The Singapore Government takes a firm stance against unlicensed and illegal business activities involving commodities. As a result, the Commodity Trading Act (Cap. 48A) (CTA) came about in response to the “bucket shop” problem which surfaced in Singapore in the past.
“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” (claiming to effect transactions for their clients when they did not) or “churn” (make repeated transactions to earn commissions from their clients), causing their clients to lose a large portion of or their entire investment.
To eliminate “bucket shops” and promote a fair and transparent commodity trading environment in Singapore, the Commodity Futures Act (Cap. 48A) (CFA), which was initially enacted in 1992 to regulate business activities involving rubber and coffee futures contracts, was amended in 2001 to become the CTA. 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 CTA was further amended in 2008 when 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).
The CTA now covers all commodities and regulates business activities involving commodity forward contracts, leveraged commodity trading, contracts made pursuant to trading in differences with respect to a commodity (not being a commodity futures contract), and spot commodity trading.
Prior to April 2018, the International Enterprise Singapore Board (IE Singapore) was the regulatory body responsible for administering the CTA.
With the merger of IE Singapore and the Standards, Productivity and Innovation Board (SPRING Singapore) in April 2018, the Enterprise Singapore Board (ESG) is now the regulatory body responsible for administering the CTA.
Any person involved in business activities that fall within the ambit of the CTA is subject to licensing under section 12, section 13 and section 13A of the CTA unless specifically exempted under section 14A to the extent specified in the Schedule to the CTA. In addition, section 4 and section 8 of the CTA require any person seeking to establish a “commodity market” or a “clearing house” in relation to a commodity market to seek approval.
The CTA promotes bona fide business activities involving commodities as well as protects investors and the public against “bucket shops”. The public will also be able to check online whether a firm or an individual that they are dealing with has been licensed under the CTA here.
While the CTA provides a safeguard for the public, the public must also remain vigilant and wary of fraudulent firms and individuals involved in business activities involving commodities.