MAS Requires OTC Derivatives to be Centrally Cleared to Mitigate Systemic Risk
Singapore, 2 May 2018... The Monetary Authority of Singapore (MAS) will introduce regulations to require over-the-counter (OTC) derivatives to be cleared on central counterparties (CCPs)1, with effect from 1 October 2018. Central clearing will make the trading of OTC derivatives in Singapore safer as it mitigates counterparty credit risks inherent in these trades.
2 The mandatory clearing requirement will apply to Singapore-Dollar and US-Dollar fixed-floating interest rate swaps as these are the most widely traded interest rate derivatives in Singapore. Banks whose gross notional outstanding OTC derivatives exceed $20 billion will be required to clear their trades through CCPs that are regulated by MAS. These banks account for over 90% of OTC derivatives contracts (in terms of outstanding notional amount) in Singapore.
3 Mr Lee Boon Ngiap, Assistant Managing Director, Capital Markets, MAS, said, “The central clearing requirements complements the existing margin requirements for non-centrally cleared OTC derivatives. Both requirements work together to reduce systemic risk in Singapore’s OTC derivatives markets, in line with the G20’s and Financial Stability Board’s set of reforms on OTC derivatives. ”
4 The central clearing requirements will be effected through the Securities and Futures (Clearing of Derivatives Contracts) Regulations. MAS previously consulted on the Regulations and the response to the consultation can be found . (821.3 KB)
In 2009, the G20 and Financial Stability Board (FSB) agreed to implement a set of reforms to improve transparency, mitigate systemic risk, and protect against market abuse in the OTC derivatives markets. MAS has since progressively implemented reforms in the areas of trade reporting, risk mitigation and margining of non-centrally cleared OTC derivatives, and mandatory clearing of OTC derivatives.
1 A central counterparty is an entity that imposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the performance of open contracts.