New rules proposed for trading OTC derivatives

The financial-sector regulator is proposing new rules that will require over-the-counter (OTC) derivatives to be traded on organised markets, to help improve market transparency.

The Monetary Authority of Singapore (MAS) has issued a consultation paper on these regulations.

It proposes to impose obligations for the most globally traded OTC derivatives, such as interest rate swaps denominated in United States dollars, euros and pounds, to be traded on organised markets - exchanges or other centralised trading facilities. These obligations will apply to banks whose gross notional outstanding OTC derivatives exceed $20 billion.

The MAS expects that about 80 per cent of Singapore's market in these products would have to be executed on organised markets following the commencement of the proposed trading obligations.

While smaller counterparties in Singapore are not subject to the MAS' proposed trading obligations, as they do not exceed the threshold, they can still choose to trade these mandated products on organised markets if they wish to access this liquidity pool.

The rules are part of moves to implement Group of Twenty OTC derivatives reforms. The US and the European Union authorities have already implemented similar trading obligations for the same OTC derivatives products, the MAS said in a statement yesterday. It plans to seek equivalence determinations from the US and EU for exchanges and other centralised trading facilities here.

This will allow these markets in Singapore to be used by US and EU market participants to fulfil their trading obligations.

A version of this article appeared in the print edition of The Straits Times on February 22, 2018, with the headline 'New rules proposed for trading OTC derivatives'. Subscribe