The Singapore Exchange (SGX) is placing risk controls in its derivatives market under the microscope and changing DMA rules ahead of a new linkup between regional exchanges.
The bourse is looking to impose exchange-hosted pre-trade risk checks on available customer credit for incoming orders before they reach SGX’s order matching engine during this quarter.
The changes were recommended by trade body the Futures Industry Association and are a bid to improve the quality of SGX's derivatives markets by reducing systemic risk.
Under the proposal, clearing members would be able to set limits on customer orders as part of their customer credit management.
Presently, customers can be exempted from pre-trade risk checks under certain safeguards but with exchange-hosted pre-trade risk checks these exemptions would be removed.
Together with the imposed risk checks, SGX is also looking to change rules governing direct access to derivatives markets in a similar fashion to rule changes proposed in the SGX securities market.
This includes making pre-trade risk checks mandatory for all orders and the introduction of member requirements for customers who use their own order management systems.
The bourse will also require members to establish minimum credit standards for customers with direct market access and require them to have comprehensive programmes for maintaining the integrity of their order management systems.
The regulatory changes to direct access to SGX’s securities market come ahead of the Association of Southeast Asian Nations (ASEAN) Trading Link becoming operational.
The ASEAN Trading Link will provide brokers of participating ASEAN exchanges with the infrastructure to input orders directly on another participating ASEAN exchange.
Subject to regulatory approval, SGX intends to implement the rule amendments in June 2012, when the ASEAN exchanges will be linked together.
The first stage of the project will see the Singapore Exchange and Bursa Malaysia connected in June. The Stock Exchange of Thailand will be added in August 2012, after its new trading engine goes live.