As a result of the 2008 Global Financial Crisis, in 2009, the G20 and Financial Stability Board agreed to implement a set of reforms to improve transparency, mitigate systemic risk, and protect against market abuse in the OTC derivatives markets. The MAS and SFC have since progressively implemented reforms in the areas of trade reporting, risk mitigation and margining of non-centrally cleared OTC derivatives, and mandatory clearing of OTC derivatives.
Mandatory central clearing of OTC derivative trades at regulated central counterparties
Under the MAS’ regime, Capital Markets Services (CMS) Licence holders are exempt from the requirement to clear their OTC derivatives trades. Only banks that are licensed under the Banking Act whose aggregate outstanding notional amount exceeds S$20 billion for the most recent quarter and for each of the preceding three consecutive quarters are required to clear their OTC derivatives trades.
Under the SFC’s regime, only authorised institution, licensed corporation or an approved money broker are subject to the mandatory clearing and related record keeping requirements in relation to certain specified OTC derivatives (e.g.,basis swap, fixed-to-floating swap and overnight index swap). The clearing threshold is currently set at US$20 billionfor all calculation periods specified in the Securities and Futures OTC Derivative Clearing Rules.
Mandatory reporting of OTC derivative trades to regulated trade repositories
Generally, financial institutions and other persons with significant derivatives activities are subject to reporting obligations. Specified derivatives contracts (Interest Rate Derivatives, Credit Derivatives, FX Derivatives, Commodity Derivatives, Equity Derivatives) which are traded and/or booked in Singapore are in scope of the reporting obligations. CMS licence holders can rely on certain exemptions to avail themselves from the mandatory reporting.
Regulatory oversight of OTC Commodity Derivatives
Regulatory oversight of commodity futures and commodity derivatives come under the purview of the MAS. Physical commodities trading comes under the purview of International Enterprise Singapore.
Margining of non-centrally cleared OTC derivatives
These regulations are only applicable to banks and merchant banks licensed under the Banking Act, with other financial institutions currently excluded from the margin requirements. MAS continues to maintain oversight through consolidated supervision of local financial groups and will periodically review as appropriate, the scope of entities that should be subject to margin requirements.
How we help entities with OTC derivatives activities
Our local experts can help you meet clearing and reporting requirements where applicable. We work with entities with OTC derivatives activities to meet local compliance obligations through ongoing compliance advisory, implementation support, focused compliance reviews, and short-term resourcing.