Singapore regulator mulls green light for exchange-traded crypto derivatives

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The financial services regulator of Singapore is reported to be preparing to allow cryptocurrency and other digital asset derivatives to be traded on licensed exchanges in the country, potentially creating a new legal market for cryptocurrency investors.

The Monetary Authority of Singapore (MAS), the state’s financial regulator and de-facto central bank, said it was hoping to be able to support BTC and ETH derivatives initially, to be traded only on approved exchanges, The Business Times reported.

MAS said it would regulated the trade under the Securities and Futures Act, and that only pre-approved exchanges would be eligible. Those exchanges include Asia-Pacific Exchange (APEX), Ice Futures and Singapore Exchange Derivatives (SGX Derivatives).

While the news indicates the regulator is broadly supportive of crypto derivatives, they explicitly said the instruments should be open to approved investors only, with volatility making these unsuitable assets for retail investors.

Similarly, they are difficult to value effectively, and have little to no intrinsic value in their own right, according to the regulator.

Nevertheless, if approved, the derivatives could be a useful tool for institutional investors hedging crypto positions to reduce risk exposure and better balance their investments.

While retail investors will be able to access the crypto derivatives once they go live, they will be required to cover a greater portion of the trade up-front, limiting the benefits of leverage compared to institutional investors.

Approved investors on the other hand benefit from structural leverage with a margin requirement 1.5x lower than retail investors.

According to local commentators, this provides the flexibility to hedge crypto positions with derivatives, or to speculate on crypto markets at arm’s length, without holding cryptocurrency directly.

The regulation is still out for consultation, with stakeholders invited to submit comments and ideas to the Monetary Authority by no later than December 20.

This is expected to shape the central bank’s approach to derivatives regulation, ahead of a rollout early on in 2020.