Singapore capital markets score key policy boosts

Three new initiatives are looking to raise efficiency and liquidity in the dollar corporate debt market.

Singapore has been pursuing a leadership position as an asset management center and these measures which expanded swap liquidity functions and lending platforms should go a long way in supporting the industry, said Monetary Authority of Singapore managing director Ravi Menon.

"The asset management industry in Singapore is broad based. Top-tier global funds have centralised a host of critical functions in Singapore, including portfolio management, investment research, trade execution, and product structuring - across both equities and fixed income asset classes. Singapore is also seeing a flourish of alternative investment managers specialising in strategies or asset classes that provide return streams uncorrelated to the broader market, or as the industry terms it, 'generating alpha'," said Menon.

"A key component of the broader ecosystem that supports the asset management industry in Singapore is the capital market. Over the years, MAS has been making concerted efforts to broaden and deepen Singapore’s debt capital market. I am pleased to announce today three initiatives aimed at further improving efficiency and liquidity in the Singapore dollar corporate debt market," he said.

"First, MAS will provide swap liquidity to primary dealer banks handling Singapore dollar debt issuance for foreign corporates. These offshore entities usually have no need for the Singapore dollar funds raised and mostly swap them into a foreign currency, usually US dollars. Although the pricing mechanism in the foreign exchange and cross currency swap market is efficient, swap markets have a tendency towards one-way flow because of Singapore’s excess savings over investments. This can lead to uncertainty in the pricing process of the bond issuance. We will therefore support swap transactions at market-determined prices, which will ultimately enable swap market liquidity to build in the longer tenors." he added.

"Second, MAS will partner the industry to create a Singapore dollar corporate debt securities lending platform, from which key players will be able to borrow securities for market making. By providing greater assurance that banks will be able to deliver any given security, this platform will reduce the risk of market makers being squeezed in the event they are unable to short-cover the bonds they have sold. Improved market liquidity will mean that asset managers can be more certain of their ability to enter and exit their positions with minimal price slippage," he said further.

"Third, MAS has initiated a price discovery platform where market participants will contribute end-of-day prices for a universe of Singapore dollar corporate bonds. This is targeted for completion by the second half of this year. This initiative will significantly improve transparency in the corporate bond market and provide reliable mark-to-market prices for the industry and asset managers alike," he said.