Strengthening Cooperation with Industry Partners

Government Securities (Amendment) Bill 2009

Primary Dealers play an important role as specialist intermediaries in the Singapore Government Securities (SGS) and Singapore dollar markets. Specifically, they undertake and fulfill market-making obligations, such as providing liquidity in the SGS market, underwriting SGS issuance, providing market feedback, and contributing to the development of the SGS and related interest rate markets. To foster further growth and development of the Singapore debt market, MAS regularly consults with market participants, including Primary Dealers.

The Government made three amendments to the Government Securities Act (GSA) in January 2010, namely, allowing early redemption of SGS, empowering MAS to regulate Primary Dealers and allowing MAS to enter into securities lending arrangements using SGS.

The first amendment to the GSA to allow the Government to redeem SGS before maturity at market price is, in fact, a common practice in developed markets. This will provide greater flexibility in the management of SGS. Prior to this, if MAS were to conduct buy-back operations for illiquid issues to concentrate liquidity in key benchmark issues, the securities bought back would be kept on MAS’ books until maturity. As premature redemption of these securities had not been allowed previously, the Government would have had to continue paying interest on these securities to MAS.

The second amendment formalises MAS’ existing relationship with Primary Dealers, similar to how it regulates banks under the Banking Act. Specifically, the amendment empowers MAS to appoint and regulate Primary Dealers as well as to issue directions, revoke, suspend and inspect the Primary Dealers.

The final amendment formalises the securities lending arrangements between MAS and Primary Dealers. MAS operates a repo facility that lends SGS to Primary Dealers on an overnight basis when the SGS are not readily available from other sources. This provides Primary Dealers with greater confidence to carry out their duties as market-makers. They will be better able to deliver SGS to clients, further boosting the liquidity, efficiency and robustness of the government securities market.

Taken together, the first and third amendments enhance MAS’ repo facility by expanding the amount of SGS which MAS can lend beyond its own holdings. When demand for specific bonds exceeds MAS’ holdings, the Government can issue new SGS to MAS to on-lend to Primary Dealers on an overnight basis. These SGS will then be redeemed the following day.

BNP Paribas, Singapore branch (BNPP), commenced operations as the 12th Primary Dealer on 18 January 2010. The addition of BNPP to the Primary Dealer community will add to the vibrancy of the SGS and Singapore dollar markets.

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