Cryptocurrency Derivatives Series: Payment Token Derivatives Gets Green Signal From MAS

Crypto-derivatives avenues are evolving as Bitcoin and other digital assets are highly volatile investments.These are exciting times for our derivatives markets. From blockchain to digital assets, innovative FinTech arena are witnessing paradigm shift in the way derivatives markets functions.

Today, the Monetary Authority of Singapore (MAS) has released a consultation paper proposing to allow payment token derivatives to be traded on ‘Approved Exchanges’ and to regulate the activity under the ‘Securities and Futures Act’.

The announcement reads as, “MAS’ proposal will allow Approved Exchanges in Singapore to meet the need of investors to manage their exposure to payment tokens while bringing the activity under regulatory oversight.”

A consultation paper highlighting the approval and regulation of trading of derivatives on approved exchanges under the Securities and Futures Act (SFA) was issued earlier today, as per the official website of the financial watchdog.

The MAS has emphasized the need for institutional investors to possess a regulated product, in order to acquire and hedge their major crypto exposure. 

Importantly, MAS raised a cause of concern for the retail investors, suggesting that derivatives and cryptocurrencies weren’t “suitable” for retail investors as highlighted in paragraph 2.5, Payment Token Derivatives – even if regulated – are not without risks. In general, MAS does not view Payment Token Derivatives to be suitable for most retail investors to trade. This is because the underlying payment tokens tend to exhibit high volatility and are intrinsically difficult to value. For instance, it is not clear if payment tokens have any inherent economic value, or what their demand is driven by. Losses are also amplified due to the leveraged nature of derivatives, and investors may even lose more than the whole amount they had put in.