28 March 2018
On 21 February 2018, the Monetary Authority of Singapore (“MAS”) issued a consultation paper entitled “Draft Regulations for Mandatory Trading of Derivatives Contracts” and sought feedback on proposed regulations requiring the trading of over-the-counter (“OTC”) derivatives on organised markets. The consultation closed on 23 March 2018.
Feedback was sought on the proposed Securities and Futures (Trading of Derivatives Contracts) Regulations (“SF(TDC)R”), which are intended to operationalise the new Part VIC of the Securities and Futures Act (“SFA”) on mandatory trading of OTC derivatives contracts on organised markets. Part VIC of the SFA will be introduced pursuant to the Securities and Futures (Amendment) Act 2017 (“SF(A) Act”), which was gazetted on 16 February 2017 and has not yet commenced.
The draft SF(TDC)R sets out the implementation details of the initial set of products and persons subject to derivatives trading obligations under the new Part VIC of the SFA.
Key proposals include the following:
- Trading obligations for more liquid interest rate swaps: MAS proposes to subject the more liquid US Dollar, Euro (“EUR”) and Pound Sterling (“GBP”) interest rate swaps to trading obligations in Singapore, for tenors which are traded more significantly by participants in Singapore.
- Trading obligations for banks with contracts exceeding S$20 billion: MAS proposes to apply trading obligations only to banks that exceed a threshold of S$20 billion gross notional outstanding of OTC derivatives contracts booked in Singapore for each of the last four quarters. This effectively comprises the same group of banks that will be subject to MAS’ clearing obligations.
- Public bodies exempted: Consistent with other major jurisdictions, MAS also proposes to exempt public bodies from trading obligations. These include all central banks and governments, as well as international multilateral organisations such as the Bank for International Settlements, the International Monetary Fund and the World Bank.
- Trading obligations for products traded in Singapore by both counterparties with contracts exceeding S$20 billion: Consistent with the approach to apply trading obligations to banks that are also subject to clearing obligations, MAS proposes to impose trading obligations only where both counterparties are banks that exceed a threshold of S$20 billion gross notional outstanding of OTC derivatives contracts booked in Singapore for each of the last four quarters.
- Intra-group transactions exempted: MAS proposes to exempt intra-group transactions from the scope of trading obligations.
- Implementation timeframe: MAS intends to issue the SF(TDC)R in conjunction with the commencement of the SF(A) Act, which will include the commencement of the regulatory regime for market operators, including OTC derivatives trading facilities. The SF(A) Act, along with all implementing regulations, is targeted for commencement in 3Q 2018.
- Clearing obligations for interest rate swaps: MAS proposes to commence clearing obligations in respect of EUR and GBP interest rate swaps which fall under certain contract specifications.
The following materials are available on the MAS website www.mas.gov.sg:
- Media release
- Consultation Paper on Draft Regulations for Mandatory Trading of Derivatives Contracts
- Annex B: Draft Securities and Futures Trading of Derivatives Contracts Regulations 2018