Singapore: MAS consults on proposed capital requirements for locally incorporated RMOs

The Monetary Authority of Singapore ("MAS") has issued a consultation paper, proposing additional capital requirements to be imposed on locally incorporated Recognised Market Operators (“RMOs”). 

The MAS clarified that the key risk posed by an RMO to the financial system is operational risk – the risk that the RMO is unable to continue operating its organised markets, leaving participants of the RMO with the need to find alternative trading venues. With greater diversity in the entities that are seeking an RMO recognition (for example, over-the-counter-derivatives trading venues and start-ups), the MAS felt it was timely to review if the capital requirements imposed on RMOs continue to be appropriate for these new market operators, in addition to addressing the key risk that RMOs pose, and being comparable to the capital standards of international jurisdictions. 

Currently, locally incorporated RMOs hold financial resources that are at least the highest of (i) 18% of their annual operating revenue, (ii) 50% of their annual operating costs, and (iii) $500,000. These are set out in recognition conditions. 

In summary, the MAS proposes to:

  • introduce a direct liquidity requirement, which requires these RMOs to hold cash and cash equivalents of at least 25% of their annual operating costs; and 
  • revise the solvency requirement so that these RMOs are required to hold eligible capital of at least the higher of (i) 25% of their annual operating costs, or (ii) $250,000. RMOs will not be required to deduct illiquid assets from eligible capital, and the MAS will confine the deductions from eligible capital only to assets that are more unlikely to be realisable upon insolvency of the RMO (e.g. prepaid expenses)

To improve the transparency of the capital requirements for current and future entrants, these new capital requirements will be set out in a proposed Notice.