Legislation

Securities and Futures (Financial and Margin Requirements for Holders of Capital Markets Services Licences) Regulations 2006 (S507/2006)

The Securities and Futures (Financial and Margin Requirements for Holders of Capital Markets Services Licences) Regulations 2006 (the ‘Regulations’) were amended on 28 August 2006 to effect changes relating to the margin requirements that must be complied by a holder of a capital markets services licence (the ‘CMS licence holder’) which conducts securities financing or offers contracts for differences (‘CFD’s).

The Regulations oblige a CMS licence holder for securities financing to obtain margin from each customer in respect of any provision of securities financing to the customer. The types of collateral that a CMS licence holder may take to meet margin requirements for its securities financing business (‘acceptable collateral’) are prescribed in the Regulations. In this recent amendment, the Regulations were amended to expand the list of acceptable collateral.

In addition, the Regulations were also amended to impose margin requirements for a CMS licence holder that offers CFDs.

Expanded list of acceptable collateral

The Regulations now provide for an expanded list of acceptable collateral for a CMS licence holder’s securities financing business. Securities or financial instruments which are classified as acceptable collateral under the Regulations are:

1    cash;

2    a share or convertible bond listed on the Singapore Exchange Securities Trading Limited (the ‘SGX-ST’);

3    a share or convertible bond listed on a recognised group A exchange and that is:

a    in the case of a share, included in a market index of that recognised group A exchange; or

b    issued by a corporation with shareholders’ funds of not less than S$200 million or its equivalent in any foreign currency;

4    in the case of an initial public offer, securities to be listed on the SGX-ST which have been fully paid for by a customer of a CMS licence holder;

5    securities quoted on the Central Limit Order Book (‘CLOB’) International;

6    a debt security:

a    issued by a government or public authority of any country or territory, or a recognised multilateral agency specified in the Regulations, with a long-term rating of not less than BB-minus by Fitch Ratings, Ba3 by Moody’s Investor Services, or BB-minus by Standard & Poor’s;

b    issued by any other entity with a long-term rating of not less than BBB-minus by Fitch Ratings, Baa3 by Moody’s Investor Services, or BBB-minus by Standard & Poor’s;

c    being a short-term debt instrument with a rating of not less than F3 by Fitch Ratings, P3 by Moody’s Investor Services, or A3 by Standard & Poor’s; or

d    listed on the SGX-ST or a recognised group A exchange if, and only if, the issuer’s shares are listed on that exchange and qualify as acceptable collateral;

7    an authorised collective investment scheme (‘CIS’) (other than exchange traded funds and property funds);

8    a recognised CIS (other than exchange traded funds and property funds) where its prices are published daily and at least 90 per cent of its deposited assets are invested in instruments that qualify as acceptable collateral;

9    an exchange traded fund quoted on the SGX-ST or a recognised group A exchange which tracks an index of, or basket of, stocks quoted on the SGX-ST or a recognised group A exchange;

10  a property fund listed on the SGX-ST or a recognised group A exchange;

11  any contract traded on the SGX-ST or a recognised group A exchange where the shares of the issuer of the contract, and the shares of the issuer of the underlying security, qualify as acceptable collateral; or

12  such other securities or financial instruments that the MAS may specify.

The Regulations now impose differentiated haircuts for each type of securities that qualifies as acceptable collateral. The haircuts applicable to each of the acceptable collateral are set out in new Table 17 of Third Schedule to the Regulations.

Margin requirements for CMS licence holder that offers CFDs

Under the Regulations, a CMS licence holder who enters into a CFD with its customers is required to obtain margin from each customer, in the form of acceptable collateral, for the purpose of trading in CFDs.

Differentiated minimum margin requirements are imposed on different types of CFDs, depending on the underlying instrument and the risk mitigation features embedded in the CFDs. In addition, there is only a single-tier minimum margin requirement for each type of CFD.

A new Table 18 is inserted in Third Schedule to the Regulations to set out the minimum margin requirements for the following types of CFDs:

1    Equity CFDs;

2    Index CFDs;

3    Foreign Exchange CFDs;

4    CFDs with non-guaranteed stop-loss;

5    CFDs with guaranteed stop-loss; and

6    any other CFDs.

Elizabeth Wong

Allen & Gledhill