New MAS proposal could pave way for commodity futures funds, more single-country bond funds for retail investors

[SINGAPORE] Retail investors in Singapore could gain access to futures-based single-commodity funds and a wider range of single-country government bond funds, with the Monetary Authority of Singapore (MAS) on Thursday (Jul 9) outlining a proposal for a more flexible framework to bring innovative fund products to market faster.

This comes as investor sophistication grows in the Republic and investor needs continue to evolve, noted MAS. The authority said that it has received interest from the industry to offer new retail fund product types that cater to a broader range of investment objectives.

Against this backdrop, the financial regulator has launched a public consultation running from Thursday to Aug 10 on proposed amendments to the Code on Collective Investment Schemes.

The changes would create a more flexible regulatory framework to accommodate a wider range of innovative fund types that may not meet existing investment requirements, while maintaining core safeguards such as governance and asset safe-keeping.

The announcement comes after Deputy Prime Minister Gan Kim Yong said on Jun 25 that MAS would introduce a new category and process for non-traditional funds so that fund managers can bring such funds to market more quickly.

Serene Cai, head of securities markets and depository at Singapore Exchange (SGX) Group, noted that the bourse has observed strategies such as covered call and defined outcomes launched in the exchange-traded fund format in other markets. She added that the ETF format makes these strategies “more accessible” to a wider range of investors.

“As ETF adoption grows, a continuing expansion of our product shelf would cater to the increasing market demand for greater diversification in exposure and strategies,” said Cai.

New Alternative Funds Appendix

MAS noted that it has received market interest to offer two fund types to retail investors: futures-based single-commodity funds and a wider range of single-country government bond funds.

However, these fund types might not comply with existing investment requirements, such as diversification.

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To address this, MAS has proposed a new Alternative Funds Appendix to introduce greater flexibility for innovative fund types and differentiate them from traditional funds.

These new fund types may involve the heavy use of derivatives and/or have undiversified exposures. MAS said that some investors may seek exposure to such funds within the context of a broader, diversified portfolio.

Funds authorised under this new appendix will be required to carry a clear and prominent statement in their prospectuses, product highlights sheets and marketing materials relating to the fund, that states that the fund is offered under this appendix as an alternative fund.

This is to ensure that investors can readily distinguish them from traditional funds that comply with the existing investment requirements, said MAS.

Guard rails for these fund types will be implemented to safeguard retail investors’ interests, added the authority. For example, requirements specific to each type of fund will be put in place to address their unique risks. Also, fund products will be required to adhere to enhanced disclosures to ensure that investors have the necessary information to make informed investment decisions.

The Business Times understands that the current process typically takes six to 12 months, depending on the proposal or the type of fund.

Following the proposed changes, MAS aims to take about three months to determine the necessary guard rails for the issuance of a new fund type. Once the guard rails are established, funds of the same type will take three weeks to be authorised if they fulfil the same requirements.

SGX’s Cai noted that building this ecosystem will take time.

“We will therefore be stepping up our engagements with ecosystem partners such as issuers and distributors, to encourage them to invest effort and time in the Singapore Exchange-listed product ecosystem.”

She added that the group intends to develop changes to its rules that will support other types of non-fund products in the future.