Central banks Regulation in derivatives Markets
On 13 February 2012 the Monetary Authority of Singapore ("MAS") issued a consultation paper on its proposals to expand the scope of the Securities and Futures Act ("SFA") to regulate over the counter ("OTC") derivatives. This move is pursuant to MAS' July 2011 announcement that it would meet the objectives set by the G20 committee and recommendations made by the Financial Stability Board ("FSB"), following the global financial crisis, to improve the regulation and supervision of OTC derivatives and strengthen the international financial regulatory system.
After the Lehman crisis of September 2008 the G20 summit was held in 2009 where the financial ministers from the G20 group proposed a central clearing system to minimize the counterparty risks in the OTC derivatives market. A central counterparty ("CCP") is a clearing facility that provides a service by which a party to a transaction substitutes, through novation or otherwise, the credit of a clearing facility for the credit of its counterparty to the transaction. CCPs allow for multilateral netting of transactions and thus are argued to reduce counterparty credit risk. Singapore is one of the major derivatives markets in Asia attracting trade of about US$9.8 trillion a year, mainly relating to interest rates, foreign exchange and oil. Currently the Singapore Exchange ("SGX") is the only clearing house in Singapore for OTC derivatives and some banks have their own in-house e-trading platform for OTC products. The proposals have generally been welcomed by institutions who dominate trading of OTC derivatives and will likely have a significant impact on the OTC derivatives market when passed as legislation.
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