The reforms are in line with the pledges made by the Group of 20 leading economies in the wake of the collapse of Lehman Brothers. Their goal is to make it easier to supervise derivative trading and reduce the risk one failed financial institution could pose to the wider finance system.
But Singapore, whose OTC derivative market has around S$9.8 trillion (RM23.64 trillion) in outstanding contracts, is not currently planning to mirror the reforms taken by the United States and Europe by forcing such products to be traded on exchanges or electronic platforms.
RATE SWAPS, FX MAY ALSO BE CONSIDERED
The Monetary Authority of Singapore (MAS) said in a consultation paper that it is also proposing that all OTC derivative trades must be reported to a trade repository, allowing regulators to have a clear idea of what is happening in the markets.
Singapore is one of the largest trading centres for OTC derivatives in Asia, although the size of its market still pales in comparison to those in the United States and Europe, which account for around 80 per cent of all trades.
The MAS has not yet decided which OTC derivative products must be centrally cleared, although it has asked for initial market feedback on whether it would be feasible to centrally clear Singapore and US dollar interest rate swaps along with the non-deliverable forwards of certain Asian currencies.
Singapore Exchange Ltd has offered clearing services for interest rate swaps since late 2010 and for non-deliverable forwards since October last year. MAS, though, is not proposing that any trades must go through a domestic clearing house, meaning international players like LCH.Clearnet and CME Group Inc could provide the SGX with some competition.
MAS said it is also working with the Singapore Foreign Exchange Committee to encourage standardisation of OTC derivative products.
The consultation will run until March 26, with the MAS aiming to have the framework in place by the end of 2012. – Reuters
