Singapore Crafts OTC Plan

Terry Flanagan

Oversight of commodity derivatives to be transferred to Monetary Authority of Singapore.

Singapore has created a plan to implement OTC derivatives reforms mandated by the G-20.

The Monetary Authority of Singapore has proposed that regulatory oversight of commodity derivatives be transferred from the Commodity Trading Act (CTA) to the Securities and Futures Act (SFA), so that entities operating markets or clearing facilities for commodity derivatives and commodity futures will only need to seek authorization from MAS instead of two regimes.

MAS is also proposing to expand the regulatory scope of the SFA to include derivative contracts on the major asset classes of commodities, credit, equity, foreign exchange and interest rates.

As the expansion will result in derivative contracts on commodities coming under the ambit of the SFA, there will be an overlap with the regulation of commodity derivatives, which currently falls under the CTA.

By having MAS take over regulatory oversight of commodity derivatives, the proposal will provide better synergy and alignment of regulatory approach across the major classes of OTC derivatives.

“We are cognizant that due to the nature of the underlying products, commodity derivatives may have certain characteristics distinct from those of financial derivatives,” said MAS. “Where appropriate, MAS will take into account these differences when considering the regulatory framework for OTC derivatives.”

Many jurisdictions (including the US, the EU, Japan, Australia and Singapore) have initiated proposals to implement the G20 commitments.

“It is foreseeable that some countries outside of the E.C., such as Singapore and Hong Kong, might be more nimble to pass some key rules, such as clearing and reporting, by the end of 2012,” Jiro Okochi, CEO of Reval,a provider of an integrated treasury and risk management system, told Markets Media.

Efforts to achieve harmonization at the regulatory level are proceeding apace, according to a joint SEC/CFTC report to Congress.

The SEC and CFTC are working on a project of the International Organization of Securities Commissions (IOSCO) to coordinate central clearing requirements for counterparties to OTC transactions, and on a project of the Committee on Payment and Settlement Systems (CPSS) and IOSCO on principles for financial market infrastructures, including CCPs and trade repositories.

The SEC and CFTC are also engaged in bilateral discussions with regulatory counterparts in the EU, Japan, Hong Kong, Singapore and Canada.

Hong Kong is on track to launch an OTC derivatives clearing system by mid-2012.

Hong Kong Exchanges and Clearing Ltd. (HKEx) has established two new departments, the OTC Clearing Operations Department and the OTC Clearing Risk Management Department, to be responsible for the OTC clearing business.
HKEx completed the platform selection process and commenced implementation work in November 2011.

In Canada, the Canadian Securities Administrators (CSA) has released a timetable of public consultations related to derivatives reforms, which calls for seven publications over the next two months, to go along with the two that were published in 2011.

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