COMMODITY TRADING (AMENDMENT) BILL 2007 SECOND READING SPEECH BY MR LIM HNG KIANG MINISTER FOR TRADE & INDUSTRY AND DEPUTY CHAIRMAN MAS
Objective
Commodity futures trading is currently regulated under the Commodity Trading Act (CTA) by IE Singapore, while financial futures trading is regulated by MAS under the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA). Accordingly, commodity futures and the associated markets, clearing facilities, brokers and advisers are regulated under the CTA while their equivalents in respect of financial futures are regulated under the SFA and FAA.
As markets converge and institutions participate in both financial and commodity futures markets, the presence of multiple regulators increases regulatory costs. To enhance Singapore’s business environment and streamline regulations, we propose that legislative amendments be made to transfer regulatory oversight of commodity futures trading from IE Singapore under the CTA, to MAS under the SFA and FAA. The consolidation of the regulation of financial and commodity futures under a single regulator, the MAS, is a strategic step that will facilitate Singapore’s growth as a futures trading hub. This would streamline licensing and compliance procedures. For example, firms broking both commodity futures and financial futures would only need to hold a single license from MAS, as opposed to the current requirement of obtaining two separate licenses from MAS and IE Singapore.
IE Singapore and MAS have consulted the public and industry players on the proposed transfer of regulatory oversight.
The feedback received indicated support for MAS to be the single regulator for futures trading activities.
Legislative amendments required to effect the transfer
The Bill seeks to amend the CTA, SFA and FAA to effect the transfer of regulatory oversight of commodity futures, including the associated markets, clearing facilities, brokers and advisers, from IE Singapore under the CTA, to MAS under the SFA and the FAA. The key amendments include:
a) Removing all provisions in the CTA relating to commodity futures trading; and
b) Amending the definition of “commodity” in the SFA and introducing a definition of “commodity” in the FAA such that commodity futures contracts currently regulated under the CTA will be regulated under the SFA and FAA[1].
The Bill also makes a consequential amendment to the Income Tax Act to clarify that members of commodity futures markets can continue to qualify for tax incentives after the transfer.
With these amendments, commodity futures, the associated markets, clearing facilities, brokers and advisers will come within the regulatory ambit of the SFA and the FAA. This will achieve the objective of having a single regulatory framework for commodity futures and financial futures contracts.
Transitional arrangements
The proposed changes will affect those entities and their representatives currently dealing in commodity futures. These include the Singapore Commodity Exchange Ltd (SICOM), SICOM’s broking members and their representatives, as well as futures brokers and their representatives who have licenses from both IE Singapore and MAS. Where appropriate, MAS will provide transitional arrangements to facilitate their smooth transfer from regulatory oversight under IE Singapore to MAS. To this end, the Bill includes consequential amendments to the SFA and the FAA that will empower MAS to prescribe transitional regulations for the transfer of oversight.
Under present legislation, IE Singapore also has regulatory oversight of over-the-counter (OTC) commodity derivatives and spot commodity contracts under the CTA. These were added to the scope of the CTA in 2001 and a licensing framework was introduced, to keep out bucket shops[2] that defraud the public. The intention was not, however, to impede legitimate dealing in OTC commodity derivatives and commodity spot broking. To this end, IE Singapore has granted exemptions from the licensing requirement to bona fide players operating in institutional markets. As the current regime continues to serve its purpose, we do not propose any changes to the regulatory frame work for OTC commodity derivatives and spot commodity contracts under the revised CTA. We will continue to monitor market developments and ensure that our regulatory regime is kept relevant and effective.
Conclusion
Mr. Speaker, Sir, the proposed amendments under the Commodity Trading (Amendment) Bill are necessary to effect the transfer of regulatory oversight of commodities futures from the CTA to the SFA and FAA. This will consolidate regulation of commodities and financial futures trading under MAS. As a result, there will be a more efficient and streamlined regulatory framework under which trading players can operate and conduct their futures trading activities in Singapore. This demonstrates the commitment of the Singapore Government to continually enhance the business operating environment in Singapore.
Mr. Speaker, Sir, I beg to move.
[1]The term “commodity” is defined in Section 2 of the SFA to mean gold or a financial instrument. The CT Bill will expand the definition of “commodity” in the SFA to include all tangible commodities (i.e. any produce, item, goods or article) and also provide MAS with the power to prescribe as a “commodity” other types of “intangible” commodities (e.g. weather indexes, freight prices, carbon credits, etc.). “Commodity” in the FAA will take the same meaning as in Section 2 of the SFA.
[2]‘Bucket shops’ refer to firms that entice people through various tactics to open trading accounts with them, but on contractual terms that are favourable towards these firms.