New MAS proposal could pave way for commodity futures funds, more single-country bond funds for retail investors

Retail investors in Singapore could gain access to futures-based single-commodity funds and a wider range of single-country government bond funds, with the Monetary Authority of Singapore (MAS) on Thursday (Jul 9) outlining a proposal for a more flexible framework to bring innovative fund products to market faster.

This comes as investor sophistication grows in the Republic and investor needs continue to evolve, noted MAS. The authority said that it has received interest from the industry to offer new retail fund product types that cater to a broader range of investment objectives.

Against this backdrop, the financial regulator has launched a public consultation running from Thursday to Aug 10 on proposed amendments to the Code on Collective Investment Schemes.

The changes would create a more flexible regulatory framework to accommodate a wider range of innovative fund types that may not meet existing investment requirements, while ensuring that appropriate safeguards are in place.

The announcement comes after Deputy Prime Minister Gan Kim Yong said on Jun 25 that MAS would introduce a new category and process for non-traditional funds so that fund managers can bring such funds to market more quickly.

New Alternative Funds Appendix

MAS noted that it has so far received market interest to offer two new fund types to retail investors: futures-based single-commodity funds and a wider range of single-country government bond funds.

However, these fund types might not comply with existing investment requirements, such as diversification.

To address this, MAS has proposed a new Alternative Funds Appendix to introduce greater flexibility for innovative fund types and differentiate them from traditional funds.

These new fund types may involve the heavy use of derivatives and/or have undiversified exposures. MAS said that some investors may seek exposure to such funds within the context of a broader, diversified portfolio.

Guard rails for funds authorised under this new appendix will be implemented to safeguard retail investors’ interests, added the authority.

For example, requirements specific to each type of fund will be put in place to address their unique risks. Also, fund products will be required to adhere to enhanced disclosures to ensure that investors have the necessary information to make informed investment decisions.

The Business Times understands that the current process typically takes six to 12 months, depending on the proposal or the type of fund.

Following the proposed changes, MAS aims to take about three months to determine the necessary guard rails for the issuance of a new fund type. Once the guard rails are established, funds of the same type will take three weeks to be authorised if they fulfil the same requirements.

Balancing innovation with appropriate safeguards

The diversification of Singapore’s investment product offerings could bolster the country’s competitiveness, spur innovation and serve the long-term interests of investors and asset managers alike, industry observers told BT.

“To enrich the diversity of investment products in Singapore, we have to move in tandem with what’s developing globally in financial hubs like London, New York and Hong Kong,” said Robson Lee, partner at Kennedys Law and a director of Legal Solutions.

Kwok Keng Han, chief marketing officer at Lion Global Investors, said that one area of interest among investors is products that “bridge the demand for high-conviction trading strategies with the transparency, liquidity and operational safeguards of an exchange-traded structure”.

He cited the strong adoption of leveraged and inverse single-stock exchange-traded funds in markets such as the US and Hong Kong.

“We believe there is likely to be demand for such products in Singapore, particularly among more sophisticated investors seeking tactical tools to express short-term market views, manage portfolio exposures or hedge specific positions,” said Kwok.

Unlike the Republic’s existing daily leverage certificates, which have a fixed maturity date, leveraged and inverse single-stock ETFs are generally open-ended structures that can remain listed indefinitely, subject to regulatory and commercial considerations.

However, the successful introduction of more complex products should be accompanied by “robust investor education, product transparency and appropriate safeguards”, added Kwok.

Lee similarly noted: “You are not just going in with a herd mentality where everybody runs together, crashes, and then starts blaming the issuer. Guard rails are especially critical for retail investors because they do not have professional advisers structuring their investment decisions.”

Andrew Thompson, Asia-Pacific partner and head of asset management and private equity at KPMG in Singapore, said that demand for more complex financial products in the Republic could be accelerated by the pipeline of large technology-related initial public offerings anticipated in the Western markets over the coming year.

“As investors look for new ways to express investment views and manage portfolio exposures, products such as leveraged and inverse single-stock ETFs may become increasingly relevant,” noted Thompson.

“That said, demand alone should not determine whether such products are introduced. Considerations around investor suitability, product complexity and market readiness remain important.”

Serene Cai, head of securities markets and depository at Singapore Exchange Group, noted that the bourse has observed strategies such as covered call and defined outcomes launched in the ETF format in other markets. She added that the ETF format makes these strategies “more accessible” to a wider range of investors.

“As ETF adoption grows, a continuing expansion of our product shelf would cater to the increasing market demand for greater diversification in exposure and strategies,” said Cai.

She noted, however, that building this ecosystem will take time.

“We will therefore be stepping up our engagements with ecosystem partners such as issuers and distributors, to encourage them to invest effort and time in the Singapore Exchange-listed product ecosystem.”

The group intends to develop changes to its rules that will support other types of non-fund products in the future, she added.

Source: The Business Times © SPH Media Limited. Permission required for reproduction.

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