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New Singapore Exchange To Trade Commodity Derivatives

by Mary Swire, Tax-News.com, Hong Kong

07 December 2009


Following the extension and enhancement this year of the tax incentives on commodity derivatives trading (CDT), the Singapore Mercantile Exchange (SMX) has announced that it has received in-principle regulatory clearance from the Monetary Authority of Singapore (MAS) to operate the first Pan-Asian multi-product commodity derivatives exchange.

The CDT incentive scheme, originally contained in the 2004 budget, was introduced to promote the establishment of a commodities derivatives market and, thereby, improve Singapore’s standing as an offshore financial center. The scheme was improved this year by relaxing certain restrictions on CDT companies in exchange-traded commodity derivatives, and by extending the 5% concessionary corporate tax rate to December 31, 2013.

In its press release, SMX said that it is the first such commodity derivatives exchange to be based in the region. Expected to open in the first quarter next year, it will offer unrestricted cross-border trading to market participants using an electronic platform developed by Financial Technologies India Limited (Financial Technologies), its 100% shareholder that has currently invested SGD75m (USD54m) in the venture.

SMX will offer a comprehensive platform for trading a diversified basket of commodities including futures and options contracts on precious metals, base metals, agriculture commodities, currencies and commodity indices. SMX recently concluded successful testing of its electronic trading platform, risk management and clearing & settlement systems.

Ang Swee Tian, Chairman of SMX, said: “This is a significant milestone for us, as we progress towards the launch of Asia’s first multi-product commodity exchange. I believe that we have in place all the elements for a thriving commodity exchange based in Singapore.”

It was emphasized that Singapore is already a major trading hub – the third largest oil trading center after New York and London, the top bunker port in the world, the fifth largest foreign exchange trading center and the eighth largest center for over-the-counter derivatives – but, with the new commodities derivatives exchange in Singapore, another significant link of its financial system would be in place.

Jignesh Shah, Vice Chairman of SMX, praised the incentives provided in Singapore and added: “It is the foresight and vision of the Singapore government which has enabled Singapore to be among the top three international financial centers in the world today. We are thankful to the MAS for giving SMX the opportunity to enhance the existing financial ecosystem of Singapore.”

The opening of SMX will provide competition to the Singapore Exchange (SGX) which, alongside its other market sectors, quotes commodity products, including commodity futures. It is reported that SGX also plans to introduce other commodity contracts next year.

A comprehensive report in our Intelligence Report series giving a country-by-country analysis of offshore investment funds, stock exchanges and trusts, with an analysis of the US QI regime, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp

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