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Foreign Exchange

Singapore reviews trading regulation for retail investment products

The Monetary Authority of Singapore (MAS) has proposed news rules governing retail trading of unlisted derivatives products to help protect investors from the risks involved with margin trading.

The proposed regulatory enhancements seek to afford better protection to retail investors who trade instruments such as contracts for difference (CFDs) and leveraged foreign exchanged (LFX). “Investors that trade these products are exposed to considerable risks, given the leveraging effect of margin trading on potential losses,” states the MAS.

“The unlisted nature of such products further subjects investors to counterparty risks, since they do not trade through an exchange which has a central clearing house to guarantee the settlement obligations to investors.”

The MAS says it wants to introduce measures to enhance credit-risk management by derivatives product dealers and mitigate the risk of overleveraging by retail investors.

Steps would be taken to ensure dealers were adequately capitalized, and that in the event of insolvency, investors’ money and asset would be better protected.

New regulation would also force brokers to fully disclose the risks attached to the margin trading of certain products.

Retail trading is particularly popular in Singapore, where interest rates are near zero but reports suggest investors who bought CFDs from MF Global, which collapsed in late 2011, have been unable to get their margin payments back which were held overseas.

Investors who bought structured products backed by Lehman Brothers also faced losses, after the bank’s collapse in 2008.

The MAS has extended a consultation period for the new proposals to July 2.

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