ROBSON LEE: Regulation of capital markets and its key participants in S'pore

  Capital Markets – Key Participants

I.             The Monetary Authority of Singapore

The Monetary Authority of Singapore (MAS) is Singapore’sde factocentral bank. It is also the regulator of Singapore’s capital markets. MAS is empowered to grant approvals and/or licences for the conduct of Singapore’s capital market activities. It also conducts ongoing surveillance of market practices. In the event of a breach of any law or regulation, MAS undertakes enforcement actions to ensure compliance.  

II.           Approved Exchanges

Market operators which carry risks of destabilising financial markets as a whole are regulated by MAS as an Approved Exchange.

There are currently only three Approved Exchanges – the Singapore Exchange Securities Trading Limited, the Singapore Exchange Derivatives Trading Limited and ICE Futures Singapore Pte Ltd (formerly known as the Singapore Mercantile Exchange Pte Ltd). 

An Approved Exchange is supervised directly by MAS. It is also subject to the most extensive statutory obligations. 

An Approved Exchange is required to conduct periodic reporting to MAS, and maintain sufficient financial, human and system resources. It is also required to put in place a comprehensive system of risks management. An Approved Exchange undertakes regulatory supervision of its members. This includes enforcing compliance with its business rules and listing rules. 

III.          Recognised Market Operators

Market operators which pose lesser risks of destabilising financial markets are regulated as “Recognised Market Operators” (RMOs). In line with the lower risk profile, RMOs are subject to lesser regulation in comparison to an Approved Exchange.

RMOs regulated by MAS currently include The New York Mercantile Exchange Inc, The London Metal Exchange and the Tokyo Financial Exchange Inc. 

A RMO is required to conduct periodic reporting to MAS. It is also required to notify MAS of significant changes to its business. RMOs are required to provide information to investors, and to supervise and ensure the compliance of its members. 

IV.          Exempt Market Operators 

Market operators which carry very limited risks of destabilising financial markets may be exempted by MAS. This is because the costs of regulation may outweigh the benefits. In such limited instances, MAS may exempt such operators as “Exempt Market Operators” (EMOs). 

MAS may also grant an exemption if the market operator is already separately regulated by MAS. For instance, the market operator may be an existing holder of a capital market services licence. 

This exemption may carry certain conditions. MAS may, for instance, limit the extent of the trading activities undertaken. MAS also may limit participation in the trading activities conducted by EMOs to sophisticated investors.

Market operators who are recognised as EMOs will be published in the government gazette. There is currently no EMO named in MAS’ financial directory.

V.           Capital Markets Intermediaries 

Securities or futures brokers and fund managers are known as capital markets intermediaries. They form the other key component of Singapore’s capital markets. 

As any failure or lapses on their part may jeopardise market stability, these intermediaries require a capital market services license or financial adviser’s license from MAS to engage in regulated activities. 

This is unless they are exempt from licensing. Exemption usually arises where the entity is licensed under another legislation administered by MAS. Examples are banks, licensed under the Banking Act (Chapter 19), and insurance companies, licensed under the Insurance Act (Chapter 142). 

Capital markets intermediaries are required to put in place adequate internal controls and arrangements for managing conflicts of interest. They are also required to establish risks and compliance monitoring functions, and maintain adequate professional indemnity insurance. Its representatives must satisfy the “fit and proper” criteria prescribed by MAS. Capital markets intermediaries are further required to conduct periodic reporting to MAS and the exchanges of which they are a member.