MAS Will Not Introduce Collateral Requirement for the Trading of Listed Securities

Monetary Authority of Singapore
10 Shenton Way MAS Building Singapore 079117 Telephone 65 6225 5577 Facsimile 65 6229 9229 Circular No: CMI 03/2020 18 February 2020 To: All holders of a capital markets services licence to deal in capital markets products that are securities and/or units in a collective investment scheme; and All exempt financial institutions dealing in capital markets products that are securities and/or units in a collective investment scheme MAS WILL NOT INTRODUCE COLLATERAL REQUIREMENT FOR THE TRADING OF LISTED SECURITIES In August 2014, MAS announced1 our intention to introduce a collateral requirement for the trading of listed securities as part of a suite of initiatives to strengthen the securities market in Singapore. The requirement was aimed primarily at addressing risks arising from excessive contra trading by investors and the ensuing market volatility, especially for small-cap stocks. Having assessed the combined market impact of all the initiatives that have been implemented since 2014 to improve various market functions and trading practices in the securities market in Singapore, MAS has decided not to introduce collateral requirement for the trading of listed securities in Singapore. 2 Over the past few years, contra trading activities have fallen significantly. The implementation of a shorter settlement period for listed securities in December 2018 has also reduced the window available to investors for contra trading. In addition, MAS has implemented several measures, such as the reporting of short positions2 and the publication of a Trade Surveillance Practice Guide with SGX3 , to further promote fair, orderly and transparent trading in the local securities market. Given the lower level of risk associated with contra trading and the new measures implemented to improve risk management practices in the industry, MAS has assessed that there is no need to introduce collateral requirement for the trading of listed securities under current market conditions. 3 MAS will continue to closely monitor the risks associated with contra trading activities and the efficacy of the new measures to strengthen the securities market in Singapore, to assess if further measures are warranted. In this regard, MAS would like to remind financial institutions of the important role they play in having a robust credit risk management framework to effectively manage credit risks arising from their customers’ trading activities. MAS’ expectations on financial institutions’ credit risk management are set out in circular CMI 04/2020.

1 The announcement was made jointly with SGX.
2 The requirement for reporting short positions came into force in October 2018. A person who has a short position of 0.2% of the total issued shares or $2m (whichever is lower) in any specified capital markets products (e.g. shares, business trusts and REITs listed on SGX) will have to report such short position to MAS. 3 The MAS-SGX Trade Surveillance Practice Guide was published in August 2019. It sets out guiding principles that help brokers develop and implement good practices in their trade surveillance operations.