The Monetary Authority of Singapore introduced major initiatives in 1998 to accelerate the growth of the bond market. Ever since then, the bond market in Singapore has increased in size and scope. On the back of the bond market, the structured product market has also increased its scope.
Singapore Government Securities
- To enable companies to tap the bond markets for their financial requirements, the Government had to initially create an appropriate infrastructure. The Government initiated the development through a domestic yield curve. A focused Singapore Government Securities (SGS) issuance program was set up to be a benchmark for corporate bonds. The yield curve has been extended by 15 years. The Government further took steps to increase the liquidity of the SGS market and the number of primary dealers. A repo facility was established to support the secondary market activity.
- These initiatives by the Government heralded the creation of a deep and liquid SGS market.
- To give an impetus to the corporate bond market, the statutory boards and domestic companies were encouraged to tap the corporate bond market. International companies were also encouraged to tap the Singapore dollar (S$) bond markets. Policies were liberalized to increase the accessibility for S$ by non residents. Since 2004, Non-resident, non-financial issuers of S$ bonds and equities will no longer be required to swap or convert their S$ proceeds into foreign currencies before remitting their proceeds abroad.
- The Corporate Bond Market has witnessed encouraging developments. In the last few years, a wide range of foreign entity issuers have entered Singapore to tap the S$ bond market.
Diversity of Products
- In order to provide greater opportunity to the end user, the Government facilitated the growth of different products. The Government focused in particular in developing the structured products market which also includes asset securitization.
- To ensure the use of asset securitization as an alternative form of financing, the Government introduced regulations on the capital treatment for asset securitization and for credit derivatives. This enables financial institutions participating, certainty on the risks and responsibilities associated with such transactions. The Government also introduced investment guidelines for Insurance companies. Insurance companies were thus able to invest in credit derivatives for hedging or portfolio management, giving them the leverage to invest in a wider range of products.
- All the regulatory measures taken by Government, has resulted in the creation of a structured product market.. Structured debt securities include equity linked notes (ELNs), credit linked notes (CLNs) and asset backed securitization (ABS), collateralized debt obligation (CDO).
- The tax structure has also been liberalized to facilitate the development of the capital market in Singapore.