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MAS to simplify rules to improve flexibility for market operators and speed to market for new products

THE Monetary Authority of Singapore (MAS) intends to simplify rules to encourage more exchanges and also make it easier to launch new derivative products.

It proposes to improve market operators' business flexibility when establishing new centralised trading facilities and speed to market when launching new products, the MAS said on Tuesday.

The proposals, set out in a consultation paper, are part of MAS' broader objectives to facilitate innovation in financial services by recognising emerging new business models while safeguarding investors' interest.

There will be a new multi-tier regime for market operators, MAS said.

MAS proposes to expand the existing Recognised Market Operators (RMO) regime from a single tier to three separate tiers (namely RMO Tier 1, RMO Tier 2 and RMO Tier 3) to better match regulatory requirements to the risks posed by different types of market operators.

"A multi-tier RMO regime with gradated requirements can better accommodate the emergence of new business models such as blockchain-based or peer-to-peer trading facilities, and lower the cost of entry for startup operators," it said.

MAS currently regulates market operators under two categories, namely the Approved Exchanges (AEs) and RMOs.

AEs include the Singapore Exchange (SGX) and ICE or Intercontinental Exchange while RMOs include Cleartrade for trading commodity derivatives or bond portals such as Bloomberg Tradebook and BGC.

Systemically-important market operators such as the SGX are regulated as AEs and are subject to a higher level of statutory obligations, while other non-retail market operators are regulated as RMOs.

At present, only AEs, which are subject to the most stringent regulatory requirements, are allowed to serve retail investors.

RMO Tier 1 is a new tier for market operators that serve a limited base of retail investors, said MAS.

Currently, the existing RMO regime does not allow access to retail investors.

With this new tier, market operators that do not pose system-wide risks will be allowed to serve retail investors if they are able to meet additional requirements that pertain to retail investor protection, said MAS.

"These requirements are more stringent than the existing RMO regime and include increased information disclosure."

RMO Tier 2 is for market operators that qualify under the existing RMO regime. These exchanges do not pose system-wide risks, and only serve non-retail investors, it said.

The regulatory requirements for this tier will be the same as those under the existing RMO regime. Market operators that are currently authorised as RMOs will be re-classified under this tier.

RMO Tier 3 is a new tier for market operators that have a significantly smaller scale of business compared to more established operators.

"This new tier is designed to facilitate new entrants that develop solutions for wholesale market participants, or market operators that have reached the end of their sandbox tenure and are commercially viable, but whose businesses are not able to meet the requirements of the existing RMO regime."

Under this tier, they will be subjected to less stringent requirements on capital, technology risk management and outsourcing, said MAS. Their scale of business activity will, however, be capped to limit the impact in the event of failures, it added.

MAS proposes to allow RMO Tier 3 applicants to self-certify their compliance against a checklist of requirements, given their smaller business scale and more sophisticated investor base. With self-certification, MAS expects to complete processing applications within four weeks of submission.

MAS also said it intends to replace the current approval regime for the launch of new derivatives products traded on exchanges with a notification regime.

It proposes for market operators to self-certify that the derivatives products to be traded comply with MAS' requirements, and notify MAS no less than one week prior to the product launch announcement. There will be no need to seek MAS' approval and market operators will be better able to plan their launch timelines.

Lee Boon Ngiap, MAS assistant managing director, capital markets, said: "The proposals will benefit the industry as market operators will have greater flexibility to choose between different business models with regulatory requirements and compliance costs that are commensurate with their investor reach.

"They will also be able to launch their products more quickly in response to market demand. These changes are in line with MAS' risk-based supervisory approach."

The public consultation will end on June 22, 2018.

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