15 March 2022

On 28 February 2022, the Monetary Authority of Singapore (“MAS”) issued the Notice on Capital Requirements for Recognised Market Operators that are Formed or Incorporated in Singapore (“Notice”). The Notice, which will take effect on 28 March 2022, establishes the liquidity and solvency requirements for recognised market operators formed or incorporated in Singapore (“Specified RMOs”) and the methodology which a Specified RMO must use for calculating its liquid assets and eligible capital and its liquidity and solvency requirements.

By way of background, MAS issued a consultation paper on 23 October 2020 and sought feedback on proposed amendments to the capital requirements for Specified RMOs. The review aimed to ensure that capital requirements for market operators remain adequate and commensurate with pertinent risks that they may pose to the financial system. The consultation closed on 4 December 2020 and, on 28 February 2022, MAS issued its response to the feedback received.

The following is an outline of the requirements under the Notice.

General requirements for liquid assets and eligible capital

A Specified RMO must not cause or permit its liquid assets to fall below its liquidity requirement or cause or permit its eligible capital to fall below its solvency requirement. A Specified RMO must immediately notify MAS if its liquid assets or eligible capital fall below 120% of the liquidity requirement or solvency requirement respectively. A Specified RMO must calculate its liquid assets and eligible capital for each business day no later than the end of the following business day.

Liquidity requirement

The Notice introduces a liquidity requirement which requires a Specified RMO to hold liquid assets of at least 25% of its annual operating expenses as stated in the latest audited financial statements of the Specified RMO. A Specified RMO must calculate its liquid assets as the sum of the following items in its latest available accounts: (a) cash and cash equivalents, (b) debentures of the Government, (c) negotiable certificates of deposit, and (d) money market funds.

MAS has considered the feedback from respondents and has excluded depreciation and amortisation (“D&A”) expenses from the calculation of annual operating expenses. MAS has also clarified in its response that it does not intend to require that cash and cash equivalents be kept in an operating account or segregated in a separate bank account. MAS has also stated that it does not view intercompany receivables as liquid assets.

Solvency requirement

MAS has recalibrated the solvency requirements for Specified RMOs and removed the exclusion of illiquid assets from the computation. The revised solvency requirement under the Notice requires a Specified RMO to hold eligible capital of at least 25% of its annual operating expenses or S$250,000, whichever is higher.

A Specified RMO must calculate its eligible capital as the sum of the following items in its latest available accounts:

  • base capital;
  • paid-up irredeemable and cumulative preference share capital;
  • paid-up redeemable preference share capital provided that the redeemable preference share has a redemption period of not less than two years from when the preference share is issued and paid-up;
  • revaluation reserves;
  • other reserves; and
  • interim unappropriated profit.

The following items are to be excluded from the calculation of eligible capital:

  • intangible assets;
  • future income tax benefits;
  • pre-paid expenses;
  • charged assets, except to the extent that the Specified RMO has not drawn down on the credit facility if the charge is created to secure a credit facility; and
  • treasury shares, if they are not already excluded from the base capital of the Specified RMO.

MAS explained in its response that, unlike the treatment of D&A expenses for the liquidity

requirement, MAS has not excluded D&A from annual operating costs for calculating the solvency requirement. MAS views the solvency requirement as a reflection of financial viability, and as such, Specified RMOs should hold adequate capital to replenish depreciating assets.

Reference materials

The following materials are available on the MAS website www.mas.gov.sg via the relevant webpage: