Singapore is paving the way for OTC derivatives reforms, as regulators and market participants seek to transform one of the Asia’s largest OTC markets in the spirit of Dodd-Frank, Emir and other similar laws that are reshaping the derivatives landscape.
“As part of the G20 mandate, the Singapore regulatory authorities have also promised to abide by the general principles set by Iosco [International Organization of Securities Commissions, the umbrella group of global securities regulators],” said Zhi Rui Ang, operations director at Cleartrade Exchange (CLTX), a regulated futures market for commodity futures and OTC cleared derivatives in Singapore.
As a recognized market operator regulated by the Monetary Authority of Singapore, CLTX provides an electronic order book and block trade facility, trade processing and reporting, and straight-through processing to multiple clearing houses on behalf of traders, brokers, banks and hedge funds.
“We have already seen in the past year consultation papers coming out on the way local authorities would look at regulating execution, clearing and trade reporting,” said Ang. “Some of those have then been put in for legislative changes and we expect the regulations on clearing to kick in very soon this year, with trade reporting and execution soon to follow.”
Singapore is already a major trading hub in the world: it is the eighth largest center for OTC derivatives, according to research firm Celent.
"Celent continues to see a lot of players in the regional interest rate swap (IRS) markets," said Hua Zhang, an analyst with Celent's Asian Financial Services group. "Regional IRS markets are likely to continue to grow in line with the rise of Asia as a major market in the global economy."
In a 2012 report, Celent said the electronic trading rate in Singapore of credit default swaps (CDSs), IRS and foreign exchange will reach 5%, 15%, and 61% respectively by the end of this year.
In line with the G20 group of nations’ agreement on OTC derivatives, the Singapore Exchange will provide clearing services for many derivatives products, such as non-deliverable forwards. Celent expects OTC trading to decline further because there will be greater buy side adoption of algorithmic trading and an increase in speeds as more traders use SGX Reach, Singapore Exchange’s ultra-low latency electronic trading platform.
The Singapore Exchange is also expected to expand into foreign exchange options, IRS in other currencies, non-deliverable swaps, Asian CDSs, indices and Asian single-name CDSs.
CLTX has launched a Data Centre web portal, which the company says is the only free-to-market portal which consolidates market information for freight and commodity derivatives contracts.
The Data Centre combines daily data from major clearing houses, providing users with the ability to see daily traded lots and open interest figures for the whole market, on all delivery periods.
“The Data Centre is a valuable new feature for CLTX’s main offering of a transparent, regulated central marketplace for the execution of both futures and OTC cleared contracts,” said Richard Heath, head of product at CLTX. “A single portal for consolidated data enables users of these contracts to quickly view the trading figures for the previous day. However, the real value of the site is the facility which allows data sets for different delivery periods to be compared against one another, providing an insight into the trading behavior of the whole market.”