COMMODITY FUTURES BILL

Order for Second Reading read.

The Minister for Trade and Industry (BG Lee Hsien Loong): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Hitherto, the rubber futures market in Singapore has been managed by the RAS under the RAS (Incorporation) Act. For the reasons I have explained, this arrangement has not been satisfactory. The Government is now passing this Bill to subject the rubber futures market to formal regulation.

There is already on the statute books the Futures Trading Act (FTA), administered by the Monetary Authority of Singapore, which regulates futures trading in currencies, interest rates, stock indices, oil and gold. MTI considered bringing rubber futures trading under the Futures Trading Act, but found the FTA inappropriate for this purpose. It has instead decided on separate legislation to regulate the rubber futures market for the following reasons.

Firstly, futures trading in the Singapore International Monetary Exchange (SIMEX) uses the open outcry system, whereas rubber futures trading uses the market making system, also known as the whispering system, in which transactions are executed over the telephone. The rubber trade has requested that this should continue in future, because of the small circle of international traders, producers and consumers of rubber, and the more stable rubber prices. The Review Committee has accepted this recommendation.

Secondly, SIMEX currently operates a mutual offset arrangement with the Chicago Mercantile Exchange. Incorporating rubber futures trading with its different trading system would complicate this arrangement. For prudent administration, it is also preferable for the FTA to continue to deal exclusively with financial futures trading.

The Commodity Futures Bill contains the new legislation to regulate futures trading in rubber and in other commodities. The privatised RAS, now incorporated as the RAS Commodity Exchange Ltd, will operate the market for trading rubber futures as the first contract on the Exchange.

At present, the scope of the Bill is limited to regulating trading in rubber futures contracts. Other commodity futures contracts will be prescribed as and when they become commercially viable. Until this is done, futures trading based on other commodities, for example, coffee or red beans, will not be regulated by the law. Persons who trade with broking firms offering such facilities have to bear the risks involved themselves.

This Bill is modelled very closely to the FTA, and incorporates a number of key features of the FTA. The differences arise largely from the way the trade is carried out, that is, the market making or whispering system in the RAS Commodity Exchange versus the open outcry system in SIMEX.

The major provisions of the Bill are as follows.

(1) Approval and regulation of commodity futures exchanges and clearing house.

TDB will be empowered to approve the establishment of an exchange and clearing house, amend their business rules and review disciplinary action taken by the exchange against its members.

(2) Licensing of commodity futures brokers, trading advisers, pool operators and representatives.

The licensing provisions will regulate the entry and participation of commodity futures brokers, trading advisers, pool operators and representatives. This will safeguard the substantial amounts of customers' funds deposited in good faith with the brokers or the other agents. Specific provisions ensure that the licensing provisions in this Bill and the FTA do not overlap.

(3) Conduct of commodity futures business.

The Bill requires funds placed by customers with their brokers to be separately accounted for, to prevent brokers from making use of their client's funds for any other purposes.

(4) Powers of the TDB to regulate the market.

The Bill enables the TDB to take emergency action such as terminating or suspending trading, requiring additional margins for any contracts, etc, if it believes this is necessary to protect the customers and the market.

(5) Provisions for offences to deal with fraudulent practices.

The Bill spells out the fraudulent trading practices which will constitute offences, such as false trading, bucketing, manipulating of prices and inducing customers to trade by making false statements.

In conclusion, the Commodity Futures Bill provides the same system of regulations, offences and penalties as the FTA to ensure that the high standards set by the MAS in financial futures markets are also maintained in the commodity futures business.

Sir, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [BG Lee Hsien Loong].

Bill considered in Committee; reported without amendment; read a Third time and passed.