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Singapore, US regulators agree on mutual recognition of derivatives trading venues

SINGAPORE regulators and their US counterparts have agreed to mutually recognise certain derivatives trading venues in either market, hewing to reforms undertaken by the Group of 20 (G-20) bloc.

Participants from either market can now trade most over-the-counter derivatives on the same platforms, which their respective regulators have recognised as functionally equivalent, from Thursday onwards.

The decision, which was announced on Wednesday night (Singapore time), came three weeks after Singapore and the European Union pledged to work towards a similar mutual recognition.

The Monetary Authority of Singapore (MAS) will now exempt derivatives trading venues that are already regulated by the United States’ Commodity Futures Trading Commission from the requirement to be MAS-authorised approved exchanges or recognised market operators.

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Meanwhile, derivatives trading facilities regulated by the MAS will not have to register with the US commission as swap execution facilities.

The agreement was unveiled jointly by Commodity Futures Trading Commission (CFTC) chairman J Christopher Giancarlo and MAS assistant managing director Lee Boon Ngiap, at the 44th International Futures Industry Conference in Boca Raton, Florida, and later disclosed in a joint statement.

With the G-20 moving to limit the trade of standardised derivatives to regulated platforms, the MAS had in February moved to exempt certain kinds of EU trading facilities from the need to be approved exchanges or recognised market operators. Singapore is not a G-20 member, but the US and the EU are.

The partnerships with the US and the EU, once the latter has been sewn up, will round out the major derivatives markets for Singapore - at least, unless Britain leaves the EU in a so-called “Brexit” divorce.

The MAS said on Feb 20 that it would work towards exempting EU multi-lateral trading facilities and organised trading facilities from the requirement to be approved exchanges or a recognised market operators, while the European Commission will propose an equivalence decision recognising Singapore-authorised markets as eligible to trade derivatives under the EU “on-venue” trading obligation.

But those plans - which could eventually put US, EU and Singapore derivatives on the same trading platforms - have not yet reached fruition, unlike the new orders unveiled by the US and Singapore.

The deal with the US is the first MAS exemption, under Section 44(1) of the Securities and Futures Act, for “foreign trading venues subject to comparable regulation and supervision in their home jurisdiction”.

This is also only the second time that the CFTC has made an exception to the rule on registering swap execution facilities. The commission had previously done so to exempt certain EU multi-lateral trading facilities and organised trading facilities from the registration requirement.

The Singapore and US regulators have agreed that their individual regulatory frameworks do not have to be identical, as long as the outcomes are comparable.

“Such an approach is consistent with the CFTC’s and MAS’s long histories of cross-border regulatory deference in the area of trading venues,” the two regulators said in a joint statement.

They added that the approach also “ensures that market participants can rely on comprehensive rules and regulations of one jurisdiction without fear that another jurisdiction will seek to selectively impose an additional layer of regulatory obligations on them”.

Ravi Menon, managing director of the MAS, said: “This arrangement on mutual recognition between CFTC and MAS accomplishes the G-20 swaps reforms in a purposeful manner.

“It will improve cross-border market efficiency and resilience, and provide US and Singapore market participants access to deeper pools of liquidity. Participants from (the) US and Asia can now trade with one another on the same trading platforms, allowing for risks to be managed more efficiently.”

Meanwhile, Mr Giancarlo said: “Completion of deference arrangements like these not only support the cross-border activities of participants in the financial markets, but also help avoid market fragmentation, protectionism, and regulatory arbitrage.

“The global nature of today’s markets requires that regulators work co-operatively across borders to promote growth and innovation while supporting the financial stability of global markets. We seek to ensure that the current international approach to cross-border regulation supports these goals.”