MAS Consults on Proposed Regulations for Mandatory Clearing of OTC Derivatives
Singapore, 1 July 2015... The Monetary Authority of Singapore (MAS) issued for consultation today proposed regulations for central clearing of over-the-counter (OTC) derivative contracts. Central clearing seeks to mitigate the counterparty credit risks inherent in OTC derivatives trades.
2 MAS proposes to mandate Singapore-dollar and US-dollar interest rate swaps for central clearing as these are the most widely traded interest rate derivatives in Singapore. For a start, the mandate will only apply to banks that book in excess of $20 billion worth of derivatives contracts, on a gross notional outstanding basis. Such entities will have a choice to clear through domestic or foreign Central Counterparties (CCPs), as long as they are regulated by MAS.
3 Central clearing is a key component of broader reforms to make the trading of OTC derivatives safer. The Securities and Futures Act was amended in November 20121 to give MAS powers to mandate the reporting of OTC derivatives to trade repositories and to require the central clearing of OTC derivatives through regulated clearing facilities acting as CCPs. The mandatory trade reporting regime was implemented in October 2013. Singapore’s CCP infrastructure is also in place for clearing OTC derivatives, having gained the requisite recognition from the relevant US and EU authorities2.
4 Please click here (286.7 KB) to view the consultation paper on the proposed regulations on obligations for the central clearing of OTC derivatives. We welcome interested parties to submit their comments to firstname.lastname@example.org by 31 July 2015.
Note to Editor
Central clearing refers to the clearing of transactions on CCPs. CCPs are clearing facilities that concentrate and net risks across a network of bilateral counterparty exposures, reducing outstanding risk exposures in the financial system. Through central clearing of OTC derivatives, market participants can substitute the credit risk of their counterparties with the credit risk of a regulated and well-capitalised CCP. Such CCPs are regulated as either approved clearing houses or recognised clearing houses under Part III of the SFA.
1 MAS consulted on the legislative amendments to the SFA on 3 August 2012, available here.
2 The Singapore Exchange Derivatives Clearing Limited (SGX) was registered with the US Commodity Futures Trading Commission (CFTC) as a Derivatives Clearing Organisation since December 2013. The Singapore CCP regime was recognised by EU authorities to be comparable to the EU CCP regime since October 2014, and SGX was subsequently authorised by the European Securities and Markets Authority (ESMA) in May 2015 as a Third-Country CCP. With the US and EU recognitions in place, SGX is able to support the clearing of OTC derivatives among US, EU and other market participants in Singapore who may be subject to the MAS mandatory clearing regime.