FUTURES TRADING LAW AND REGULATION IN SINGAPORE : AN INTRODUCTION

Abstract

This paper seeks to be an introductory text and aims to present an overview of the law and regulation of the futures industry and market in Singapore. Chapter 1 begins with a general discussion of the Singapore experience in futures trading, highlighted by the Barings crisis. It continues to chart the objectives of futures trading law and regulation and describes the general framework for supervision of the futures market in Singapore. A discussion of futures trading in Singapore would be incomplete without an indication of how futures came to be traded and how Singapore fits into the global futures explosion. Singapore's existence on the futures scene is connected intimately with the US experience. This is recounted in Chapter 2, together with a general primer on financial futures. The legal concept of"futures" remains amorphous. For the purposes of the first two Chapters, the meaning of "futures" is limited to exchange-traded forward contracts. However, the definition of a "futures contract" in the Futures Trading Act may possibly include non-exchange traded forward contracts ( which in industry parlance are called OTC derivatives). The uncertainty and ambiguity behind certain definitions of basic terms in the Futures Trading Act is explored in Chapter 3. The exploratory discussion does not lose sight of the fact that what is at issue is the identification of a product for statutory governance and this must depend on the rationale for governance. SIMEX, Singapore's financial futures exchange, has intricate and complex systems in place for the trading of financial futures, impossible to describe comprehensively herein. However, Chapter 4 provides an exposition of the basic set-up and trading mechanics in sufficient detail to obtain an elementary understanding of an exchange and clearing house system. A necessary description of the MAS as the overall supervisory authority and its powers in relation to SIMEX and market participants starts off the chapter. Chapter 5 deals with market entry requirements as well as the continuing obligations that market participants owe to the MAS and SIMEX. The chapter also deals with the common issues that arise between licensed members inter se. As for the duties and obligations between a member broker and its non-member customer, Chapter 6 examines the duties which arise as a result of the fiduciary relationship inherent in a broker-customer matrix, as well as other duties imposed by futures law and regulation. It is hoped that this paper would be a helpful compilation of existing futures legislation and regulation, and highlight areas of uncertainty and ambiguity rife for reform or clarification. Nevertheless, an introductory text necessarily leaves out much. For example, the effective regulation of a local market comprised mainly of international players must depend, to an extent, on international coordination with vi other markets. The future for futures market governance lies in the international arena and the Barings crisis has highlighted this for the island republic of Singapore. However, due to limitations of length, this topic is touched upon only very briefly in Chapter 7.