The Monetary Authority of Singapore (MAS), the city-state’s de facto central bank, has planned to green-lighting crypto-token derivatives that can be traded on regulated platforms.
Allowing Payment Token Derivatives To Be Traded
Under a consultation paper on November 20, the MAS proposed to allow payment token derivatives, to be traded on Approved Exchanges and to regulate the activity under the Securities and Futures Act (SFA).
The plan is in place as a response to interest from hedge funds and asset managers for regulated products to be able to hedge their exposure to payment tokens such as Bitcoin (BTC) and Ether (ETH), the agency added.
Now Singapore is roughly in the global race for crypto derivatives trading as institutional investors increasingly seek ways to hedge their exposure to the assets. Giant U.S. bourse operators, CME Group Inc. and Intercontinental Exchange Inc. have already offered futures and prepare to introduce other derivative products in the next few months.
Derivatives products are a special concern for regulators who looking the way to protect investors, and MAS suggested such payment tokens derivatives are “not suitable for most retail investors” as they have “little or no intrinsic value” with high price volatility.
Additionally, payment tokens such as BTC and ETH are currently not clarified as an underlying asset for a derivative product under the oversight of the SFA. MAS, however, reported it has received requests to put such assets under its regulatory remit in order for them to be listed on approved venues.
On the other hand, MAS also emphasized that only proposes to regulate futures traded on exchanges it already regulates, “the regulator does not plan to include crypto derivatives that are not offered by an approved exchange”.
According to recent estimates from data trackers Skew and BitcoinTradeVolume.com, the number of derivatives was traded worldwide on Bitcoin alone is about $5 billion to $10 billion a day.
Besides, the cryptocurrency market has rallied in 2019 though are well off highs, “ The proposal of MAS will allow approved exchanges in Singapore that meet the need of investors in managing their exposure to payment tokens and bringing the activity under regulatory authority”, as the statement wrote.
Presently including four approved exchanges in Singapore are Asia Pacific Exchange, ICE Futures Singapore, Singapore Exchange Derivatives Trading and Singapore Exchange Securities Trading Limited, according to MAS.
The consultation will open for feedback from interested parties until Dec. 20.
Planning of four approved exchanges
In September this year, ICE’s Bakkt platform launched Bitcoin futures that settle digital currency and has planned to offer options next month. It also said the aim of Futures Singapore is to issue a cash-settled futures contract on Dec. 9. Additionally, the world’s largest exchange operator – CME Group, offered cash-settled Bitcoin futures in December 2017 and will introduce its options in January 2020.
Jennifer Ilkiw, vice president of Asia Pacific at ICE, gave the opinion about the need for a clear regulatory framework “will support the healthy development of digital-asset markets”, further, appreciated that “MAS is moving ahead with this consultation”. Bakkt and ICE have created an end-to-end regulated solution for Bitcoin markets on both ICE Futures U.S. and ICE Futures Singapore to address the needs of institutional traders, she detailed.
Both Singapore Exchange Derivatives Trading Ltd and Asia Pacific Exchange do not currently list such products. According to an email APEX’s Nelvin Toh, “Asia Pacific Exchange extremely wants to take the lead in offering Payment Token Derivatives on an approved exchange in Singapore” and shared that their team have already commenced product research and development prior to this with promising “will continually calibrate product specifications in close consultation with both industry players and the MAS”.
Alternatively, SGX is having a different approach. Recently, it claimed that they had looked at providing physical Bitcoin futures, but after studying the technology, they could not overcome concerns about becoming a Bitcoin custodian.
An SGX spokesperson said, “SGX currently has no plans to launch payment token derivatives”. They affirmed in developing new contracts, will apply their strengths in market infrastructure and counterparty risk, working closely with clients to meet their investment and risk management needs.
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