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Question
To ask the Senior Minister how Singapore intends to develop the commodity pricing, trading and risk management industry with the Commodity Derivatives Trader (CDT) Scheme.
Note: The above Question was originally directed to Prime Minister and Minister for Finance (vide Q. *98 in Notice Paper No. 84 of 2005)
Answer
1. The Commodity Derivatives Trader (CDT) Scheme aims to support an expanded role for Singapore as a commodity derivatives trading hub. The opportunities in this business are growing globally. According to estimates by the Bank of International Settlements, the amount of OTC commodity derivatives contracts as at June 2004 reached US$1,270 billion, up 22% compared to a year earlier. The number of exchange-traded commodity derivative contracts reached 736 million globally in 2004, up 16% compared to 2003 .
2. Singapore is the Asia Pacific centre for the price setting and trading of oil and rubber products. The CDT scheme is intended to develop Singapore as a hub for trading, pricing and risk management for oil as well as other commodity products. By offering a concessionary tax rate of 5% on profits derived from trading commodity derivatives, the scheme seeks to grow a critical mass of market makers that focus on derivatives trading, or paper trading. This will serve to increase the level of both physical and paper trading out of Singapore. It should increase liquidity, and hence strengthen Singapore's role as a pricing hub.
3. The aim is also to encourage a broader range of commodity derivative products to be offered. The CDT scheme supports over-the-counter and exchange-traded commodity derivatives, including commodity-based Exchange-Traded Funds and index futures.
4. Risk management is another aspect of the market that the CDT scheme will help stimulate. The development of a liquid commodities market with a wide range of hedging instruments and products will help support risk management activities here.
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