The Monetary Authority of Singapore is stepping in to regulate derivatives of payment tokens by allowing trades on only four approved exchanges in Singapore.
Seeing the demand from institutional investors for a regulated product, the Monetary Authority of Singapore (MAS) will govern the trading of such derivatives under the Securities and Futures Act. The approved exchanges include Singapore Exchange Derivatives (SGX Derivatives), Asia Pacific Exchange (APEX) and Ice Futures.
«These institutional investors have a need for a regulated product to gain and hedge their exposure to the payment tokens. MAS’ proposal will allow approved exchanges in Singapore to meet the need of investors to manage their exposure to payment tokens while bringing the activity under regulatory oversight,» said the regulator in a statement on Wednesday.
Developing the Industry
The move by MAS to approve exchange trading of payment token derivatives will be a key competitive advantage of the developing decentralized finance industry in Singapore, said Chua Tju Liang, a director at Drew & Napier and also the global general counsel of the Ethereum Foundation.
«This move clearly demonstrates MAS's commitment to this space,» said Chua, who was quoted in «Business Times»(behind paywall).
Deemed Unsuitable For Most Retail Investors
However, payment token derivatives could be unsuitable for most retail investors to trade, the regulator highlighted in a consultation paper released on Wednesday. Hence, MAS advised retail investors to exercise extreme caution when trading in payment tokens and their derivatives. These tokens tend to have little or no intrinsic value, are difficult to value, and exhibit high price volatility, it added.
To underline the risks, MAS is setting a high bar for retail investors. On June 30 next year, retail investors will need to fork out more than institutional investors to trade in these derivatives. They will need to pay one-and-half times the standard amount of margin required for contracts offered by the approved exchanges, subjected to a floor of 50 percent of the contract value.
Industry Players Studying Feasibility
«These safeguards are a strong signal to retail investors to be aware of the risks involved,» said Carol Fong, group chief executive of CGS-CIMB Securities in Singapore. Meanwhile, OCBC Securities is studying the MAS consultation paper to assess the suitability of including digital tokens derivatives into its product suite, said its managing director Dennis Hong.
Given the volatility of these instruments, some argue that retail investors should be kept away from such instruments completely. «I can understand MAS wanting to develop our markets - which is a laudable objective - but doing it by putting at risk ordinary retail investors' monies is not the way to go," said NUS associate professor Mak Yuen Teen.
