Asia on Track with OTC Reforms

Terry Flanagan

Fears of regulatory arbitrage unfounded, experts say.

The perception that the U.S. and Europe have been ahead of Asia on OTC reforms has sparked fears of regulatory arbitrage. But any gap may be closing, as regional authorities have in recent months churned out consultation papers and worked with the International Organization of Securities Commissions.

Cleartrade Exchange, which is regulated by Monetary Authority of Singapore, has been closely following regulatory developments in the Asia-Pacific region.

“We are seeing Asian jurisdictions, particularly Singapore and Hong Kong, making their positions clear on how they will approach the G20 reforms,” Richard Baker, CEO of Cleartrade Exchange, told Markets Media. “Regulators are doing a good job of communicating that there won’t be a ‘lighter touch’ regime in Asia, certainly not in the primary markets.”

The Monetary Authority of Singapore has proposed that regulatory oversight of commodity derivatives be transferred from the Commodity Trading Act to the Securities and Futures Act, so entities operating markets or clearing facilities for commodity derivatives and commodity futures will only need to seek authorization from one regime. MAS is also proposing to expand the regulatory scope of the SFA to include derivative contracts.

Asian regulators are wary of enacting legislation before global standards are set as it could be difficult to amend legislation once passed.

Their intention is to harmonize with global regulation, not to create arbitrage opportunities, said the International Swaps and Derivatives Association.

That’s understandable given that the Financial Stability Board has not finalized standards on mutual recognition of third country CCPs or LEI standards, CPSS/IOSCO has not finalized CCP risk management standards and rulemaking under Dodd Frank and EMIR remains a work in progress, ISDA said.

The APAC G20 signatories – Australia, China, India, Japan and South Korea – are all on track to meet their mandatory clearing and reporting requirements.

With the exception of Japan, APAC regulators have chosen not to address the G20 plank on exchanges or electronic trading platforms at this time.

“The drafters of Dodd Frank and EMIR have chosen to make electronic trading platforms an important part of their regulatory reforms, but that does not mean that APAC jurisdictions should have to do so or stand accused of regulatory arbitrage,” said ISDA. “Asian jurisdictions will abide by global consensus reforms, not U.S. or European domestic regulations.”

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