Singapore issues OTC derivatives mandatory trading regulations

Singapore's monetary authority also issues official response to feedback on OTC derivatives regulations draft on same day

Singapore’s monetary authority released its official regulations for mandatory trading of over-the-counter (OTC) derivatives on March 13, as well as its official response to feedback received on the regulations draft which had been issued in February 2018.

The Monetary Authority of Singapore’s (MAS) regulations set out certain obligations on the trading of derivative contracts that are interest rate swaps (IRS) involving the more liquid US dollar, euro and pound as well as exemptions.

The mandatory trading obligations will take effect on April 1 2020 and will apply to all specified derivatives contracts where both parties are banks which exceed the S$20 billion (US$14.8 billion) threshold in aggregate notional amounts of outstanding OTC derivatives contracts booked in Singapore.

The regulations listed several exemptions including intragroup transactions, package transactions, and transactions with public bodies. The latter includes the Singapore government, statutory boards, foreign central governments and banks, as well as multilateral agencies and organizations.

The regulations are intended to improve market transparency and bring Singapore in line with the US and EU, where similar trading obligations for OTC derivatives have already been implemented.

The official response was issued in regards to feedback received after Singapore issued a consultation paper on proposed regulations to the public on February 21 2018. The consultation period lasted until March 23 2018.

Respondents were broadly supportive of the specifications set out in the consultation paper and the scope, which comprises banks exceeding S$20 billion in aggregate notional amounts of outstanding OTC derivatives contracts booked in Singapore.

While some respondents also suggested MAS publish a list of banks that exceed the trading threshold, MAS indicated it will not do so. MAS said it encourages all banks to trade on organized markets, even if they do not exceed the trading threshold. MAS also advised that banks which exceed the trading threshold should not limit trading on organized markets only with other banks that also exceed the trading threshold.

US and EU market participants may already be subject to mandatory trading obligations in the US and EU respectively. However, any US dollar, euro or pound IRS will be subject to Singaporean rules if traded in Singapore by both counterparties. On March 13, MAS also announced with the Commodity Futures Trading Commission in a joint statement the mutual recognition of certain trading venues in the US and Singapore. Earlier on February 20, the MAS announced it planned to recognize that certain EU multilateral trading and organized trading facilities are equivalent in a joint release with the European Commission.


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