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    MAS Announces Regulatory Approach for Payment Token Derivatives

    May 15, 2020

    MAS published the final Securities and Futures (Prescribed Underlying Thing) Regulation 2020, which comes into operation on May 18, 2020. It also published a response to the feedback received on the proposed regulatory approach for derivatives contracts on payment tokens, under the Securities and Futures Act. Respondents were broadly supportive of MAS’ proposed approach to regulate Payment Token Derivatives offered by an Approved Exchange and not to regulate Payment Token Derivatives offered by other entities.

    In its response, MAS agreed that Payment Token Derivatives as a general asset class are not yet suitable to be regulated. Payment tokens tend to exhibit high volatility and are intrinsically difficult to value and the same applies to Payment Token Derivatives. As the product is not suitable for retail investors, MAS reiterates its caution to investors of the risks of trading payment tokens and Payment Token Derivatives. Nevertheless, MAS will still regulate Payment Token Derivatives that are offered on an approved exchange. Such exchanges are systemically important trading facilities and MAS views it important to have effective oversight over products offered on approved exchanges due to its risk of contagion to the wider financial system. 

    However, MAS will not regulate the non-"Approved Exchange Payment Token Derivatives." MAS is of the view that regulating Payment Token Derivatives offered by non-Approved Exchange entities (including digital payment token service providers under the Payment Services Act 2 will confer misplaced confidence in such highly volatile products that could lead to a wider offering to retail investors. MAS also notes that retail participation in such products remains relatively low and will continue to monitor developments in this area. This calibrated approach also provides institutional investors with a regulated alternative to gain exposure to the underlying assets, while the industry transforms and develops alternative products that may be suitable to a wider group of investors. The list of respondents to the consultation is enclosed as Annex A and the submissions are enclosed within Annex B of the response to feedback. 

     

    Effective Date: May 18, 2020

    Keywords: Asia Pacific, Singapore, Banking, Securities, Payment Token Derivatives, Securities and Futures Regulation, Derivatives, Approved Exchange, MAS

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