Banks to Centrally Clear OTC Derivatives from 1 October 2018
17 May 2018
Specified OTC derivatives must be cleared on central counterparties with effect from 1 October 2018. This mandatory clearing requirement will apply to Singapore-Dollar and US-Dollar fixed-floating interest rate swaps.
The Monetary Authority of Singapore (MAS) has issued the Securities and Futures (Clearing of Derivatives Contracts) Regulations 2018 (Regulations). They mandate central clearing of specified over-the-counter (OTC) derivatives as from 1 October 2018.
Who must clear?
Under the Regulations, banks whose gross notional outstanding OTC derivatives exceed $20 billion will be required to clear their trades of specified OTC derivatives through central counterparties that are regulated by the MAS. The gross notional outstanding amount refers to the aggregate of the notional amounts of every derivatives contract to which the bank is a party, is not an exchange-traded derivatives contract, is booked in Singapore, and is outstanding. A derivatives contract is booked in Singapore if it is entered on the balance-sheet or the profit and loss accounts of the bank and the balance-sheet or the profit and loss accounts relate to the bank’s business in Singapore.
What must be cleared?
The derivative contracts specified under the Regulations are:
- Singapore-Dollar fixed-floating interest rate swaps for SOR and having a tenor of any length from 28 days to 10 years; and
- US-Dollar fixed-floating interest rate swaps for LIBOR and having a tenor of any length from 28 days to 10 years.
In addition, the derivatives contract must meet the following characteristics:
- It is not an exchange‑traded derivatives contract.
- The parties are not related corporations.
- It is booked in Singapore by both parties.
- The parties are both required to clear the contract under the Regulations.
When must clearing be done?
The prescribed derivatives contract must be cleared within one business day after the day on which it is entered into.