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Non-Internationalisation of the Singapore Dollar
MAS completed a major review of its policy on the non-internationalisation of the Singapore Dollar, administered through MAS Notice 757 for banks and equivalent notices for other financial institutions. While the basic thrust of the non-internationalisation policy was reaffirmed, several new areas of liberalisation were announced with the aim to further develop the financial sector, without compromising the effective conduct of the exchange rate-centred monetary policy. The updated policy would allow institutions governed by MAS Notice 757 and equivalent notices to:
a) Lend Singapore Dollars to non-residents for any purpose in Singapore, including investments in financial assets and commercial real estate. This would help broaden the investor base for Singapore Dollar assets.
b) Lend Singapore Dollars to non-residents for use offshore as long as the proceeds are swapped into foreign currency upon draw-down.
c) Transact Singapore Dollar currency options with other financial institutions in Singapore governed by MAS Notice 757 or equivalent notices. For other non-residents in and outside Singapore, banks need to ensure that the option transaction is supported by underlying economic and financial activities in Singapore.
In addition, MAS concurrently issued an equivalent notice for securities intermediaries in Singapore. Previously, foreign securities intermediaries had limited access to Singapore Dollar funding. With the liberalisation, they could henceforth obtain Singapore Dollar funding to finance their capital market activities.
Second Phase of Banking Liberalisation
In May 1999, MAS announced a five-year programme to liberalise access by foreign banks to the domestic banking industry. The programme sought to develop strong local banks through competition, and enhance the depth and competitiveness of Singapore’s financial sector.The first package of measures was deliberately calibrated to give local banks time to build their capabilities and minimise the risk of destabilising the financial system. The industry adjusted well to the new environment. On 29 June 2001, MAS announced the second phase of the liberalisation programme, which will enable:
a) The broadening of access to the domestic wholesale banking industry. MAS will progressively upgrade all Offshore Banks and Qualifying Offshore Banks to Restricted Bank status. This will allow Offshore Banks and Qualifying Offshore Banks to develop their wholesale banking business in Singapore, and provide local industries with world-class financial products and services. To better reflect the range of activities permitted by the Restricted Bank licence, it will be renamed as the "Wholesale Banking" licence..
b) The enhancement of competition in the domestic retail banking industry. MAS will award another two banks Qualifying Full Bank status and grant all Qualifying Full Banks enchanced privileges in branching and establishing offsite Automated Teller Machines (ATM), as well as new privileges in offering CPF Investment Scheme (CPFIS) products, operating Supplementary Retirement Scheme (SRS) accounts and providing Electronic Funds Transfer at Point of Sale (EFTPOS) services. This additional package of privileges will enhance competition and service in the retail banking market, and spur the local banks to upgrade their capabilities.
Liberalisation of Broking Commissions and Open Access
Commission rates for the securities industry were completely liberalised on 1 October 2000. Since then the rates have fallen significantly to an average of 40-50 basis points for retail trades and 20 basis points or less for institutional trades. As online trading catches on and infrastructure improves, it is anticipated that costs will fall especially for Internet trades and that the competition will result in further reduction in commission rates. New members were also admitted to SGX from July 2000, subject to the restriction that trades with residents be limited to those above $500,000. The restriction will fall to $150,000 with effect from July 2001 and will be completely removed on 1 January 2002. Restrictions on the previous class of International Members have been removed from 1 January 2001.
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