MAS says new regime to start in 3Q13.
Speaking at the 8th Annual FIA Asia Conference. Lee Chuan Teck, Assistant Managing Director, Monetary Authority of Singapore have said that Singapore, along with the EU, Australia, and Hong Kong will follow Japan’s move to regulate OTC derivatives. Japan this month has started to mandate the clearing of YEN IRS and CDS trades between domestic dealers.
The move was in line to what was agreed in the G20 Communiqué of 2009, which states that “all standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties...All OTC derivative contracts should be reported to trade repositories, and non-centrally cleared contracts subjected to higher capital requirements”.
Mr Lee believes that if the regulations had been in place before 2008, the sub-prime crisis will likely still have occurred, but it will arguably be a lot more contained.
Here’s the update on the progress of Singapore’s derivative regulations and the roadmap ahead, according to Mr. Lee:
This month, the Singapore Parliament passed amendments to the Securities and Futures Act, which laid the cornerstone for our regulatory changes. Broadly speaking, the amendments will (a) introduce a new licensing regime for trade repositories and amend the licensing regime for central counterparties and (b) allow MAS to mandate the reporting and clearing of derivative transactions. Let me elaborate on each of these two parts.
First, the regimes for TRs and CCPs. A few key considerations inform our drafting of regulations for TRs and CCPs. Most fundamentally, we believe that our regime must be in accordance with CPSS-IOSCO principles so that entities operating here will be recognized by other regimes and well-accepted by global market participants. Specifically for CCPs, we would need to consider segregation requirements for customers’ monies. The requirements aim to strengthen protection of margins for customers of non-defaulting members, and to facilitate portability of such positions in the event of a default. In line with the implementation of mandatory clearing, it is important to ensure that the level of protection of customer margins for cleared OTC derivatives is comparable to that for un-cleared OTC derivatives. MAS is considering an appropriate model for our local context, taking into consideration the costs and benefits.
In addition, we are also in discussions with both Singapore-based and overseas entities, on their plans to seek licensing and offer services to Singapore market participants. The response has been good. Our intention is that there should be enough good quality TRs and CCPs offering their services in Singapore for market participants to choose from. This will minimise market disruption, as participants can continue to clear and report their trades at infrastructures which they are familiar with.
Next, the reporting and clearing mandates. In the months ahead, we will be providing details on entities and transactions that will be exempted. At this stage, I can say that there are three things we will likely do (a) broaden our definition of hedging from the one used in the consultation. For some of you that are aware, we proposed an accounting definition in our consultation paper. (b) agree not to require back-loading and (c) exempt FX forwards and swaps. We are still considering other areas.
From 3Q2013, we will begin with our regime. We will likely start with implementing the reporting mandate first. With information from the TR in place, this will help us to better formulate the implementation of clearing and other mandates. As I noted before, we will focus on interest rate and FX products since these 2 categories make up 93% of our (Singapore’s OTC derivatives) market.
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