Proposed Regulations for Reporting of OTC Derivatives

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1 Proposed Regulations for Reporting of OTC Derivatives Introduction As part of its policy intent to set up a regulatory framework for over-the-counter ("OTC") derivatives, the Monetary Authority of Singapore ("MAS") recently consulted on its proposed draft Securities and Futures (Reporting of Derivatives Contracts) Regulations 2013 ("SF(RDC)R"). The draft SF(RDC)R contains the operational details which flesh out new Part VIA (Reporting of Derivative Contracts) of the Securities and Futures Act ("SFA"). Part VIA, which comprises sections 124 to 129A of the SFA, was among the amendments in the Securities and Futures (Amendment) Act passed by Parliament on 15 November To date, Part VIA has not come into operation yet. Who needs to report Section 125(1) of the SFA contains the basic reporting requirement. It provides that a specified person who is a party to a specified derivatives contract shall at such times and in such form or manner as MAS shall prescribe, report to a licensed trade repository or licensed foreign trade repository such information on the specified derivatives contract as MAS may prescribe. "Specified person" includes banks, subsidiaries of banks, merchant banks, finance companies, insurers, approved trustees, holders of capital markets services licences and any other person prescribed by MAS. MAS proposes to prescribe that certain non-financial specified persons ("NFSP") will also be required to report. A NFSP will have to comply with reporting obligations when his aggregate gross notional amount of specified derivatives contracts traded in Singapore or his aggregate gross notional amount of specified derivatives contracts booked in Singapore exceeds S$8 billion. When both of the NFSP's aggregate gross notional amounts of specified derivatives contracts traded in Singapore and his aggregate gross notional amounts of specified derivatives contracts booked in Singapore fall below the S$8 billion 1 Rajah & Tann LLP

2 threshold for four consecutive quarters, he will cease to be required to report any new trades. However, he will still be required to report any changes to information on earlierreported specified derivatives contracts. Which derivatives contracts need to be reported It is proposed that in Phase I, "specified derivatives contract" refer to interest rate derivatives contracts and credit derivatives contracts which are either: - executed on or after the date the SF(RDC)R takes effect ("Effective Date"); or - executed before the Effective Date, but have maturity of not less than one year on the Effective Date. Other asset classes of derivatives contracts including foreign exchange, equity and commodities will be included in Phase II. The reporting obligation attaches to such derivatives which are traded in Singapore and/or booked in Singapore. Trades which are marketed, originated or arranged in Singapore but not booked or traded in Singapore will not fall under the regulatory reporting regime. What information needs to be reported The information on the specified derivatives contracts which need to be reported to MAS are set out in the Second and Third Schedule of the draft SF(RDC)R. Generally speaking, the information which is reportable would include information on the contract, the counterparty, clearing, confirmation and trade execution. The Second Schedule contains the detailed information or data on specified derivatives contracts which should be reported by specified persons. The required data fields were decided upon by MAS with reference to the Report on OTC Derivatives Data Reporting and Aggregation Requirements by the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions ("CPSS-IOSCO") and the scope of information collected by other major financial jurisdictions. A simpler set of information is only required for NFSPs reporting those specified derivatives contracts which had been entered into prior to the Effective Date but having an outstanding maturity of not less than one year on the Effective Date. This is set out in the Third Schedule. This concession was made because not all NFSPs might have captured all 2 Rajah & Tann LLP

3 the information in the Second Schedule necessary to backload outstanding specified derivatives contracts. Form and Manner of Reporting MAS proposes that newly-executed specified derivatives contracts should be reported by the close of the next business day. For outstanding specified derivatives contracts with an outstanding maturity of not less than 1 year, backloading of these contracts should be completed within six months from the date which a specified person is required to start reporting trades. MAS proposes that the reporting obligations will be phased in by asset class and type of specified person. In Phase 1 (commencing on 1 October 2013), information on interest rate and credit derivatives contracts will be reported by banks first, followed by other financial entities and finally NFSPs. In Phase 2 (tentatively scheduled to commence in April 2014), derivatives contracts of other asset classes such as foreign exchange, equities and commodities will be required to be reported. Confidentiality In an earlier consultation on the proposal for reporting OTC derivatives, respondents in the banking industry had expressed their concern over maintenance of customer confidentiality of the information reported to the trade depositories, for example, where customer consent cannot be obtained or is withdrawn. MAS is therefore considering making legislative and regulatory changes to facilitate trade reporting. Some of the changes would include: - Providing temporary exemptions to banks such that they will not need to disclose their client's identity when reporting on derivatives transactions; and - Amending Regulation 47(2) of the Securities and Futures (Licensing and Conduct of Business) Regulations to clarify that the definition of "customer's order" does not include information on completed OTC derivatives transactions. Currently, this regulation prohibits the disclosure of information relating to a customer's order (for dealing in securities, trading in futures contracts, or carrying out leveraged foreign exchange trading) except under specific conditions. 3 Rajah & Tann LLP

4 Cross-border trades MAS acknowledges that there may be issues in relation to compliance of reporting regulations in cross-border trades. It proposes to allow specified persons complying with comparable reporting regimes in foreign jurisdictions to be deemed as having complied with Section 125 SFA, thereby minimizing duplication of reporting. In such situations, MAS must be able to obtain full access to the information reported by that specified person under the foreign reporting framework. Also with respect to cross border trades, some countries have privacy laws which restrict or block trade reporting. MAS is working to identify both temporary and permanent solutions to this issue, whilst keeping track of international developments in this area. The proposed SF(RDC)R is part of the new OTC derivatives regulatory framework which is being set up by MAS in response to international standards recommended by the Financial Standards Board ("FSB") and other international organisations involved in financial regulation. MAS has carefully approached the development of OCT regulations in stages and consulted with industry players at each stage. There are still some areas of difficulty within the consultation proposals themselves and it remains to be seen how these will be resolved both within the Singapore context and internationally. References Please click on the links below to access the relevant documents: 1. Consultation Paper on Draft Regulations Pursuant to the Securities and Futures Act for Reporting of Derivatives Contracts 2. Securities and Futures (Amendment) Act Rajah & Tann LLP

5 Contacts David Yeow D (65) F (65) david.yeow@rajahtann.com Regina Liew D (65) F (65) regina.liew@rajahtann.com Larry Lim D ( F (65) larry.lim@rajahtann.com Please feel free to also contact the Knowledge and Risk Management Group at eoasis@rajahtann.com Rajah & Tann LLP is the largest law firm in Singapore and Southeast Asia, with regional offices in China, Lao PDR, Vietnam, Thailand and Myanmar, as well as associate and affiliate offices in Malaysia, Cambodia, Indonesia and the Middle East. Our Asian network also includes regional desks focused on Japan and South Asia. As the Singapore member firm of the Lex Mundi Network, we are able to offer access to excellent legal expertise in more than 100 countries. Rajah & Tann LLP is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealing with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The contents of this Update are owned by Rajah & Tann LLP and subject to copyright protection under the laws of Singapore and, through international treaties, other countries. No part of this Update may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed, broadcast (including storage in any medium by electronic means whether or not transiently for any purpose save as permitted herein) without the prior written permission of Rajah & Tann LLP. Please note also that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as such information may not suit your specific business and operational requirements. It is to your advantage to seek legal advice for your specific situation. In this regard, you may call the lawyer you normally deal with in Rajah & Tann LLP or the Knowledge & Risk Management Group at eoasis@rajahtann.com. 5 Rajah & Tann LLP