Asia

Monetary Authority of Singapore (MAS) releases Consultation Paper on Proposed Regulations for Mandatory Clearing of Over-the-Counter (OTC) Derivative Contracts

By Sheela Moorthy (SG) and Wilson Ang on July 10, 2015 Posted in Asia, Clearing and settlement

MAS has issued a consultation paper on proposed regulations for mandatory clearing of OTC derivative contracts (Regulations) on 1 July 2015, as part of the ongoing development of the regulatory regime governing OTC derivatives. MAS proposes to issue the Regulations by the end of 2015, and has indicated that it will provide at least six months’ notice before the clearing obligations take effect.

MAS currently proposes that the mandatory clearing obligations shall, at a minimum, apply to:

Singapore-dollar fixed-to-floating interest rate swaps based on the Swap Offer Rate booked in Singapore and U.S. dollar fixed-to-floating interest rate swaps based on London Interbank Offered Rate booked in Singapore (Specified Derivatives Contracts).
Banks exceeding a maximum threshold of S$20 billion gross notional outstanding derivatives contracts booked in Singapore for each of the last four calendar quarters.

Entities subject to mandatory clearing obligations are required to clear Specified Derivatives Contracts in the manner prescribed by the Regulations, which amongst others sets out requirements with respect to timing and require that Specified Derivatives Contracts be cleared by domestic or foreign Central Counterparties (CCPs) regulated by MAS as an approved clearing house (ACH) or a recognised clearing house (RCH). MAS has also indicated that it expects to approve or recognise more Central Counterparties as ACHs and RCHs able to clear Specified Derivatives Contracts.

MAS has also proposed certain prescribed exemptions from the mandatory clearing obligations, for example for banks which do not exceed the prescribed maximum threshold.

MAS continues to consider and develop the regulatory regime governing the mandatory clearing of OTC derivative contracts. MAS has indicated that it is considering increasing the range of products subject to mandatory clearing obligations (specifically indicating that it is considering interest rate swaps denominated in Euro, Pound Sterling and Japanese Yen), and lowering the maximum threshold for exemption from clearing obligations.