Singapore – Regulations For Mandatory Clearing Of Derivatives Contracts Proposed.

16 July, 2015

 

On 1 July 2015, the Monetary Authority of Singapore (the "MAS") issued a consultation paper inviting comments on the Draft Regulations for Mandatory Clearing of Derivatives Contracts, which generally implement proposals on mandatory central clearing of over-the-counter ("OTC") derivative contracts. This represents another stage in the implementation of OTC derivatives reform in the Singapore regulatory regime.

 

The key proposals in this consultation paper are outlined below. The consultation paper and proposed draft regulations may be found here. MAS has requested for feedback on this consultation paper by 31 July 2015. 

 

The key proposals are as follows:

 

1. Specified derivatives contracts to be cleared. MAS intends to commence mandatory clearing by asset class, beginning with interest rate derivative contracts (including interest rate swaps). At a minimum, the Singapore-dollar ("SGD") fixed-to-floating swaps based on the Swap Offer Rate ("SOR") and the U.S. dollar ("USD") fixed-to-floating swaps based on the London Interbank Offered Rate ("LIBOR") are to be subject to these clearing obligations.
2. Circumstances under which contracts are to be cleared. MAS proposes to commence clearing obligations in relation to IRS trades in which both transacting counterparties have booked the trade in their Singapore- based operations (i.e. a Singapore-incorporated company or the Singapore branch of a foreign entity). Based on present proposals, transactions traded in Singapore but are booked elsewhere would fall outside these mandatory clearing obligations.
3. Specified persons to be subject to clearing obligations. As a start, MAS proposes to subject only banks that have a maximum threshold of S$20 billion gross notional outstanding derivatives contracts booked in Singapore for each of the last four calendar quarters. Other banks and all other specified persons will be excluded.
4. Exemptions from clearing obligations. MAS also proposes to exempt:
   1. Intra-group transactions.
   2. Public bodies, including central banks and governments as well as international multilateral organisations (i.e. Bank for International Settlements, the International Monetary Fund and the World Bank)
5. Implementation Period. MAS intends to issue the Regulations for Mandatory Clearing of Derivatives Contracts by the end of 2015, and will provide at least six months' notice before the clearing obligations take effect. MAS will continue to review when it may be appropriate to expand the scope of the mandatory clearing regime (e.g. increase the range of products or lower the maximum threshold for exemption) after the commencement of these proposed regulations.
6. MAS is also requesting for feedback on:
   1. whether IRS denominated in Euro ("EUR"), Pound Sterling ("GBP") and Japanese Yen ("JPY") should also be subject to these mandatory clearing obligations;
   2. whether more types of SGD, USD, EUR, GBP and JPY IRS products, such as basis swaps, forward rate agreements or overnight index swaps should be subject to the clearing obligations;
   3. proposed approach for the commencement of clearing obligations;
   4. views on proposed considerations in expanding the scope of the
   5. mandatory clearing regime; and
   6. the draft regulations which may be found at this link.