Singapore has released its proposal for OTC derivatives regulatory reform. There is no trading requirement, but otherwise the proposed requirements are consistent with G-20 commitments. Noteworthy differences from US law include the following:
1) low use financial end users may be exempted from clearing requirements,
2) margin requirements for non-cleared trades appear to be focused exclusively on financial entities,
3) there is no real-time reporting requirement, and
4) the clearing requirement (albeit narrower in scope) is proposed to be retroactive.
Given the concentration of derivatives activity amongst a handful of large banks, Singapore’s proposal addresses derivatives’ contribution to systemic risk, while being more flexible for non-financial end users, smaller financial end users and for financial end users who prefer to retain their freedom to determine the most efficient trading venue. Singapore currently holds 1.5% of the world swap market. Depending on where its derivatives regulatory regime ends up relative to those in the US and Europe, it will be interesting to see whether Singapore’s more flexible regime allows it to increase its share of this market over the next decade.