Singapore: Proposed regulatory approach for derivatives contracts on payment tokens

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In November 2019, the Monetary Authority of Singapore (MAS) issued a consultation paper on proposed regulatory approach under the Securities and Futures Act (SFA) for derivatives contracts that reference payment tokens as underlying assets.

Following stakeholders’ feedback, the regulator has now published its response.

On the proposal to possibly regulate payment token derivatives (PTDs) offered by an Approved Exchange (AE),  MAS agrees that PTDs as a general asset class are not yet suitable to be regulated.  

However, MAS confirms that it will regulate PTDs that are offered on an AE.  Like in many other jurisdictions, AEs are considered systemically important trading facilities in Singapore.  As such, MAS considers it ‘important to have effective oversight over products offered on AEs due to the risk of contagion to the wider financial system.’

While overseas exchanges are not prohibited by MAS from offering PTDs, the regulator confirms it will not be regulating such PTDs under the SFA.

On ensuring that consumers are adequately protected, MAS reiterates its earlier view that PTDs are not suitable for most retail investors.  Based on this, the regulator confirms it has introduced additional measures for retail investors who trade PTDs with SFA-regulated financial institutions. 

The regulator confirms it will consider a prescribed baseline margin requirement to prevent investors from becoming excessively leveraged.

On a suggestion by some stakeholders that MAS consider setting a high minimum investment amount for PTDs, the regulator considers that setting such high amount ‘could have the unintended consequence of pushing investors to allocate more money to PTDs in order to meet the minimum amount, which may lead to even larger investment losses.’

Finally, MAS confirms it will not be publishing a list of regulated derivatives of tokens. This, according to the regulator, is in line with its general position to not endorse specific products. 

Additional details are available here.

Photo Credit: Pixabay

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