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MAS Gets Public Support to Regulate OTC Derivatives

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by Ernie B. Calucag

The Monetary Authority of Singapore (MAS) on Wednesday said it has received extensive feedback from consumers and industry supporting the central bank’s proposals to regulate the multi-billion dollar over-the-counter (OTC) derivatives markets by the end of the year.

The central bank said most respondents were supportive of proposal to extend the “clearing facility” definition to derivatives contracts and the introduction of a new authorisation regime for clearing facilities and trade repositories.

It said feedbacks centred on the importance of protecting customers’ money and assets handled by a clearing facility and concerns over confidentiality of information reported to trade repositories.

“We expect trade repositories to maintain high standards of data integrity and confidentiality, and will establish an appropriate framework for regional and global regulators to request trade repository data based on internationally agreed principles,” the MAS said in a statement.

“MAS will proceed to implement all the proposals pertaining to the clearing facility and trade repository regimes,” it added.

MAS said the reforms are in line with the pledges made by the Group of 20 leading economies to improve the regulation and supervision of the derivatives market in the wake of the 2008/2009 global financial crisis.

“The proposals will reduce systemic risk, improve transparency and protect against market abuse in Singapore’s OTC derivatives market, in a manner consistent with the G20 recommendations,” said Teo Swee Lian, Deputy Managing Director (Financial Supervision) at MAS.

In its consultation paper released last February, MAS had proposed to expand the scope of the Securities and Finance Act (SFA) and make it mandatory for central clearing and reporting of OTC derivative trades.

This means that all OTC derivative transactions booked or traded in Singapore must be reported to a trade repository, allowing regulators to see what is happening in the markets.

The proposed expansion of the SFA will now cover a new class of instruments called “derivative contracts”. This will include five major asset classes such as commodities, credit, equities, foreign exchange and interest rates.

Some 55 per cent of the total OTC derivative contracts in Singapore are interest rate derivatives, 38 per cent are foreign exchange based, while 7 per cent are equity, commodity and credit types.

Singapore is one of the largest trading centres for OTC derivatives in Asia, although the size of its market still pales in comparison to those in the United States and Europe, which account for around 80 per cent of all trades.

To effect the policy proposals set out in the public consultation on the regulation of OTC derivatives, the central bank on Wednesday has also issued a consultation paper on the proposed legislative amendments to the SFA and the Financial Advisers Act (FAA).

The consultation period will end on 22 June 2012.