29 April 2019
On 22 April 2019, the Singapore Exchange Limited (“SGX”) revised the financial and capital requirements of Remote Clearing Members (“RCMs”), Remote Trading Members (“RTMs”), Bank Clearing Members (“BCMs”) and Bank Trading Members (“BTMs”) to take into account recent developments in the regulatory landscape and to better reflect the levels of risk they pose. Amendments were made to the Clearing Rules of Singapore Exchange Derivatives Clearing Limited (“SGX-DC”) and the Central Depository (Pte) Limited (CDP), the Singapore Exchange Securities Trading Limited Trading Rules and the Futures Trading Rules to implement these changes on 22 April 2019.
By way of background, on 5 July 2018, SGX released a consultation paper titled “Proposed Revision of the Financial and Capital Requirements on Bank and Remote Members” (“Consultation Paper”) seeking comments on these proposals. On 8 April 2019, SGX released its Response to feedback on the Consultation Paper (“SGX Response”).
Key changes to the financial and capital requirements of RCMs, RTMs, BCMs and BTMs are set out briefly here.
Removal of risk-based capital requirements and reliance on home regulator’s financial and capital requirements
Previously, SGX imposed risk-based capital requirements (“SGX RBC requirements”) on both Singapore-incorporated bank members and non-bank members. The SGX RBC requirements mirrored the regulations issued by the Monetary Authority of Singapore (“MAS”) that were applicable to capital market services license holders. SGX imposed a set of capital and financial requirements on certain foreign-incorporated BCMs in addition to the capital requirements already imposed by the regulators of the countries where the BCMs carry out their regulated activities (“RRAs”).
With effect from 22 April 2019, Singapore-incorporated BCMs and BTMs are no longer required to comply with SGX RBC requirements. Instead, they are required to show compliance with the RBC adequacy requirements prescribed by MAS, and in the case of BCMs, the minimum liquidity requirements prescribed by MAS. Foreign-incorporated BCMs and BTMs are only required to show compliance with the financial, capital and notification requirements of their RRAs. This is contingent on the financial and capital requirements of the RRA being in line with the Basel capital adequacy and liquidity framework. The SGX Response states that SGX deems an RRA’s capital and liquidity requirements to be in line with the Basel framework if:
- it is represented on the Basel Committee on Banking Supervision (“BCBS”) and has not been assessed as “non-compliant” by the BCBS Regulatory Consistency Assessment Programme; or
- it is not represented on the BCBS but has voluntarily implemented Basel III standards (including the Liquidity Coverage Ratio).
Previously, the SGX-DC Clearing Rules required RCMs to comply with RBC requirements which comprised minimum capital and financial requirements in relation to base capital, financial resources and aggregate indebtedness, and mirrored the requirements as applied to local General Clearing Members. On 22 April 2019, SGX replaced these RBC requirements with the financial and capital requirements as adopted by the RCM’s RRA, if the RRA adopts a capital adequacy framework comparable to that of SGX’s.
Redefinition of base capital for bank and remote members
The definition of “base capital” is revised to refer to the paid-up ordinary share capital and unappropriated profit or loss of an RCM, RTM, BCM or BTM. Previously, the “base capital” definition made reference to the meaning under Regulation 2 of the Securities and Futures (Financial and Margin Requirements for Holders of Capital Markets Services Licenses) Regulations. SGX is of the view that the revised definition is of more direct and relevant application to bank and remote members. With the amended definition of base capital, the capital and financial requirements of all classes of BCMs of the SGX-DC are also harmonised.
Removal of net liquid capital requirements for RTMs
Previously, RTMs engaging in agency trades (“Agency RTMs”) must comply with requirements imposed by their RRAs and SGX’s requirements to compute and maintain net liquid capital requirements of at least S$1 million, and submit financial returns and audit reports in an SGX-prescribed format (“NLC requirements”). Agency RTMs are no longer required to comply with the NLC requirements. Instead, they must now maintain a base capital (defined as paid-up ordinary share capital and unappropriated profit or loss) of not less than S$1 million. Base capital is a straightforward computation and readily available in the financial reports that RTMs submit to their RRAs.
The following materials are available on the SGX website www.sgx.com or by clicking on the links below:
- SGX Response to feedback on consultation paper on “Proposed Revision of the Financial and Capital Requirements on Bank and Remote Members”
- Amendments to the SGX-ST Trading Rules
- Amendments to the Futures Trading Rules
- Amendments to the SGX-DC Clearing Rules
- Amendments to the CDP Clearing Rules