Clearer guidance on upcoming over-the-counter reporting requirements would help asset managers better prepare for the changes, said a senior executive at Singapore’s only licensed trade depository.
“There is a bit of ambiguity in the current rules, as there are for other similar regulations around the world. By bringing more clarity to this area as the regulation continues to evolve, firms can better assess upcoming deadlines and ensure they are prepared,” said Peter Tierney, Asia head at Depository Trust & Clearing Corporation (DTCC) in Singapore.
Like Australia and Hong Kong, Singapore is working towards compliance with commitments made by the G20 to improve transparency and supervision of the OTC derivatives market.
The Lion City was the first jurisdiction in Asia to implement mandatory reporting of OTC derivatives for buy-side firms.
Under the new regulations, which are being phased in between April and October this year, interest rate and credit derivatives must be reported via the depository to the Monetary Authority of Singapore (MAS).
A week before the rules were extended to trustees and insurance companies on July 1, MAS granted a temporary exemption to capital market services licence holders with assets under management below S$8 billion ($6.4 billion) and real estate investment trust (Reit) managers. The regulator did not indicate how long the exemption would last.
Reit managers and trustees have found determining their reporting obligations challenging, as although both fulfil different roles, both are licence holders subject to the reporting requirements. This means that two entities on the same side of an OTC trade may both be obliged to report the transaction.
With regulators in Australia, Hong Kong and Singapore implementing new OTC derivative reporting regimes, the operational and compliance burden failing on asset managers could be reduced if reporting requirements are clarified before implementation, Tierney added.
Of Singapore’s 467 capital market licence holders, 70 say they have interest rate or credit derivatives positions that are booked in the city and are subject to the requirements, according to a survey commissioned by the DTCC and conducted in May. These 70 firms on average each have fewer than 100 derivative positions that fall under the new regulations.
Singapore’s reporting regime was applied to selected banks in February, then expanded to include all banks in April. The rules will be extended on October 1 to all entities, including registered fund managers, with OTC positions above S$8 billion.
Registered fund management companies in Singapore are a separate category of fund managers that do not hold a capital market services licence.
MAS will extend mandatory reporting to other asset classes including foreign currency next year, and further expand it to equity and commodity derivatives in subsequent phases.
G20 commitments to improve transparency and supervision of the OTC derivatives market include the introduction of central clearing, increased capital and margin requirements for transactions not cleared by a central counterparty clearing house (CCP), and the trading of contracts on exchanges or electronic trading platforms.
In mid-July, Hong Kong’s securities and currency regulators jointly released a consultation paper outlining proposed rules for mandatory reporting of OTC derivative transactions. Hong Kong’s legislature is due to vet the proposals in the fourth quarter of this year.