1. Healthcare

December 13, 2013
INVESTMENT FUNDS UPDATE
Mandatory Reporting of OTC Derivatives – How the New
Reporting Mandate Affects Singapore Fund Management
Companies
On October 28, 2013, new requirements relating to mandatory reporting of OTC
derivatives came into effect.
The new requirements were introduced by the Monetary Authority of Singapore ("MAS") pursuant to the
Securities and Futures (Amendment) Act 2012, which amends the Securities and Futures Act, Chapter 289 of
Singapore ("SFA"), and the new Securities and Futures (Reporting of Derivatives Contracts) Regulations 2013
("SF(RDC)R").
The new requirements were enacted after the MAS undertook a series of public consultations on the regulation
of OTC derivatives. The consultations relating to the reporting mandate are as follows:
•
Consultation Paper on Proposed Regulation of OTC Derivatives issued on February 13, 2012
("Consultation Paper on Regulatory Policy") and Response to Feedback Received (Part 2) issued on
August 3, 2012 ("Response on Regulatory Policy").
•
Consultation Paper on Proposed Amendments to the SFA on Regulation of OTC Derivatives issued on
August 3, 2012 ("Consultation Paper on SFA Amendments") and Response to Feedback Received
issued on October 15, 2012 ("Response on SFA Amendments").
•
Consultation Paper on Draft Regulations Pursuant to the SFA for Reporting of Derivatives Contracts issued
on June 26, 2013 ("Consultation Paper on SF(RDC)R").
Concurrent to the introduction of the new requirements, the MAS has also issued its response to feedback
received on the Consultation Paper on SF(RDC)R ("Response on SF(RDC)R").
This briefing focuses on the impact of the reporting mandate on fund management companies ("FMCs") which
either hold a capital markets services license for fund management ("LFMCs") or which are registered fund
management companies ("RFMCs").
A table summarizing the key requirements of the new reporting mandate under the SFA and SF(RDC)R is set out
below.
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INVESTMENT FUNDS UPDATE
Page 2
Key requirements of the reporting mandate
The following table sets out a summary of the key requirements of the OTC derivatives reporting mandate for
LFMCs and RFMCs under the SFA and SF(RDC)R.
Subject
Requirement
Parties subject to the
The reporting mandate applies to a "specified person". A "specified
reporting mandate
person" includes:
•
any holder of a capital markets services license; and
(Comment: This would include all LFMCs.)
•
a "significant derivatives holder". If a person satisfies all of
the following requirements on the last day of any quarter, he will
become a significant derivatives holder on the next day:

the person is resident in Singapore; and

the aggregate gross notional amount, for the year ending
on the last day of that quarter, of the specified derivatives
contracts to which the person is a party and which are
either booked 1 or traded 2 in Singapore 3 or both, exceeds
S$8 billion.
If a person becomes a significant derivatives holder, he is required
to lodge with the MAS a notification in Form 1A within 2 months
beginning on the day on which he becomes a significant
derivatives holder.
(Comment: A RFMC would be subject to the reporting
mandate if it falls within the definition of a "significant
derivatives holder".)
Reporting mandate
•
Every specified person who (i) is a party to a specified derivatives
contract or (ii) enters into a specified derivatives contract as an
agent of a party to the contract (further elaboration below), is
required to report to a licensed trade repository or licensed
1
2
3
"Booked in Singapore" means the entry of the derivatives contract on the balance sheet or the profit and loss account of a
person whose place of business is in Singapore.
"Traded in Singapore" means the execution of the derivatives contract by a trading desk or trader that is physically located in
Singapore. The MAS has indicated in the Response on SF(RDC)R that it will be providing further guidance to facilitate the
reporting of derivative contracts traded in Singapore.
The "aggregate gross notional amount, for the year ending on the last day of any quarter, of the specified derivatives
contracts to which a person is a party and which are booked in Singapore or traded in Singapore", is the total of the
gross notional amounts, for that quarter and for each of the 3 quarters immediately preceding that quarter, of the specified
derivatives contracts to which that person is a party and which are booked in Singapore or traded in Singapore (as the case may
be). The "gross notional amount, for any quarter, of the specified derivatives contracts to which a person is a party
and which are booked in Singapore or traded in Singapore", is the total of the notional amounts of all specified derivatives
contracts to which that person is a party and which are booked in Singapore or traded in Singapore (as the case may be), during
that quarter, as assessed on the last day of that quarter.
INVESTMENT FUNDS UPDATE
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Subject
Requirement
foreign trade repository (the "Trade Repository"):

the prescribed information relating to the specified
derivatives contract; and

any amendment, modification or variation or change to
the information reported.
•
A specified person who enters into a specified derivatives contract
as an agent (referred to as the "agent") of a party to the specified
derivatives contract will need to comply with the reporting
mandate in the following circumstances:

the principal of the agent:
- is not a specified person; or
- is a specified person, but has been exempted by the
MAS from complying with the reporting mandate
under section 129A;

the agent is incorporated in Singapore or has an office or
branch in Singapore; and

the agent enters into the specified derivatives contract
through an individual (i.e. an officer or employee of the
agent) whose place of employment is Singapore and who
is physically in Singapore at the time the specified
derivatives contract is entered into.
(Comment: The MAS has stated in the Response on SFA
Amendments that this requirement was set out with the
intention to require a FMC in Singapore to comply with
the reporting obligation if the FMC acts as an agent in
the transaction and the counterparty to the transaction
is the fund which it manages.)
Types of derivative
The reporting mandate applies to a "specified derivatives contract".
contracts covered by
For the purposes of Phase I of the implementation schedule (which
the reporting
has come into effect), the following contracts have been prescribed to
mandate
be a "specified derivatives contract":
•
any interest rate derivative contract4 which is traded or booked in
Singapore; and
4
An "interest rate derivatives contract" means a derivatives contract related to an interest-bearing financial instrument, or the
cash flows of which are determined by reference to interest rates or another interest rate contract (such as an option on an
interest rate futures contract).
INVESTMENT FUNDS UPDATE
Page 4
Subject
Requirement
•
any credit derivatives contract 5 which is traded or booked in
Singapore.
The MAS has indicated that other asset classes of derivative contracts
including foreign exchange, equity and commodity will be introduced
after October 2014 under Phase II of the implementation schedule.
Deemed compliance
A specified person will be deemed to have complied with the
with reporting
reporting mandate for a specified derivatives contract in the following
mandate
circumstances:
•
Third-party reporting:

the specified person has reported the information to any
other person;

that other person has reported the information in the
prescribed form and manner to the Trade Repository; and

the information is true and correct and has been received
by the Trade Repository.
•
Single-sided reporting:

the information has been reported or is deemed to be
reported to a Trade Repository by any other specified
person who is required to comply with the reporting
mandate or any other party to the specified derivatives
contract; and

the information is true and correct and has been received
by the Trade Repository.
(Comment: The MAS has highlighted in the Response on
SFA Amendments that notwithstanding the provisions for
single-sided or third-party reporting, the specified party is
still responsible for ensuring the accuracy and timeliness of
the information reported. The provisions are meant to
reduce compliance burden, but not relieve specified parties
entirely of responsibility.)
•
Compliance with laws and practices of relevant reporting
jurisdiction:

5
the other party to the specified derivatives contract or (if
A "credit derivatives contract" means a derivatives contract related to a credit instrument or credit-linked instrument, or the
cash flows of which are determined by reference to an underlying bond, an underlying loan or any other underlying credit
agreement.
INVESTMENT FUNDS UPDATE
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Subject
Requirement
applicable) the principal party on behalf of whom the
specified person acts as agent is incorporated or has a
place of business in a relevant reporting jurisdiction; and

the said party is required to and has complied with the
requirements relating to the reporting of specified
derivatives contracts for that particular contract under the
laws and practices of that relevant reporting jurisdiction.
Information to be
The information and data fields required to be reported are set out in
reported
the First Schedule to the SF(RDC)R.
Reporting
•
For LFMCs: July 1, 2014
commencement date
•
For RFMCs who are significant derivatives holders: October 1,
2014
Time frame for
•
reporting
Specified derivatives contracts executed on or after the
applicable reporting commencement date, and which was
booked or traded in Singapore: within 2 business days after the
execution or termination of the specified derivatives contract.
•
Any amendment, modification, variation or change to any
information referred to above: within 2 business days after the
amendment, modification, variation or change
•
Back-loaded specified derivatives contracts 6: within 6 months
after the applicable reporting commencement date, or the date on
which the FMC becomes a specified person / significant
derivatives holder after the reporting commencement date (as the
case may be).
(Comment: Only trades which are booked in Singapore
are required to be back-loaded. The back-loading
requirement does not extend to trades which are traded
in Singapore.)
If you have any questions regarding this update, please contact the Sidley lawyer with whom you usually work.
Sidley Investment Funds, Advisers and Derivatives Practice
Sidley has a premier, global practice in structuring and advising investment funds and advisers. We advise clients in the formation
and operation of all types of alternative investment vehicles, including hedge funds, fund-of-funds, commodity pools, venture
capital and private equity funds, private real estate funds and other public and private pooled investment vehicles. We also
represent clients with respect to more traditional investment funds, such as closed-end and open-end registered investment
companies (i.e., mutual funds) and exchange-traded funds (ETFs). Our advice covers the broad scope of legal and compliance
6
This refers to a specified derivatives contract which (i) was executed before the applicable reporting commencement date, (ii)
was booked in Singapore and (iii) has a maturity of at least one year as at the applicable reporting commencement date.
INVESTMENT FUNDS UPDATE
Page 6
issues that are faced by funds and their boards, as well as investment advisers to funds and other investment products and
accounts, under the laws and regulations of the various jurisdictions in which they may operate. Our practice group consists of
approximately 120 lawyers in New York, Chicago, London, Hong Kong, Singapore, Shanghai, Tokyo, Los Angeles and San
Francisco. In Asia, our practice includes Singapore, U.S., English, Hong Kong and Japanese-qualified lawyers. For information on
this Sidley update, please contact the co-heads of Sidley’s Asia Investment Funds practice: Han Ming Ho, Singapore
(+65.6230.3966, [email protected]), or Effie Vasilopoulos, Hong Kong (+852.2509.7860, [email protected]).
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