SINGAPORE, Sept 28 (Reuters) - Singapore's financial regulator on Wednesady dismissed talk that tough, new rules for derivative markets in America and Europe will cause trade in over-the-counter (OTC) financial instruments to shift to Asia.
The United States and the European Union are in the process of bringing in new rules that will force commonly used over-the-counter derivatives to be put through a clearing house so that the trade will still be completed even if one side of the deal defaults.
Some western policymakers have said the new rules may mean some jurisdictions in Asia will purposefully try and lure trade to their markets by having a less stringent regulatory regime.
"In recent months, there has been a notion in some quarters that as tighter regulations are proposed for OTC derivatives in the U.S. and EU, activity will flow to centres in Asia that are purposefully less heavily regulated," Ravi Menon, the managing director of the Monetary Authority of Singapore (MAS) said during a regulation conference hosted by Thomson Reuters.
"This is mistaken. Leading centres in Asia like Singapore, Hong Kong and Australia are very much part of the G20 process and initiatives, and there is no room for regulatory arbitrage," he added.
Menon said Singapore is still deciding which derivatives must be subject to central clearing, adding there are risks to forcing too many products through a central counterparty.
"Comprehensive implementation of centralized clearing is not without challenge, we need to determine carefully the products for mandatory central clearing, particularly those employed by commercial end users," he said.
"The cost of clearing can potentially increase their hedging cost, cause a cut back in needed investment or an increase in unhedged positions."
Global regulators have also agreed to bring in trade repositories to store aggregated data of all derivative transactions, in a bid to prevent a repeat of the fall-out from Lehman Brothers collapse when it was unclear who was exposed to the stricken bank.
Menon said this needs to be properly co-ordinated between jurisdictions to prevent data duplication.
"National concerns have led to some jurisdictions setting up their own trade repositories which could make data aggregation more challenging," said Menon.
Hong Kong announced late last year that its central bank is planning to set up a trade repository for derivative trades while other Asian regulators are also looking at similar domestic arrangements.
"MAS is assessing the need for a local trade repository and the appropriate regulatory regime to avoid duplication," Menon added.
(Reporting by Rachel Armstrong; Editing by Kim Coghill)
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