MAS publishes response to feedback from consultation on proposed amendments to capital framework for approved exchanges and approved clearing houses
29 April 2025
On 27 March 2025, the Monetary Authority of Singapore (“MAS”) published its response to feedback received on its consultation paper, published on 4 December 2023, on proposed amendments to the capital framework for approved exchanges (“AEs”) and approved clearing houses (“ACHs”) (“Response”).
The proposals were aimed at ensuring that the capital framework for AEs and ACHs remained fit for purpose, and incorporating international practices that have evolved over time. MAS also noted that the proposed capital framework could be applied to other capital market financial market infrastructures (“FMIs”), including trade repositories, and had extended the consultation paper to licensed trade repositories (“LTRs”) during the consultation period. The consultation closed on 15 January 2024.
Introduction of liquidity requirement
In the Response, MAS said that it will proceed with the proposal to introduce a liquidity requirement that is separate from the solvency requirement.
On the sizing of the liquidity requirement, MAS will retain the proposed requirement for AEs, ACHs, and LTRs (“capital market FMIs”) to hold sufficient liquid assets to cover the higher of (a) six months of its annual operating expenses; or (b) the amount as assessed that is needed to achieve recovery or orderly wind-down.
Amendments to eligible capital under current capital framework for solvency requirement
With respect to eligible capital that can be used to meet the solvency requirement, MAS will proceed with its proposal to tighten the existing list of capital components to limit or exclude certain items, and incorporate additional deductions to strengthen the quality and availability of eligible capital.
Amendments to calculation of total risk requirement
MAS proposed changes to the calculation of the total risk requirement (“TRR”) to account for the types of risks faced by capital market FMIs in their business activities. The types of risk requirements are operational risk requirement (“ORR”), investment risk requirement (“IRR”), and general counterparty risk requirement (“GRR”).
- ORR: MAS will proceed with its proposal for ORR to be sized at six months of annual operating expenses, including depreciation and amortisation expenses.
Additionally, capital market FMIs need to maintain sufficient capital to achieve recovery or orderly wind-down. The ORR will be the higher of (a) six months of operating expenses; or (b) the amount to achieve recovery or orderly wind-down.
- IRR: MAS proposed that the IRR, which serves as a capital buffer against potential losses from investments made by capital market FMIs, be calculated as the sum of (a) 100% of capital investments in associated corporations and subsidiaries; and (b) 10% of the value of all other investments. Following feedback that the proposed 100% IRR risk charge on capital investments in associated corporations and subsidiaries may inadvertently result in capital market FMIs having to hold more eligible capital to ensure that they do not fall below 120% of their TRR (which would trigger a notification requirement to MAS), MAS will require investments in associated corporations and subsidiaries to be deducted from the computation of eligible capital.
Following feedback, MAS will impose a lower risk charge of 2% on certain government and public sector entity securities. However, it will retain the 10% investment risk charge on all other investments.
- GRR: GRR is intended to cover any other counterparty exposures faced by capital market FMIs. MAS proposed that the GRR be calculated as 8% of the value of all credit-weighted exposures to all counterparties. Credit exposures would be weighted by and proportionate with credit rating agencies’ assigned credit quality grade (i.e. counterparty risk-weights). In the Response, MAS acknowledged that there is scope to refine the counterparty risk weight for unrated counterparties, and said that it will increase the counterparty risk weight from 50% to 100% for better alignment with the inherent risks of such exposures.
Proposed submission and notification requirements and Regulations
Under current licensing approval conditions, capital market FMIs are required to submit and notify MAS on matters relating to their capital. MAS proposed to set out these requirements for capital market FMIs under the Securities and Futures (Organised Markets) Regulations 2018, the Securities and Futures (Clearing Facilities) Regulations 2013, and the Securities and Futures (Trade Repositories) Regulations 2013 (collectively, “Regulations”).
Following feedback, MAS will shorten the required notification period for capital market FMIs entering into loan arrangements from 21 days to 14 days.
Extending proposed capital framework to LTRs
LTRs are currently subject to a similar capital framework as AEs and ACHs in their licensing approval conditions. In the Response, MAS noted that while LTRs are not exposed to clearing and settlement risks, the proposed capital framework is broad enough to accommodate the general categories of risks that LTRs can face. Therefore, MAS will extend to LTRs the same set of proposals in the consultation paper.
Implementation of proposed capital framework
MAS intends to provide the in-scope capital market FMIs with a three-month transition period from the issuance of the finalised notice for the revised capital framework (“Notice”) and amended Regulations, to comply with the revised capital requirements. Entities that require more time to comply with the revised capital framework can seek MAS’ approval for an extended transition period of up to 12 months. MAS will update capital market FMIs when the finalised Notice and amended Regulations have been issued.
Reference materials
The Response is available on the MAS website www.mas.gov.sg.