COMMODITY DERIVATIVES TRADING SCHEME

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COMMODITY DERIVATIVES TRADING SCHEME: 17.

Ms Indranee Rajah asked the Senior Minister how Singapore intends to develop the commodity pricing, trading and risk management industry with the Commodity Derivatives Trading (CDT) Scheme.

Mr Tharman Shanmugaratnam (for the Senior Minister): Sir, the Commodity Derivatives Trader (CDT) Scheme aims to support an expanded role for Singapore as a commodity derivatives trading hub. The opportunities in this business are growing globally. In fact, they are growing very rapidly. To give Members a feel, the amount of over-the-counter (OTC) commodity derivatives contracts as at June last year reached US$1.27 billion, up 22% on a year earlier. The number of exchange-traded commodity derivative contracts reached 736 million globally last year, up 16% on the previous year.

Singapore is the Asia Pacific centre for the price setting and trading of oil and rubber products. The CDT scheme aims to leverage on these existing strengths to develop Singapore further as a hub for trading, pricing and risk management for oil as well as other commodity products. By offering a concessionary tax rate of 5% on profits derived from trading commodity derivatives, the scheme seeks to grow a critical mass of market makers that focus on derivatives trading, in other words, paper trading. This will serve to increase the level of both physical and paper trading out of Singapore. The idea is basically to increase liquidity, and to thereby strengthen Singapore's role as a pricing hub.

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Besides liquidity in the current products, the aim is to also encourage a broader range of commodity derivative products to be offered. In this respect, the CDT scheme supports both the OTC and exchange-traded commodity derivatives, including such things as commodity-based Exchange-Traded Funds and index futures.

Risk management is another aspect of the market that the CDT scheme will help stimulate. The development of a liquid commodities market with a wide range of hedging instruments and products will help support risk management activities here.