ANNUAL REPORT 2002 / 2003


THE FINANCIAL SECTOR - KEY REGULATORY AND SUPERVISORY INITIATIVES

Safer Settlement System for Foreign Exchange

As one of the largest foreign exchange (FX) trading centres in the world, Singapore has been striving to develop a safer FX settlement environment. In July 2001, MAS published a report based on a survey of the Singapore banking industry that highlighted significant exposures in current FX settlement practices. This report also underscored market participants’ demand for FX settlement risk reduction measures, in particular, Continuous Linked Settlement (CLS).

CLS is a real-time global settlement system that aims to eliminate FX settlement risk that can occur when each leg of an FX transaction is settled separately due to time-zone differences. This service allows both legs of a FX trade submitted by members to be settled simultaneously across the books of CLS.

CLS went live in September 2002 with the participation of over 60 international banks and seven major currencies – the US Dollar, Euro, Yen, Pound Sterling, Swiss Franc, Canadian Dollar and Australian Dollar. Its daily transaction volume has reached an average of 60,000 payment instructions and a gross value of some US$600.0 billion as of February 2003.

In December 2002, Singapore enacted the Payment and Settlement Systems (Finality and Netting) Act to provide for the protection of payment and settlement systems from disruptions that may lead to risks to the financial system. This Act, coupled with the designation of CLS as a system protected under the Act, paves the way for the Singapore Dollar to be included as a CLS settlement currency later in 2003.

The three Singapore banks – Development Bank of Singapore Ltd (DBS Bank), Oversea-Chinese Banking Corporation Ltd (OCBC Bank), and United Overseas Bank (UOB), which have been CLS shareholders since October 2001 – started participating as CLS settlement members in December 2002. For efficiency, the three banks have established a common utility – Clearing & Payment Services Pte Ltd – to aggregate and share the processing of their CLS transactions.

By participating in CLS and helping to develop a safer FX settlement environment, Singapore reinforces its position as a leading FX trading centre and as a key node in the global financial system.

 

Risk-Based Regulatory Regime  Prudential Policies Enhancing MAS' Supervisory Role Greater Consistency in Standards Across Sectors
Building Strong Pillars for Good Corporate Governance  Additional Requirements Building Confidence with Sound Market and Business Conduct
Upholding Professional and Ethical Standards Laying Strong Foundation for Financial Innovation Managing Technology Risks
Improved Securities Trading and Clearing System Safer Settlement System for Foreign Exchange Payment Systems

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