Mr. Stephen O’Connor, Chairman of ISDA;
Mr. Robert G. Pickel, CEO of ISDA
Distinguished guests, Ladies and gentlemen;

Introduction

1. Let me start off by extending a warm welcome to everyone here today. It is my pleasure to be with you this morning and to welcome the ISDA AGM back to Singapore. I understand that the last time the AGM was held here was 7 years ago.
2. When the AGM was last held in Asia, it was in Beijing, amidst the aftermath of the financial crisis in 2009. Then, the agenda was focused on identifying factors that had contributed to the crisis. While that debate continues, the G20 and the Financial Stability Board (or FSB) have identified Over-the-Counter (OTC) derivatives as an area where regulatory reforms were needed. Most of you are familiar with the scope, which encompass reporting of all OTC derivatives transactions; increased standardisation of OTC derivatives contracts; clearing of standardised and liquid contracts on Central Counterparties (CCPs); and trading on electronic platforms and exchanges, where appropriate. These are along the key objectives to reduce systemic risk, increase transparency and protect against market abuse.
3. In terms of implementation, the US Swap dealers are already reporting all swaps and clearing certain interest rate swaps (IRS) and credit default swaps (CDS). Japan has also commenced its clearing and reporting requirements. Europe, Hong Kong, Singapore and Australia are on track and will all be progressively rolling out the reforms in the coming months.

Updates on Singapore’s considerations and progress

4. In Singapore, we are committed to meeting the G20 and FSB recommendations on OTC derivatives. While we fully support the objectives of the reforms, it is also important that these reforms be implemented in a manner which is impact-sensitive, risk-appropriate and outcome focused. These have been the core principles behind regulations at MAS.
5. We view trade reporting as one of the critical components of the reforms, as comprehensive data on the OTC derivatives market will allow regulators to conduct better supervisory oversight and make more informed decisions. Later this quarter, MAS will be releasing our consultation paper on regulations for Singapore’s trade reporting regime and we welcome your feedback.
6. The access to and availability of infrastructure is another area which we have paid close attention to. As a global trading hub in Asia Pacific, it is important that market participants who have chosen to base in Singapore can have access to global market infrastructure. Therefore, we decided last year that we will not mandate onshore clearing or reporting. To this end, we have been in close discussions with global and regional CCPs and trade repositories to ensure Singapore stay relevant as regulations and the industry evolve.
7. We are happy to note that the development has been positive thus far. DTCC has set up its Asia Pacific trade reporting hub in Singapore in December last year. It has also announced that it will be registering as a licensed trade repository in Singapore. The Singapore-based global data centre and trade repository will facilitate the region in reporting their OTC transactions in meeting new trade reporting obligations.
8. On CCPs, we are also happy to note that the industry is building up its own capabilities in Singapore. As early as 2010, the Singapore Exchange (SGX) has been working with its members to expand its AsiaClear functions to financial derivatives with the introduction of clearing IRS denominated in Singapore and US dollars.
9. It is also important these new infrastructure are subject to high standards of regulations. In this regard, MAS published a Monograph on Financial Market Infrastructure earlier this year. It sets out our regulatory approach of these new infrastructures.
10. We adopted the Principles of Financial Market Infrastructure (PFMI), issued by the Committee on Payment and Settlement Systems (“CPSS”) and the International Organisation of Securities Commissions (“IOSCO”) in April 2012. The PFMI, in short, sets the benchmark for the supervision of systemically important Financial Market Infrastructures. It will provide guidance to on the identification, monitoring, mitigation and management of the full range of risks that arise in or are transmitted by these entities.

Implementation Issues

11. Implementing the regulatory reforms on a global scale is complex and challenging. Already, we read about possible issues with OTC derivatives data quality in the US, extra-territorial reach of regulations in the US and EU, as well as the debate on the differing margining requirement for swaps and comparable futures.
12. Given that regulations have usually been imposed on a geographical basis, it seems only inevitable that the treatment of cross-border derivatives is the most difficult issue for both regulators and the industry. The potential for overlapping, inconsistent, and worse, conflicting rules, cannot be ruled out.
13. Take for instance, the difference in mutual recognition approach between CFTC and EMIR for CCPs. The US requires derivatives clearing organisation (DCO) registration, while EMIR requires regulatory equivalence. Without alignment and coordination among international regulators, this could mean that cross-border trades may be frustrated.
14. There should be greater focus on delivering similar outcomes and tailor their approach based on both risks and characteristics of local markets. Towards this goal, Singapore has been working closely with other Asian regulators to ensure that the views of Asian and other developing markets, are heard at international fora.
15. Last year, we issued a joint letter together with Australia and Hong Kong to share our concerns on CFTC’s extra-territorial guidance. We cited issues on the definition of a U.S. Person, threshold requirements for registration as a swap dealer, and the scope of “substituted compliance”. We proposed alternative solutions and suggested an outcome-based approach towards substituted compliance. Our joint letter made a difference to the debate and internationally, as the concept of using an outcome-based approach is now entrenched.
16. There are also extensive discussions taking place at the OTC Derivatives Regulators’ Group (ODRG). This group, comprising regulators from the US, Europe, Japan, Singapore, Hong Kong, Switzerland, Australia and Brazil, is committed to finding practical solutions to addressing cross-border issues.

Evolving Business Model of the Industry

17. Along with the increase in regulatory demands, the business model of the industry is also evolving. We have also noticed that the industry is adjusting to capture new opportunities.
18. For instance, exchanges and trading platforms are broadening their offerings to include products such as swap futures. CME has launched deliverable Interest Rate Swap Futures, which has allowed the market to access interest rate swap exposure with the benefits of trading futures thus providing greater transparency and capital-efficiency. Last month, the Singapore Exchange (SGX) also announced plans to introduce Asian FX futures in the third quarter of this year.
19. The proliferation of trading platforms and market infrastructures in the OTC market following the reforms also spells opportunities for third party service providers to provide clients with streamlined connectivity into different trading and clearing platforms. MarkitSERV, for example, provides independent connectivity to multiple OTCCCPs across asset classes.
20. Last but not least, collateral management is another area to watch, with increasing demand for high quality collateral as mandatory clearing and margin requirements for uncleared derivatives are implemented progressively. The added collateral for both cleared and non-cleared trades is estimated to be at least $2.55 trillion according to a quantitative impact study released by ISDA. Market participants that leverage on collateral optimisation techniques will be able to identify the most cost-effective collateral to post across their portfolios.

Need for international coordination amongst industry players

21. To conclude, let me reiterate the need for closer international co-ordination as new rules are now being implemented. The need is not limited to the regulators, but also includes industry players. In this regard, the role of industry associations such as ISDA, will be more important than ever in fostering dialogue between market participants and regulators.
22. Besides serving as the industry’s voice, ISDA’s efforts in helping the industry implement the reforms cannot be understated. The development of the ISDA Dodd Frank and the EMIR Protocols are integral to market participants, in helping them meet the regulatory requirements. There is no doubt that more work for ISDA lies ahead.
23. At this point, I would like to specially thank ISDA for their industrious efforts. ISDA has been very helpful in working with the MAS and the Singapore market participants, and giving us useful feedback and inputs along the way as we implement our reforms.
24. With this, I wish you a fruitful discussion ahead. Thank you.