Debt Market sees Two-Fold Growth in 1999.
New Guidelines for Credit Derivatives, Securitisation and Internet-Based Securities Activities

Singapore, 6 September 2000 - Deputy Prime Minister and MAS Chairman Lee Hsien Loong today announced that the Monetary Authority of Singapore (MAS) has finalised and will be issuing the guidelines for the regulatory treatment of banks' credit derivatives and securitisation activities. DPM Lee also revealed today that MAS has completed the review of licensing requirements of Internet-based securities activities.

Speaking at the 25th anniversary dinner of the Singapore Investment Banking Association (SIBA), DPM Lee also shared highlights of the results of MAS' 1999 Survey of the Singapore Corporate Debt Market. Corporate debt issuance for the first half of this year amounted to S$21.2 billion, which already exceeded full-year corporate debt issuance of S$19.5 billion in 1999 and S$9.1billion in 1998. The total number of corporate debt issues has also grown by 7%, from the 466 issues in 1998 to 497 issues in 1999. The average issue size of corporate debt issues has also increased from S$20 million in 1998 to S$40 million in 1999. Reflecting the increased interest by local investors, 66% of all corporate debt securities issued last year were absorbed by investors in Singapore. The results (90.9 KB) of the survey are attached.

In his speech today, DPM Lee also announced that MAS has finalised the guidelines for the regulatory treatment of banks' credit derivatives and securitisation activities. The new guidelines are in recognition of the need to ensure that Singapore's regulatory framework provides clarity and allows growth and innovation, as the market makes use of more sophisticated treasury and capital market products.

The guidelines for credit derivatives (MAS Notice 627 (103.3 KB)) address the capital treatment for three main credit derivative products : the credit default swap, the total rate of return swap and the credit-linked note. The guidelines retain the principle of maintaining capital against credit risk exposures, requiring a capital charge for credit exposures that banks assume via the use of credit derivatives. Banks will be granted capital relief where credit derivatives are effectively employed to hedge the bank's underlying portfolio credit exposures.

The guidelines for asset securitisation by banks (MAS Notice 628) set out the capital treatment of securitised assets, as well as the disclosure, separation and other requirements applicable to banks assuming various roles in a securitisation transaction. The guidelines seek to ensure that banks involved in the securitisation transactions fully understand their roles, responsibilities and risks, and that they hold appropriate capital against the risks they accept. A bank will be granted capital relief where the transfer of risks and rewards associated with the securitised assets has been effective and complete.

In response to the need for a more holistic approach to personal investment advisory services and the convergence of financial products, as well as the emergence of one-stop distribution channels, MAS has been moving towards a unified licensing regime for the securities and futures industries. DPM Lee revealed today that MAS has completed the review of licensing requirements of Internet-based securities activities.

In determining whether certain securities activities would need to be licensed, the following principles will be used:

1. the context and circumstances in which an activity is conducted be used in determining licensing requirements;

2. the "fact versus opinion" test be used as a general guide in determining what constitutes investment advice; the presence of interpretation, selectivity or subjectivity requires licensing;

3. channeling of trade orders is licensable; while referrals for opening of trading accounts are not;

4. websites which act as passive conduits for investment advice or for dealing should not require licensing;

5. overseas websites which specifically target Singapore residents would require licensing.

Where applicable, MAS will be incorporating any new changes to existing legislation in the proposed Financial Advisers Act and Omnibus Futures and Securities Act. These legislation are expected to be enacted next year. Meanwhile, the MAS continues to welcome industry feedback on the proposed securities licensing framework, and interested parties are encouraged to approach MAS to discuss the details of the licensing framework in relation to their specific business models.

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