Second Reading Speech By Mrs Lim Hwee Hua, Minister in Prime Minister's Office, Second Minister for Finance and Transport, On The Government Securities (Amendment) Bill 2009

      Mr Speaker, Sir, I beg to move, “That the Government Securities (Amendment) Bill be now read a Second time”.

2.   The Bill proposes 3 main changes to the Government Securities Act:

First, expressly empowering the Monetary Authority of Singapore (MAS) to regulate primary dealers;
Second, allowing early redemption of Singapore Government Securities (SGS); and
Third, allowing MAS to enter into securities lending arrangements using SGS.

3.   Sir, let me now explain the first amendment to empower MAS to regulate dealers^[1]. Primary dealers play an important role in providing liquidity, underwriting issuance and giving market feedback. In practice, MAS has been appointing primary dealers and issuing them directions in relation to their role as such. The amendment in Clause 6 of the Bill proposes a new Part VIIA which sets out a regulatory framework for MAS’ appointment and regulation of primary dealers. Part VIIA will also allow MAS to issue directions to, revoke the appointment of, suspend and inspect the primary dealers.

4.   The second amendment will allow Government to redeem SGS before maturity at market price. Currently when MAS conducts buy-back operations for illiquid issues to concentrate liquidity in key benchmark issues, the securities bought back are kept on MAS’ books until maturity. As premature redemption of these securities is currently not allowed, Government continues to pay interest on these securities to MAS. The practice of early redemption is common among central banks and will provide more flexibility in the management of SGS. This amendment is provided for in Clause 5 of the Bill.

5. The third amendment relates to the securities lending arrangements between MAS and the primary dealers. An efficient bond market relies on market-makers who are able to effectively price and deliver the bonds on-demand. To facilitate market-making, MAS currently operates a sale-and-repurchase or commonly referred to as a repo facility that lends SGS to primary dealers on an overnight basis when the SGS are not readily available from other sources. This provides primary dealers with greater confidence in delivering SGS to investors and enhances the overall liquidity, efficiency and robustness of the government securities market. This arrangement is formalised in Clause 3 of the Bill.

6.   The second and third amendments together will also enhance MAS’ existing repo facility. The amount of SGS which MAS can lend currently is limited to its own holdings. When demand for specific SGS exceeds MAS’ holdings, Government can issue new SGS to MAS to on-lend to primary dealers on an overnight basis. Government will then redeem the SGS the following day, to be allowed for under the proposed second amendment.

7.   Other amendments in the Bill are administrative in nature^[2].

8.   Mr Speaker, Sir, I beg to move.

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^[1] The 12 primary dealers are: ABN AMRO Bank NV, Bank of America, National Association, Barclays Bank PLC, BNP Paribas, Citibank NA, Credit Suisse, Deutsche Bank AG, Development Bank of Singapore Ltd, Hong Kong and Shanghai Banking Corporation Limited, Oversea-Chinese Banking Corporation Ltd, Standard Chartered Bank, United Overseas Bank Ltd

^[2] Savings and transitional provisions in Clause 8 which seek to implement the new sections relating to regulation of Primary Dealers retrospectively.