Questions:
Q5. To ask the Deputy Prime Minister whether the Monetary Authority of Singapore will help set up a bond exchange, especially as an electronic platform, to facilitate bond-trading for both institutions and retail investors, as well as to further establish Singapore as a regional debt hub.
Answer:
1. In the past few years, rapid advances in electronic-bond technology has caused electronic bond trading systems to proliferate in US and Europe. These range from the Euro-MTS, which was launched in Europe in June 99 by 24 financial institutions who are primary dealers in the various European government securities markets, to exchange systems operated by stock exchanges like the New York Stock Exchange.
2. Electronic bond systems bring several benefits to the bond market. For the issuer, it removes traditional geographical barriers and facilitates a wider reach and distribution of bonds. For the bond investor, electronic platforms offer greater transparency, lower transaction costs and more valued-added services.
3. However, more important than state-of-the-art electronic infra-structure are the fundamental conditions for efficient and liquid bond markets. Electronic bond systems are most prevalent in countries where the bond markets are already highly developed and liquid. Necessary conditions to create thriving and liquid bond markets include:
- A robust market making mechanism. This requires a group of financial institutions committed to making markets, both in government securities as well as corporate bonds.
- An efficient market structure. This includes a reliable government yield curve, and a liquid bond repurchase and futures market to enable market participants to hedge their S$ debt positions.
- A large base of diverse investors. This should comprise a mix of long term institutional investors like insurance and fund management companies, short-term value traders, as well as retail investors.
4. MAS will be taking steps soon to enhance the efficiency and liquidity of our bond markets. To support this, we are also studying ways to facilitate the introduction of electronic bond systems in Singapore.