COMMODITY FUTURES (AMENDMENT) BILL

Order for Second Reading read.

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

Objective

The Commodity Futures (Amendment) Bill introduces new provisions to the existing Commodity Futures Act (Chapter 48A) to address the `bucket shop' problem. The Bill provides for penalties for persons and entities operating without a licence, and enhances the penalties for stipulated offences under the Act.

Background

Bucket shops' are firms that entice the public to open trading accounts with them and to grant them wide discretion to trade on the investors' behalf. Instead of trading with the investors' interest in mind, the contractual terms are such that they favour the firms. They may claim to effect transactions when they did not; or churn', that is, make repeated transactions to earn commissions, without regard to the interest of investors. Investors are enticed with small initial profits but may end up losing their entire investment

The Commodity Futures Act was first enacted in 1992. It covers commodity futures that are traded at the Singapore Commodity Exchange (SICOM), namely, rubber and coffee only. In the mid-1990s, bucket shops' caused a stir with mainly spot or leveraged foreign exchange trading. This was stamped out when the MAS amended its Futures Trading Act in 1995. The situation was somewhat controlled until bucket shop' operators came up with new schemes in the last 2-3 years. These `bucket shops' deal in other commodities such as pork belly, which are not covered under the current Commodity Futures Act.

Amendments to the Act

The Commodity Futures (Amendment) Bill provides for the Commodity Futures Act to cover all commodities, instead of just rubber and coffee. Apart from commodity futures trading, the Amendment Bill also provides for other forms of commodity trading to be covered. These include forward contracts, trading in differences, spot and leveraged trading.

Any person who wishes to engage in any of these trading activities, for any type of commodity, will have to apply for a licence under the amended Act. Those who cannot qualify, including bucket shops, will have to close down their operations.

In addition to the licensing requirement, the Amendment Bill also stipulated stiffer penalties for offences, as follows:

(a) Individuals who operate without a licence will face a fine of up to $50,000 or imprisonment for up to one year, or both. Corporations face a fine of up to $100,000 or to imprisonment for up to three years, or both.

(b) Penalties have also been enhanced for offences such as false trading, bucketing, disseminating of misleading information in the promotion of false trading, employing fraudulent devices or schemes, and fraudulently inducing persons to trade in commodity contracts. Individuals who commit any of these offences face a maximum fine of $250,000 or imprisonment of up to seven years, or both. Corporations will face a higher maximum fine of $500,000.

To ensure that the broader scope of the Act does not affect bona fide traders and result in over-regulation or unintended consequences, the Act provides for a list of exemptions. They are:

First, principal to principal traders. This is because these transactions are conducted between parties that know the commodity and its market very well. They also have genuine business reasons to conduct these transactions, either because they physically need the commodities to supply to the market, or they need to hedge against future uncertainties. For the same reason, we are also proposing to exempt over the counter trade, as they comprise mainly of principal to principal trade;

Second, banks or financial institutions already licensed or approved by MAS;

Third, persons trading with accredited investors regulated under the Futures Trading Act;

Fourth, organisations which are approved oil trading companies or approved international commodity trading companies, within the meaning of the Income Tax Act;

Fifth, persons who carry out spot commodity trading on their own accounts and do not solicit any funds from members of the public.

Public Consultations

My Ministry has held wide consultations before proposing the amendments to the Act. We consulted the Singapore Commodity Exchange (SICOM), the Consumers Association of Singapore (CASE), the Trade Development Board (TDB), the Commercial Affairs Department (CAD) and the Monetary Authority of Singapore (MAS). In addition, we put the proposed amendments to the Act on the MTI website for public comments during the month of January 2001. We received feedback from 10 members of the public, all of which we took into consideration in the drafting of the final Amendment Bill. I would like to thank Members of the House and the public for their comments.

Caveat Emptor

However, no law can protect consumers who are gullible and fall for get-rich-quick schemes. My Ministry is also working with CASE to raise public awareness on such schemes. Ultimately, we believe that the best defence for consumers is to be vigilant and not fall for such schemes. At this point, I would like to take this opportunity to thank CASE for their efforts to promote consumer awareness on the `bucket shop' issue. My Ministry will continue to work with CASE to promote the education of consumers to guard against falling prey to unscrupulous business practices.

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. - [Mr Peter Chen].

Bill considered in Committee.

[Mr Speaker in the Chair]

Clauses 1 to 3 inclusive ordered to stand part of the Bill.

Clause 4 -

Mr Peter Chen: Sir, I beg to move,

In page 2, line 26, after "commodity", to insert ", and other indices, rights or interests of any nature that the Minister may, by notification in the Gazette, prescribe to be a commodity".

Sir, the proposed additional amendment to clause 4 widens the definition of "commodity" to include intangible commodities, like bandwidth. These intangibles are already traded in the market. The purpose of this wider definition is to remove any scope for bucket shops to circumvent our law.

Amendment agreed to.

Clause 4, as amended, ordered to stand part of the Bill.

Clauses 5 to 8 inclusive ordered to stand part of the Bill.

Clause 9 -

Mr Peter Chen: Sir, I beg to move,

In page 11, after line 30, to insert -

"(g) by deleting the words "subsection (1)(b) or (d)" in subsection (6)(a) and substituting the words "subsection (1)(b), (d), (g) or (i)"; and

(h) by deleting the words "subsection (1)(a), (c) or (e)" in subsection (6)(b) and substituting the words "subsection (1)(a), (c), (e), (f), (h) or (j)".".

This amendment will ensure that the increased penalties for traders who operate without licences would consequently be extended to cover all the new categories of licensees.

Amendment agreed to.

The Chairman: The consequential amendments will be made:

(i) In page 11, line 28, to leave out "and".

(ii) In page 11, line 30, to leave out "." and insert ";".

Clause 9, as amended, ordered to stand part of the Bill.

Clauses 10 to 17 inclusive ordered to stand part of the Bill.

Bill reported with amendments; read a Third time and passed.