Singapore fostering commodity trade as clearing houses expand

[SINGAPORE] Singapore's financial regulator will work with commodity exchanges, investors and producers to support the development of the city-state as a trading center, including the expansion of clearing houses in Asia.

The entry of new clearing houses can boost liquidity and encourage the development of products, the Monetary Authority of Singapore said in an e-mailed response to queries. Clearing houses help improve risk management in derivatives markets in Asian hours, the MAS said.

Singapore sits close to the equator on the sea lanes between China, Japan and India, Asia's three largest economies. Neighbor Indonesia is the world's largest exporter of palm oil and tin, while Thailand is among the top three shippers of rice, rubber and sugar. Clearing houses operate as central intermediaries between counterparties, reducing risks of default for users and investors.

"Clearing of commodities is definitely a possibility and it's an area where no other market in the region except Australia can actually have an advantage," Stephane Loiseau, head of cash equities and global execution at Societe Generale SA, said in an interview in Hong Kong. "That is more likely to be successful than the push in listed derivatives, because they are not directly competing with anyone."

Singapore Exchange Ltd, Southeast Asia's biggest bourse, is expanding its derivative trading, and faces competition from Intercontinental Exchange Inc and Deutsche Boerse AG. ICE plans to start clearing operations in Singapore before July after delaying the opening of its futures exchange in the city, while the German bourse will open a clearing house next year.

"Singapore has a vibrant trading community active across the different commodity types - energy, metals, agriculture," the MAS said. The MAS will work with stakeholders to ensure a well-functioning market infrastructure, the spokesperson said.

MAS and the European Securities and Markets Authority on Monday agreed to cooperate in allowing clearing houses in Singapore to provide services to European Union trading venues. In January, the US Commodity Futures Trading Commission registered the Singapore Exchange as a Foreign Board of Trade, providing legal certainty to US customers with access to the Asian bourse.

"Asia generically doesn't have robust commodity-clearing houses," said Thomas McMahon, the Singapore-based chief executive officer of UD Trading Group. Before May 2011, he served as CEO of Singapore Mercantile Exchange Pte, which was acquired by ICE for US$150 million last year. "There is no reason, why you shouldn't be able to clear in Asia."

BLOOMBERG