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Singapore Proposal Could Strengthen Its Regulation of OTC Derivatives
Practical Law Legal Update 1-600-0606 (Approx. 3 pages)
Singapore Proposal Could Strengthen Its Regulation of OTC Derivatives
by Practical Law Finance
| Published on 11 Feb 2015 • USA (National/Federal) |
The Monetary Authority of Singapore (MAS) has proposed amendments to Singapore's Securities and Futures Act (SFA) that would lay the groundwork for increased regulation of OTC derivatives that fall within its jurisdiction.
On February 11, 2015, the Monetary Authority of Singapore (MAS) proposed amendments to Singapore's Securities and Futures Act (SFA) that would lay the groundwork for increased regulation of over-the-counter (OTC) derivatives that fall within its jurisdiction. These amendments to the SFA are an attempt to complete the expansion of its scope to include the regulation of OTC derivatives. However, to date, no clearing or exchange trading mandate is currently planned by MAS or other Singapore regulators.
Under the new proposal, the MAS would:
- Extend its regulatory scope to OTC derivatives trading platforms and intermediaries.
- Clarify that the SFA definition of "derivatives contracts" is not intended to capture contracts that are transacted at the current spot price under which actual delivery of the underlying asset is intended. The revised definition would include two elements:
- the discharge of obligations at some future time by a party to the contract; and
- determination of the value of those obligations by reference to any underlying asset (equity, interest rate, foreign exchange, credit or commodity).
- Assume the power to regulate derivative trading platforms and the option to force all derivatives to be traded on them if it deems it necessary in the future. The MAS noted that it has no current plans to force OTC derivatives to be traded on electronic trading platforms, unlike regulators in the US and Europe, which have introduced such regulations. However, under the amendments, the MAS would continue to monitor developments, consult the industry and conduct detailed analyses to determine the conditions that might make a trading mandate necessary.
- Transfer regulation of commodity derivatives from the Commodity Trading Act (CTA), currently administered by International Enterprise (IE) Singapore, to the SFA. This includes regulation of:
- markets;
- clearing facilities; and
- intermediaries.
- Require reporting of short selling of securities trading and publication of aggregate short positions to improve transparency in the short selling of securities.
- Provide increased enforcement measures to enhance the authority to take action against market misconduct and increase civil penalties. Applicable market misconduct includes the dissemination of false or misleading information relating to derivatives.
Singapore amended the SFA in November 2012 to implement reforms on:
- OTC derivatives reporting and clearing obligations.
- An extension of its regulatory regime for clearing facilities to OTC derivatives.
- The introduction of a new regulatory regime for OTC derivatives trade repositories.
To date, however, unlike in the US and Europe, the MAS has decided not to force OTC derivatives to be traded on electronic trading platforms, but did not rule out a future trading mandate in this area.
Many market participants have moved their derivatives activities out of their US and EU subsidiaries and into Asian affiliates where post-crisis regulatory efforts have lagged behind those in the US and EU creating regulatory arbitrage opportunities. Regulatory arbitrage has proven to be an issue for both US and EU regulators implementing post-crisis regulatory reforms in the derivatives markets. Hong Kong and Singapore are the largest hubs for Asian derivatives activity.
This Update is based, in part, on material provided by Reuters (http://www.reuters.com/).