In line with international moves towards clearing on central counterparties (CCPs) to reduce counterparty risk in OTC derivatives transactions, legislation mandating central clearing of OTC derivative contracts on regulated CCPs will be introduced. Products-wise, a dual ‘bottom-up’ and ‘top-down’ approach is being mooted to ascertain products suitable for mandatory central clearing by a CCP. With regard to derivative contracts, if at least one limb of the contract is booked in Singapore and either both parties to the contract are resident (or have presence) in Singapore and are subject to the clearing mandate or one party is resident (or present) and the other party would have been subject to the clearing mandate if it had been resident (or present), central clearing would be required.
MAS is not proposing to require domestic clearing; it will regulate clearing with foreign CCPs by way of a recognition framework.
There are certain circumstances under which clearing will not be required. These include the following:
- Financial Institutions (FIs) regulated by MAS as well as non-FIs above specified thresholds will be required to clear derivative contracts centrally unless their exposure to derivative contracts is minimal. In relation to non-FIs, MAS will likely exclude hedging transactions;
- central banks, certain government bodies as well as supra-national organisations will be exempted from the clearing mandate;
- intra-group trades may be exempted from the clearing obligation but could be subject to appropriate collateralisation requirements.
Where clearing by a CCP is not required, MAS expects that appropriate risk mitigation measures (including adequate capital and margins) should be maintained.