Limited ▪ The floating rate coupon references SONIA, fixed and compoundeddaily, plus Tenor Six months or one year a flat spread. Coupon is paid semi-annually Currency GBP Risk Considerations ▪ Coupon is based on fixings computed over the coupon period and hence the Coupon SONIA Compound Rate10+ [ ] bps interest amount is only known two business days before the payment9 Coupon Frequency Semi ▪ SONIA fixing exposure can be hedged in the swap and futures markets. As SONIA derivatives are still at a nascent stage, the liquidity of these markets may Day Count Act/365 be lower and transactional costs may be higher compared to LIBOR derivatives A+/A1/-- (S&P/Moody’s/Fitch) for Standard Interest Calculation of SONIA Floating Rate Note Chartered Bank (Hong Kong) Limited Issuer Rating ▪ SONIA Compound Rate is calculated based on SONIA rate compounded daily A/A1/A (S&P/Moody’s/Fitch) for Standard over the coupon period, given that SONIA itself is an overnight rate, while the Chartered Bank (Singapore) Limited coupon period is semi-annually Example of Interest Amount Calculation SONIA Compound Rate Formula ▪ Notional of GBP 10 million, interest rate of SONIA Compound Rate +10bps Where, ▪ Coupon period is seven days, interest is payable two business days after the end d = No of days in Calculation Period of coupon period. Day count convention of Actual/365 SONIAi =SONIA rate applicable on business day i ▪ Interest Amount calculation for one couponperiod: ni = No of days for which SONIA rate applies

9 The actual mechanics shall follow the Note’s terms andconditions. It may be different to standard in SONIA market 10SONIA Compound Rate is calculated by compounding SONIA daily over the coupon period. 28 PUBLIC

Appendix 3: List of Regulatory and Industry Bodies

▪ The US based Alternative Reference Rates Committee ▪ The Working Group on Sterling Risk-Free Reference Rates ▪ The Working Group on Euro Risk-Free Rates ▪ The National Working Group on Swiss Franc Reference Rates ▪ Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks ▪ Interest Rate Benchmark Reform in Australia ▪ Canadian Alternative Reference Rate Working Group ▪ The Steering Committee for SOR Transition to SORA ▪ International Swaps and Derivatives Association on Financial Benchmarks ▪ Financial Stability Board's Benchmark publications ▪ International Accounting Standards Board Interest Rate Benchmark Reform ▪ International Capital Market Association's Benchmark Reform ▪ Loan Mortgage Association work on LIBOR

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Abbreviations

€STR Euro Short-Term Rate IASB International Accounting Standards Board ARRC Alternative Reference Rates Committee IBOR Interbank Offered Rate BD Business Day ICMA International Capital Markets Association BoE Bank of England ICMSA International Capital Market Services Association BP Basis Points ISDA International Swaps and Derivatives Association CCP Central Counterparty JPY Japanese Yen CHF Swiss Franc LCH London Clearing House CLO Collateralised Loan Obligations LIBOR London Interbank Offered Rate CME Chicago Mercantile Exchange Group LMA Loan Market Association ECB European Central Bank LSTA Loan Syndications and Trading Association EFFR Effective Federal Funds Rate NY New York EIB European Investment Bank OIS Overnight Index Swap EIR Effective Interest Rate OSSG Official Sector Steering Group EMMI European Money Markets Institute PAI Price Aligned Interest EONIA Euro Overnight Index Average RFR Risk-Free Rate EU European Union SC-STS Steering Committee for SOR Transition to SORA EURIBOR Euro Interbank Offered Rate SOFR Secured Overnight Financing Rate FCA Financial Conduct Authority SONIA Secured Overnight Index Average FM Financial Markets SORA Singapore Overnight Rate Average FRBNY Federal Reserve Bank of New York THOR Thai Overnight Repurchase Rate FRN Floating Rate Note TLREF Turkish Lira Overnight Reference Rate FSB Financial Stability Board USD United States Dollar GBP Sterling pounds WG Working Group

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Disclaimers

SCB does not provide, and has not provided, any investment advice or personal recommendation to you in relation to the transaction and/or any related securities described herein and is not responsible for providing or arranging for the provision of any general financial, strategic or specialist advice, including legal, regulatory, accounting, model auditing or taxation advice or services or any other services in relation to the transaction and/or any related securities described herein. The particular tax treatment of a service or transaction depends on the individual circumstances of each client and may be subject to change in the future. Accounting laws, rules, regulations, standards and other guidelines may differ in different countries and/or may change at any time without notice. SCB may not have the necessary licenses to provide services or offer products in all countries or such provision of services or offering of products may be subject to the regulatory requirements of each jurisdiction and you should check with your advisors before proceeding. Accordingly SCB is under no obligation to, and shall not determine the suitability for you of the transaction described herein.

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