Martin Lee @ Sg
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MAS Reviews Regulatory Requirements for Unlisted Margined Derivatives

The Monetary Authority of Singapore (MAS) has issued a consultation paper on proposed enhancements to the regulatory requirements for unlisted margined derivatives.

The proposals aim to address the specific risks posed by unlisted margined derivatives such as contracts for differences (CFDs) and leveraged foreign exchange products (LFX), which are currently available to retail investors.

I guess the changes are prompted very much by the failure of MF Global, which left some retail investors in Singapore in the lurch.

Retail investors who trade in CFDs and LFX are exposed to considerable risks, given the leveraging effect of margin trading on potential losses.

The unlisted nature of such products further subjects investors to counterparty risks since they do not trade through an exchange which has a central clearing house to guarantee the settlement obligations to investors.

Instead, investors are exposed to the creditworthiness and operational risks of the derivative product dealer. In the event of a default, they may not have recourse to transfer their positions or recover their moneys in their trading accounts.

The consultation paper can be found here:

Review of Regulatory Framework for Unlisted Margined Derivatives

Some of the proposed changes of MAS include:

  • Increasing margin for FX from 2% to 5%
  • Prohibiting the derivative dealer from using client’s money as margin with hedging counterparties
  • For those dealers using white label solutions, to make them accountable for client’s position should something go wrong with the underlying provider
  • Prohibiting the dealer from maintaining customers assets in trust accounts with custodians outside Singapore
  • Providing customers with a simplified 3-page Additional Risk Fact Sheet to highlight the risks of derivatives trading.

Written comments should be submitted to [email protected] by 2 July 2012.

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