On 27 May 1992, the Commodity Futures Act (Cap. 48A) (CFA) came into operation to regulate business activities involving “commodity futures contracts”. Initially the CFA covered only “commodity futures contracts” that were traded at the Singapore Commodity Exchange (SICOM), namely rubber and coffee futures contracts.
On 27 June 2001, the CFA was amended to become the Commodity Trading Act (Cap. 48A) (CTA) to eliminate “bucket shops” and promote a fair and transparent commodity trading environment in Singapore. The scope of the CTA was expanded to cover all commodities (instead of just rubber and coffee futures contracts) and business activities involving “commodity futures contracts”, “commodity forward contracts”, “leveraged commodity trading”, contracts made pursuant to trading in differences, and “spot commodity trading”.
The Enterprise Singapore Board (Enterprise Singapore) is the regulatory body responsible for administering the CTA. The Commercial Affairs Department (CAD) of the Singapore Police Force enforces the CTA.
“Bucket shops” are firms that entice people through various tactics to open trading and investment accounts in assets such as commodities, but on contractual terms that are favourable towards the firms. The firms may “bucket” (claim to effect transactions for their clients when they did not) or “churn” (make repeated transactions to earn commissions from their clients without regard to their clients’ interests), causing their clients to suffer losses on their investments.
On 27 February 2008, regulatory oversight of “commodity futures contracts” was transferred from the CTA to the Securities and Futures Act (Cap. 289) (SFA) and Financial Advisers Act (Cap. 110) (FAA), which are administered by the Monetary Authority of Singapore (MAS). Since then, “commodity futures contracts” have been regulated under the same framework as other futures contracts. The objective of this transfer was to facilitate Singapore’s growth as a hub for commodity futures trading. A single regulator for all futures related activities streamlines licensing and compliance, as entities broking both commodity futures and financial futures only need a single licence from MAS.
On 8 October 2018, regulatory oversight of “commodity contracts” as defined in the CTA (also known as “over-the-counter or OTC commodity derivatives”) was transferred from the CTA to the SFA/FAA. This transfer stemmed from Singapore’s commitment to meeting the G20’s and Financial Stability Board’s recommendations on OTC derivatives contracts. The transfer provides two benefits – firstly, better synergy of regulatory approaches across the major classes of OTC derivatives contracts, and secondly, greater clarity to industry participants on the regulatory approach towards “commodity futures contracts” and other commodity derivatives. Entities whose business activities involve commodity derivatives come under the regulatory oversight of MAS after the transfer.
The regulatory regimes under the CTA and SFA/FAA are not exactly the same. Any person conducting business activities in derivatives contracts (whether exchange-traded or over-the-counter) where the underlying thing is a commodity should refer to the SFA/FAA or consult lawyers for the current regulatory framework that would apply to your business. Any person previously relying on the licensing exemptions in the CTA for “commodity futures contracts” and/or “commodity contracts” should refer to the SFA/FAA or consult lawyers on whether licensing exemptions in the SFA/FAA are available to you.
With effect from 8 October 2018, the CTA regulates business activities involving “spot commodity trading”, as defined in the CTA, without change. The CTA will also continue to regulate transitional licence holders under the “commodity contract” track of the CTA pursuant section 66 of the CTA for a limited period of time.
The scope of the CTA over “spot commodity trading” remains unchanged and the risk of “bucket shops” conducting business activities in “spot commodity trading” will remain contained.
“Spot commodity trading” is defined in section 2 of the CTA as “…the purchase or sale of a commodity at its current market or spot price, where it is intended that such transaction results in the physical delivery of the commodity”.
Any person who is a “spot commodity broker”, “spot commodity broker’s representative”, “spot commodity pool operator” or “spot commodity pool operator’s representative”, as defined in the CTA, is subject to licensing under section 13A(1) of the CTA.
When the CTA was mooted in Parliament in 2001, care was taken to ensure that the CTA did not affect bona fide traders carrying out legitimate commodity trading activities. Thus, licensing exemptions were incorporated into the CTA to ensure that the CTA did not result in over-regulation or bring about unintended consequences. Section 14A(1) of the CTA sets out that persons specified in paragraph 1(e) and 1(f) of the Schedule to the CTA are exempted from licensing under section 13A(1) of the CTA. Paragraph 1(e) and 1(f) of the Schedule to the CTA read as follows (please refer to the CTA for the actual wording):
Please refer to section 2 of the CTA for the definition of “commodity”. Specifically for “spot commodity trading”, “commodity” means any produce, item, goods or article that is the subject of any “spot commodity trading”, and includes an index, a right or an interest in such commodity, and such other index, right or interest of any nature as the Board 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 produce, item, goods or article.
Before submitting any new licence applications for “spot commodity broker”, “spot commodity broker’s representative”, “spot commodity pool operator” or “spot commodity pool operator’s representative”, you should provide us with a brief description of your intended business activities by email to email@example.com.
Please include the following details in your email:
If a licence application is rejected, an appeal can be made to the Minister for Trade & Industry within one month after the notification of rejection. The decision by the Minister shall be final.
Licences are valid for a period of one year and are renewable annually. However, Enterprise Singapore may issue licenses for different validity periods in exceptional circumstances.
Licence fees are set out in the First Schedule to the Commodity Trading Regulations 2001 (CTR) and are as follows for “spot commodity trading” (please refer to the CTR for the actual wording):
The penalty for a person acting as or holding himself out as a “spot commodity broker” or “spot commodity pool operator” without the necessary licence is a fine not exceeding S$100,000 or imprisonment for a term not exceeding 3 years or both.
The penalty for a person acting as or holding himself out as a “spot commodity broker’s representative” or “spot commodity pool operator’s representative” without the necessary licence is a fine not exceeding S$50,000 or imprisonment for a term not exceeding 12 months or both.
Consumers should be vigilant and exercise caution when coming across “get rich quick” schemes or investments schemes that are “too good to be true”. Consumers should also stay away from misleading advertisements that lure investors with lucrative part-time or full-time, home-based jobs that promise quick returns.
Consumers can check online whether a firm has been licensed under the CTA here.
Consumers can also refer to the Financial Institutions Directory on the MAS website (https://eservices.mas.gov.sg/fid) for a list of financial institutions regulated by MAS and the regulated activities they are authorised to provide.
Consumers can also check the Investor Alert List (IAL) on MAS’ website which provides a listing of unregulated persons or entities that, based on information received by MAS, may have been wrongly perceived as being licensed or regulated by MAS. Consumers must exercise caution when dealing with all unregulated entities, not just entities that are listed on the IAL, as the list is not exhaustive and is updated from time to time.
The CTA and/or CTR are available on the Singapore Statutes Online website.
Hardcopies of the CTA and/or CTR may be purchased online at www.toppanleefung.com/webshop.