Commodity Futures and Certain Types of Commodity Trading
Latest Amendments – Commodity Trading (Amendment) Act 2007
Why amend the Commodity Trading Act (CTA)?
When did the latest amendmends take effect?
What were the key amendments?
How do MAS' regulations for commodity futures related activities differ from IE's?
Why is there a need to retain OTC and spot trading to be regulated under the Commodity Trading Act?
Was there public consultation in the drafting of the amendments?
What "commodities" are covered in the Commodity Trading Act?
Who needs to apply for the licences?
My company is applying for a Commodity Broker's/Spot Commodity Broker's licence. Which of our employees/agents are required to apply for the (respective) representative licence?
How does one apply for licences?
Can I appeal if my application is rejected?
What is the validity period of the licence?
Who is exempted from licensing?
What are "bucket shops"?
How do I know if a trading firm or broker has been licensed? How do consumers prevent themselves from falling prey to unlicensed commodity trading firms?
Who enforces the Commodity Trading Act? Which agency should a member of the public report to, if they suspect that certain business schemes are illegal under the Act?
What is the recourse for consumers if they are cheated by a "bucket shop"?
Where can I obtain further information/assistance on the Act?
Latest Amendments – Commodity Trading (Amendment) Act 2007
1. Why amend the Commodity Trading Act (CTA)?
The Commodity Trading (Amendment) Act 2007 was to effect the transfer of regulatory oversight of commodity futures trading from International Enterprise Singapore (IE Singapore) to the Monetary Authority of Singapore (MAS). Prior to the amendments, commodity futures trading was regulated under the Commodity Trading Act (CTA) by IE Singapore, while financial futures trading was regulated by MAS under the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA). The consolidation of the regulation of financial and commodity futures under a single regulator, the MAS, is a strategic move that will facilitate Singapore's growth as a futures trading hub. A single regulator for all futures related activities would streamline licensing and compliance procedures as entities broking both commodity futures and financial futures would only need a single licence from MAS. This will create a more business-friendly environment for futures players in Singapore.
An earlier set of amendments had been effected under the Commodity Futures (Amendment) Act 2001. Under the 2001 amendments, the scope of the previous Commodity Futures Act (CFA) was extended to address the problem of "bucket shops", and the CFA was renamed the CTA. The 2001 amendments were mainly effected to protect the average man-on-the-street who is not a professional investor.
2. When did the latest amendments take effect
The transfer of regulatory oversight of commodity futures trading from IE Singapore to MAS took effect from 27 February 2008. As gazetted, the Commodity Trading (Amendment) Act 2007 commenced on 27 February 2008, with the exception of sections 26(b) and 28(c), which came into force on 27 August 2007. Sections 26(b) and 28(c) are provisions relating to the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA) which empower MAS to prescribe transitional regulations. The transitional regulations facilitated the transfer of regulatory oversight of entities under the CTA to the SFA and FAA, six months before the transfer took effect
3. What were the key amendments?
The key amendments include
Amending the definition of “commodity” in the Securities and Futures Act (SFA) and introducing a definition of “commodity” in the Financial Advisers Act (FAA) such that commodity futures contracts currently regulated under the CTA will be regulated under the SFA and FAA.
The Bill also makes a consequential amendment to the Income Tax Act to allow members of the Singapore Commodity Exchange and other prescribed exchanges to continue to qualify for tax incentives after the transfer.
With these amendments, commodity futures, the associated markets, clearing facilities, brokers and advisers came within the regulatory ambit of the SFA and the FAA on 27 February 2008
4. How do MAS’ regulations for commodity futures related activities differ from IE’s?
The regulatory framework for commodity futures under the Commodity Trading Act (CTA) and financial futures under the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA) are broadly based on similar principles. After the transfer, commodity futures will be subject to the same regulatory framework as other types of futures contracts already regulated under the SFA and FAA. While the business conduct requirements in the SFA and CTA are broadly similar, there are differences in areas such as capital and financial requirements.
For this reason, MAS prescribed transitional regulations to facilitate the transfer of regulatory oversight of entities under the CTA to the SFA and FAA. MAS and IE met with the industry on several occasions to consult on the transitional measures, and released details on the proposed transitional arrangements in a consultation paper issued in November 2006.
The transitional arrangements should provide sufficient time for the affected entities to institute the relevant systems and processes for compliance with the regulatory framework under the SFA and FAA. There will be some short-term adjustment costs for some of the market participants, but in the longer term, Singapore's futures industry will benefit from integrated supervision by MAS.
5. Why is there a need to retain OTC and spot trading to be regulated under the Commodity Trading Act?
The regulatory oversight of over-the-counter (OTC) commodity derivatives and spot commodity contracts was added to the scope of the Commodity Trading Act (CTA) in 2001 to keep out bucket shops that defraud the public. The intention was not, however, to impede legitimate dealing in OTC commodity derivatives and commodity spot broking. To this end, IE Singapore has granted exemptions from the licensing requirement to bona fide players operating in institutional markets. As the current regime continues to serve its purpose, we do not propose any changes to the regulatory framework for OTC commodity derivatives and spot commodity contracts under the revised CTA. We will continue to monitor market developments and ensure that our regulatory regime is kept relevant and effective.
6. Was there public consultation in the drafting of the amendments?
MAS and IE had conducted a joint public consultation, which concluded on 15 January 2007. The consultation indicated generally positive support for the transfer of regulatory oversight of commodity futures to MAS. MAS and IE have published responses to address the feedback provided by the public to the consultation. The consultation paper and responses are posted on the websites of MAS (www.mas.gov.sg) and IE Singapore (www.iesingapore.gov.sg).
7. What "commodities" are covered in the Commodity Trading Act?
The Commodity Trading Act (CTA) covers all commodities except those already regulated under the Securities and Futures Act (SFA), such as financial instruments, gold and oil futures. The term "commodity" means any produce, item, goods or article that is the subject of
and includes an index, a right or an interest in such commodity, and such other indices, right or interest of any nature as the Board may, by notification in the Gazette, prescribe to be a commodity that the Minister may by notification in the Gazette, prescribe to be a commodity; but does not include any produce, item, goods or article that is the subject of a commodity futures contract and any index, right or interest in such a produce, item, goods or article.
8. Who needs to apply for the licences?
Any firm or trader dealing with commodity trading must apply for a licence, unless specifically exempted under the Schedule (Section 14A). Apart from the exempted categories of persons, any person who provides broking services, advisory services or operates a pool for commodity forward contracts, trading in differences, leveraged commodity trading and certain forms of spot commodity trading, must apply for licenses.
Before submitting an application, individuals/companies are advised to study the amended Act to ascertain whether they need to apply for licences.
The following table lists the licences required under the Commodity Trading Act (CTA) for the respective activities.
Commodity Trading Activity
(unless exempted under Section 14A)
Broking in commodity contracts
Commodity Broker's licence
Broking in spot commodity contracts
Spot Commodity Broker's (SCB) licence
Providing advisory services in commodity contracts
Commodity Trading Adviser's (CTA) licence
Operating a pool for commodity contracts
Commodity Pool Operator's (CPO) licence
Operating a pool for spot commodity contracts
Spot Commodity Pool Operator's (SCPO) licence
Persons applying for the respective representatives(s) licence are also subject to the above.
9. My company is applying for a Commodity Broker's/Spot Commodity Broker's licence. Which of our employees/agents are required to apply for the (respective) representative licence?
Any person who solicits and/or deals with clients on behalf of the company in the trading of (respective) contracts would be required to apply for the (respective) representative licence, other than the director of the licensed corporation or the person in the direct employment of the licensed corporation
This is regardless of whether remuneration is on a commission basis, or otherwise.
10. How does one apply for licences?
Application forms can be obtained from IE Singapore. Completed forms should be submitted to IE Singapore for processing.
11. Can I appeal if my application is rejected?
If a licence application is rejected, an appeal can be made to the Minister for Trade & Industry. This has to be done within one month after the notification of rejection. Thereafter, the decision by the Minister will be final.
12. What is the validity period of the licence?
The licence will be issued by IE Singapore for a period of one year and this is renewable annually. However, the Board may issue licenses for different validity periods in exceptional circumstances.
13.Who is exempted from licensing?
Exemption will be primarily based on whether trading activities are financed using public funds. If trading involves the use of public funds, traders must apply for a license. The Schedule (Section 14A, Exemption) sets out the following exempted parties: -
Principal to principal traders in respect of physical trade. This refers to trading that involves physical delivery of the commodity for business purposes;
Majority of over-the-counter traders (most of these trade are primarily principal-to-principal);
Banks or financial institutions already licensed or approved by MAS;
Persons trading with accredited investors (defined in the Commodity Trading Act Exemption Schedule as either an individual whose net personal assets exceed $2 million, or a corporation with net assets exceeding $10 million);
Organisations which are approved oil trading companies or approved international commodity trading companies, within the meaning of the Income Tax Act;
Persons who carry out spot commodity trading on their own accounts and do not solicit any funds from members of the public;
Ordinary retail trade such as supermarkets
The trade and business community is advised to examine the Schedule carefully to check if they are exempted. If they are unsure, they should seek legal advice.
The Minister for Trade and Industry may add to or amend the Schedule when necessary.
14. What are “bucket shops”?
"Bucket shops" are firms that entice people through various tactics to open trading accounts with them (including misleading job advertisements that promise quick, unrealistic returns), but on contractual terms that are favourable towards these firms.
"The shops may "bucket" (claiming to effect transactions for the clients when they did not) or "churn" (make repeated transactions) to earn commissions from the clients. Some investors joined "bucket shops" because they were enticed by small initial profits. But they usually end up losing their entire investment.
15. How do I know if a trading firm or broker has been licensed? How do consumers prevent themselves from falling prey to unlicensed commodity trading firms?
A list of traders licensed under the Commodity Trading Act is posted at IE Singapore's website www.iesingapore.gov.sg.
The best defence against such fraudulent activities is for consumers to be vigilant and not fall for "get rich quick" schemes. Consumers should stay away from misleading advertisements that lure investors with lucrative part-time or full-time, home-based jobs that promise quick returns.
The public should check that their brokers/broker firms have valid licenses issued by IE Singapore before trusting them with money
16. Who enforces the Commodity Trading Act? Which agency should a member of the public report to, if they suspect that certain business schemes are illegal under the Act?
IE Singapore, together with the help of the Commercial Affairs Department (CAD), enforces the Commodity Trading Act.
Any firm or trader intending to conduct commodities trading (unless specifically exempted) must apply for a licence from IE Singapore.
The Commercial Affairs Department (CAD) handles public complaints on "bucket shop" activities. If you wish to make a report, you can do so at any police station. You can also report to the CAD at 391, New Bridge Road #06-701, Police Cantonment Complex Block D, Singapore 088762 or call the CAD at telephone number 1800-325 0000 between 8.30 am and 5.30 pm from Mondays to Fridays. CAD's contact information is on its website at www.cad.gov.sg.
17. What is the recourse for consumers if they are cheated by a "bucket shop"?
They can lodge a report at any police station or contact Commercial Affairs Department (CAD) at 1800-325 0000 between 8.30 am and 5.30 pm from Mondays to Fridays. CAD's contact information is on its website at www.cad.gov.sg. Investigations will be carried out and actions taken if the shops are found to be operating without a licence.
The public can also contact the Consumers Association of Singapore (CASE) to seek advice; CASE's hotline is 6463 1811. CASE's contact information is on its website at www.case.org.sg.
Generally, it may be too late to recover any monies from "bucket shops" by the time they are prosecuted in court. Hence, consumers are advised to invest with caution, especially for investment proposals with high risks involved.
18. Where can I obtain further information / assistance on the Act?
·The Act can be found online at http://statutes.agc.gov.sg. Hardcopies of the Act may be purchased online at www.snpcorp.com/webshop.
·More information can be found on IE Singapore's website: http://www.iesingapore.gov.sg. For enquiries on the Act in general, the public may email IE Singapore at email@example.com or call IE Singapore at Tel: 1800 - IE SPORE (toll free) or 6337 6628.
·The public may seek advice from their lawyers or from CASE to ascertain if they have any legal recourse for monies owing to them. CASE's hotline is 6463 1811. CASE's contact information is on its website at www.case.org.sg