FINANCIAL INSTITUTIONS ENERGY INFRASTRUCTURE, MINING AND COMMODITIES TRANSPORT
Transcription
FINANCIAL INSTITUTIONS ENERGY INFRASTRUCTURE, MINING AND COMMODITIES TRANSPORT
FINANCIAL INSTITUTIONS ENERGY INFRASTRUCTURE, MINING AND COMMODITIES TRANSPORT TECHNOLOGY AND INNOVATION PHARMACEUTICALS AND LIFE SCIENCES Asia Pacific OTC regulatory initiatives James Atkinson Of Counsel Financial Services Team Norton Rose (Asia) LLP April 2013 Topics 2 Key issues for Asia Pacific region Regional implementation overview Cross border case study Singapore implementation process IE Singapore briefing Key issues for Asia Pacific Region 3 Is global model for OTC regulatory reform a good fit with local markets in Asia Pac regions? E.g. trading mandate Volumes and liquidity small fraction of US and EU markets – are implementation costs commensurate with risk? Possible tension between interests of local and international market participants Objectives of local supervisors – mandatory clearing through domestic CCPs (especially local currency products) or through offshore CCPs? Does market scale make local CCPs viable and secure? Will local CCPs be IOSCO-compliant to achieve favourable capital treatment for cleared trades? Risk of netting fragmentation and market segmentation Scope of extra-territorial effect of Dodd Frank/EMIR IE Singapore briefing Regional implementation overview Japan – Japan Securities Clearing Corporation (JSCC) – Mandatory clearing of JPY IRS by domestic banks already in force India – Clearing Corporation of India Limited (CCIL) – Mandatory clearing of FX transactions end-2013 Singapore – SGX Asia Clear Hong Kong – Hong Kong Exchanges and Clearing (HKEx) Korea – Korea Exchange (KRX) Australia – Australian Securities Exchange (ASX) 4 IE Singapore briefing Cross border case study Requirement in Japan for JPY CDS to be cleared with JSCC cf JPY IRS – option to clear through JSCC or foreign CCP For trades between US and Japanese CPs either JSCC needs to register as DCO (application filed but no timeline for completion) or CFTC needs to recognise Japanese regulatory framework Are requirements for DCO registration compatible with needs of local market? Long process for recognition of foreign CCP under EMIR – 15 July target for ESMA report of regulatory equivalence of Singapore regime – ESMA agrees memorandum of understanding with MAS – SGX submits application for recognition to ESMA 5 Separate process for reciprocal recognition by MAS of EU regime IE Singapore briefing Singapore framework - timeline 13 February 2012 MAS Consultation Paper on Proposed Regulation of OTC Derivatives MAS Consultation Paper on Transfer of Regulatory Oversight of Commodity Derivatives from IE to MA 23 May 2012 Consultation Paper (1) on Proposed Amendments to the Securities and Futures Act on Regulation of OTC Derivatives Response to Consultation on Policy Reforms on Regulation of OTC Derivatives 3 August 2012 Consultation Paper (2) on Proposed Amendments to the Securities and Futures Act on Regulation of OTC Derivatives Response to Consultation on Policy Reforms on Regulation of OTC Derivatives Part 2 15 November 2012 Securities and Futures (Amendment) Bill passed by Parliament 10 January 2013 Draft of first implementing regulations published with further regulations to follow Mid-2014? 6 Implementation of new OTC regime following conclusion of public consultation process IE Singapore briefing Singapore framework – amended SFA 7 Securities and Futures (Amendment) Act passed 15 Nov 2013 Introduces new regulation for both wholesale and retail derivatives markets in light of experience during GFC New Part IIA - introduces new regulatory regime for trade depositories New Part III - extends current regime for clearing facilities to OTC derivatives New Part VIA - introduces mandatory reporting New Part VIB - introduces mandatory clearing IE Singapore briefing Singapore framework – amended SFA Transfer of regulation of commodity derivatives from IE Singapore Board (under Commodity Trading Act) to MAS (under amended SFA) – Feb 2012 Consultation Paper – MAS states “derivatives contracts” will encompass OTC commodity derivatives (plus credit, equities, FX and rates) – Feb 2012 Consultation Paper on Transfer – MAS proposes to retain the power to bring intangible commodities into the ambit of SFA if necessary – Feb 2012 Consultation Paper on Transfer – MAS proposes to exclude physically settled commodity forward contracts from the scope of regulation under SFA – No specific wording in SFA but new definition in s.3 SFAA, once regulation made under s.341 SFA 8 IE Singapore briefing Singapore framework – amended SFA Part IIA – Trade Repositories Under s.6 SFAA new Part IIA is inserted after s.46 SFA Division 1 (ss.46C-46H) - licensing process for trade repositories (TRs) – Singapore TR may apply for a trade repository license (to become licensed trade repository) (LTR) – Foreign TR may apply for a foreign trade repository license (to become licensed foreign trade repository) (LFTR) Division 2 (ss.46I-46ZA) – regulation of LTRs – Outlines general obligations, business rules, matters requiring MAS approval – further detail in implementing regulations Division 3 (ss.46ZB-46ZI) – regulation of LFTRs Division 4 (ss.46ZJ-46ZL) – general powers of Authority (i.e. MAS) – S. 46ZJ – power to make implementing regulations for purposes of Part IIA 9 IE Singapore briefing Singapore framework – amended SFA Part III – Clearing Facilities Under s.7 SFAA previous Part III is repealed and new Part III substituted (after s.46ZL SFA) Division 1 (ss.49-56) – establishment of clearing facilities – Singapore corporation may either apply for approval as approved clearing house (ACH) or recognition as recognised clearing house (RCH) – Foreign corporation may only apply for recognition as RCH – Two-tier approach: – systemically important Singapore clearing facilities (all CCPs) to be regulated as ACHs under equally rigorous standards as designated clearing houses under previous regime – other Singapore clearing facilities and foreign clearing facilities (including CCPs) to be regulated as RCHs Division 2 (ss.57-74) – regulation of ACHs – Outlines general obligations, business rules, matters requiring MAS approval – further detail in implementing regulations Division 3 (ss.75-81A) – regulation of RCH 10 IE Singapore briefing Singapore framework – amended SFA Part III – Clearing Facilities Division 4 (ss.81B-81O) – insolvency – Key provision – for clearing, porting etc. to work proceedings of clearing house must take precedence over law of insolvency: – s.81C - list of contracts, transactions, proceedings and dispositions that will survive insolvency – s81L – Singapore court will not enforce order of a foreign court that Singapore court would be prohibited from making under amended SFA Division 5 (ss.81P-81SB) – general powers of authority – S. 81Q – power to make implementing regulations for purposes of Part III 11 IE Singapore briefing Singapore framework – amended SFA Part VIA – Reporting of Derivatives Contracts S.125 – the reporting mandate – “Every specified person who is a party to a specified derivatives contract shall, at such times and in such form or manner as the Authority may prescribe by regulations made under section 129, report to a licensed trade repository or licensed foreign trade repository: – such information on the specified derivatives contract as the Authority may prescribe by those regulations; and – any amendment, modification, variation or change to the information referred to in paragraph (a).” 12 IE Singapore briefing Singapore framework – amended SFA Part VIA – Reporting of Derivatives Contracts Specified derivatives contract – scope of product – To be prescribed by regulations under s.129 – Feb 2012 Consultation Paper – MAS states derivatives across all asset classes eventually to become reportable but priority to be given based on: (1) significance of product/asset class in Singapore OTC markets; (2) significance of Singapore trading of product/asset class in global OTC markets; and (3) international developments in OTC derivatives reporting – Plan to initially prioritise interest rate derivatives, FX derivatives and oil derivatives but MAS notes in Aug 2012 Response to Feedback Received that requests received for oil derivatives to be excluded from 1st phase – many participants in market are commodity firms unfamiliar with reporting requirements and lacking necessary infrastructure. MAS response that it would provide for transition period and take into account particular factors cited by participants 13 IE Singapore briefing Singapore framework – amended SFA Part VIA – Reporting of Derivatives Contracts Specified derivatives contract – scope of contract – To be prescribed by regulations under s.129 – Feb 2012 Consultation Paper – MAS proposes all contracts subject to reporting mandate booked or traded in Singapore will be reportable to eligible TR – MAS will obtain data from TRs in collaboration with other regulators on other relevant trades e.g. SGD denominated trades or trades referencing Singapore entity – Aug 2012 Response to Feedback Received – MAS notes comments that trades could be reportable twice – in jurisdiction where they are booked and jurisdiction where they are traded – not necessarily a problem (c.f. clearing) – MAS will align reporting obligations with other jurisdictions where applicable 14 IE Singapore briefing Singapore framework – amended SFA • Part VIA – Reporting of Derivatives Contracts • Specified person – scope of entity – To be clarified by regulations under s.129 in relation to non-FIs – All FIs (e.g. banks, insurers etc.) will be specified persons – Feb 2012 Consultation Paper – MAS proposes all non-FIs (persons resident or with presence in Singapore not regulated by MAS) above a certain threshold (to be prescribed) based on asset size will be specified persons – Aug 2012 Response to Feedback Received – MAS confirmed that trades between FI and non-FI below reporting threshold would be reportable but only by FI – No exemption for intra-group trades or trades conducted for hedging purposes 15 IE Singapore briefing Singapore framework – amended SFA Part VIA – Reporting of Derivatives Contracts S.126 - power of authority to obtain information S.127 - alternative reporting arrangements S.128 – compliance with laws and practices of relevant reporting jurisdiction – Substituted compliance possible where MAS recognises reporting rules of “relevant reporting jurisdiction” S.129 – power of authority to make regulations 16 IE Singapore briefing Singapore framework – amended SFA Part VIB – Clearing of Derivatives Contracts S.129C(1) – the clearing mandate – “Every specified person who is a party to a specified derivatives contract shall, within such times as the Authority may prescribe by regulations made under section 129G, cause the specified derivatives contract to undergo clearing, by a clearing facility operated by an approved clearing house or recognised clearing house as the case may be.” 17 IE Singapore briefing Singapore framework – amended SFA • Part VIB – Clearing of Derivatives Contracts • Specified derivatives contract – scope of product – To be prescribed by regulations under s.129G – Feb 2012 Consultation Paper – MAS recognises that not all products will be suitable for mandatory clearing e.g. if insufficiently standardised or liquid – MAS proposes to adopt both bottom-up (CCP decides which products to clear and applies for regulatory approval) and top-down (regulator decides which products should be cleared) approaches and apply similar criteria to US and EU – MAS propose to exempt deliverable FX forwards and swaps (again in line with US and EU) – no proposal to exempt NDFs 18 IE Singapore briefing Singapore framework – amended SFA • Part VIB – Reporting of Derivatives Contracts • Specified derivatives contract – scope of contract – To be prescribed by regulations under s.129G – Feb 2012 Consultation Paper – MAS proposes all contracts subject to clearing mandate where at least one leg of contract is booked in Singapore and either: – Both parties to contract are resident or have Singapore presence and are subject to clearing mandate (i.e. are specified persons); or – One party to contract is resident or has Singapore presence and is subject to clearing mandate and other party would have been subject if resident or had Singapore presence – Proposed anti-avoidance provision may catch trades between parties where neither is resident or has Singapore presence – Aug 2012 Response to Feedback Received – MAS notes concerns over possible overlapping/conflicting obligations across different jurisdictions for cross border trades and proposes equivalency approach in response. Singapore counterparty entering derivatives contract with foreign counterparty located in jurisdiction MAS considers to have equivalent safeguards deemed to satisfy Singapore clearing mandate if satisfies foreign clearing mandate 19 IE Singapore briefing Singapore framework – amended SFA • Part VIB – Reporting of Derivatives Contracts • Specified person – scope of entity – To be clarified by regulations under s.129G in relation to both FIs and non-FIs – All FIs and non-FIs above a certain threshold (to be prescribed) will be specified persons: – Threshold for FIs calculated based on minimal derivatives exposure in aggregate and by asset class – Threshold for non-FIs calculated based on: (1) size of total assets; and (2) size of derivatives exposure in aggregate and by asset class – excluding hedging transactions qualifying for hedging treatment under Singapore Financial Reporting Standards (or other internationally accepted standards) – Proposed clearing exemptions for public bodies (e.g. central banks and governments) and intra-group trades (but subject to collateralisation requirement) – Aug 2012 Response to Feedback Received – MAS noted comments that thresholds should be reviewed periodically and highlighted operational challenges in computing exposures. MAS said it would consult further on the proposed clearing thresholds. 20 IE Singapore briefing Singapore framework – amended SFA Licensing – requirement for “intermediaries” in derivatives market to hold capital markets services licence set out in Feb 2012 Consultation Paper Intended to cover non-bank intermediaries dealing in derivatives contracts where underlying is equity, interest rate, FX, credit or commodity No implementing provisions in SFAA so currently unclear as to: – Scope of “dealing” – Scope of proposed End-user exemption – indicates parties not in business of market making or providing intermediating function (e.g. clearing or broking trades for client Regulations awaited in order to clarify position 21 IE Singapore briefing Singapore implementation Summary of key issues for end users in Singapore – Which derivatives will be included in 1st phase of implementation of clearing and reporting mandates (i.e. be prescribed as “specified contracts”?) – Where will thresholds be set for determining whether trader is specified person for purposes of clearing and reporting mandates? – How will anti-avoidance provisions work in practice re contracts not otherwise caught by clearing mandate? – Will trader fall within or outside scope of regulations applicable to capital markets intermediaries (requiring non-bank intermediaries dealing in derivatives contracts to hold capital markets services licence under SFA) – end-user exemption for persons involved in markets only as price-takers, not pricemakers and not performing intermediating function 22 IE Singapore briefing Disclaimer The purpose of this presentation is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Norton Rose LLP on the points of law discussed. No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any constituent part of Norton Rose Group (whether or not such individual is described as a “partner”) accepts or assumes responsibility, or has any liability, to any person in respect of this presentation. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of, as the case may be, Norton Rose LLP or Norton Rose Australia or Norton Rose Canada LLP or Norton Rose South Africa (incorporated as Deneys Reitz Inc) or of one of their respective affiliates. 23 IE Singapore briefing