MAS imposes new liquidity standards for RMOs

MAS impose new liquidity standards for RMOs

As of the 28th of March, RMOs will have to hold liquid assets of at least 25% of their annual operating expenses. This new requirement comes alongside a reduction in solvency requirements and guidance on computation.

FinTech entrants, new products and adoption of blockchain technology mean Singapore’s organised markets continue to become more complex. To better manage the risks posed by this vibrant and growing sector MAS has introduced new liquidity and recalibrated solvency requirements.

In October 2020, MAS released a consultation paper on Capital Requirements for Recognised Market Operators – or RMOs. Last month, the regulator published its consultation feedback, alongside a notice that sets out the new liquidity and solvency requirements and computation methodologies: Proposed Amendments to the Capital Requirements for Locally Incorporated Recognised Market Operators. The notice, which only impacts locally incorporated RMOs, comes into effect on 28 March 2022.

Key risk posed by RMOs

The primary function of a market operator is to operate organised markets in a fair, orderly and transparent manner. Market operators typically do not take on counterparty risk, neither do they hold customer monies. In the case of RMOs, they do not serve retail customers so the impact to the general public is considered relatively small.

The key risk posed by an RMO to the financial system is, in MAS’s view, operational. In other words, this is the risk that the RMO is unable to continue operating its organised markets, leaving participants of the RMO with the need to find alternative trading venues.

Liquidity requirement

Although RMOs are currently required to hold minimum financial resources of S$500,000, there have not been any direct liquidity requirements up till now. The MAS has taken a prudent approach to introduce a new liquidity requirement designed to give comfort that market operators have sufficient liquid assets to continue operations while their participants find alternative trading venues to trade on.

This new liquidity requirement requires RMOs to hold liquid assets of at least 25% of their annual operating expenses. Such liquid assets should only include cash and cash equivalents, government debentures, negotiable certificates of deposit and money market funds. RMOs are also permitted to exclude certain expense items from the annual operating expenses that are not expected to recur regularly, as well as depreciation and amortisation expenses as stated in the latest audited financial statements.

Solvency requirement

With the introduction of a new liquidity requirement, MAS has recalibrated the existing solvency requirements downwards, removing the exclusion of illiquid assets from the computation.

The new solvency requirement requires RMOs to hold eligible capital of at least the higher of (i) 25% of their annual operating expenses, or (ii) S$250,000. Eligible capital comprises equity with certain deductions, such as intangible assets and pre-paid expenses.

If you are an RMO in Singapore you will need to calculate your liquid assets and eligible capital daily from the end of March. You will also need to inform the MAS as soon as possible if your liquid assets or eligible capital fall below 120% of the respective liquidity and solvency requirements.

How we can help

Bovill regularly works with Singapore RMOs and foreign RMOs to ensure that they meet their regulatory obligations. Our work ranges from licensing to providing tailored ongoing support. Specifically, as you prepare for the new capital requirements, we can help you:

  • perform a review of your policy, procedure and oversight framework
  • perform a detailed computation of your liquidity and solvency requirement.
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