Introduction

On 3 July 2023, the Monetary Authority of Singapore (“MAS”) published the Consultation Paper on Proposed Measures on Market Integrity in Digital Payment Token Services (“Consultation Paper”). The Consultation Paper sets out:

1. proposed regulatory measures for licensed and exempt payment service providers that carry on a business of providing a Digital Payment Token (“DPT”) service under the Payment Services Act 2019 (“PS Act”) (“DPTSPs”); and
   
2. proposed prohibitions against unfair trading practices (such as wash trading, cornering and insider trading) that are generally applicable to all market participants.

Proposed Measures applicable to Digital Payment Token Service Providers

The proposed measures in relation to DPTSPs include the following:

• Maintain adequate systems, processes, controls, human resources and governance arrangements to (1) handle and execute customers’ orders in a fair, orderly and timely manner; and (2) prevent and detect unfair trading practices.
  
• Maintain and disclose policies and procedures for handling and executing customers’ orders. The factors that the DPTSPs consider (such as size of order, price, costs, type of customer) when executing customers’ orders should also be included in the policies and procedures.
  
• Adopt fair and objective procedures to investigate any potentially unfair trading practices and take appropriate action.
  
• State and explain to customers what constitutes an unfair trading practice and its procedures for addressing any potentially unfair trading practice. DPTSPs should also promptly refer any potential non-compliance or breach to the MAS for review.
  
• Maintain proper records with adequate details of all on-chain and off-chain orders (including cancellation of orders) and transactions for 5 years. DPTSPs should also make the records available to the MAS as and when required.
  
• Maintain a controlled list of persons with access to material non-public information on a need-to-know basis and information barriers.
  
• Maintain policies and procedures in relation to personal trading activities by its officers and employees, which should address (amongst other things) pre and post-dealing procedures, periodic monitoring and review, and restrictions (such as black-out periods).

In relation to DPTSPs that operate a trading platform (i.e. digital payment token exchange), further measures are proposed:

• Implement clear rules setting out access criteria that is objective, non-discriminatory and transparent to existing and prospective customers. The said rules should also govern execution protocols and prohibit unfair trading practices.
  
• Implement clear rules on correction or cancellation of error trades; the controls to prevent potential disorderly trading; and corrective action to be taken to avoid or rectify disorderly trading conditions.
  
• Implement clear rules on the dissemination of pre-trade and post-trade information to customers on an uninterrupted basis (applicable to both on-chain and off-chain activity) and the dissemination of alerts on unusual trading activity warning customers to exercise caution.

Proposed Prohibitions against Unfair Trading Practices

The MAS is proposing to introduce prohibitions against unfair trading practices in respect of digital payment tokens. The MAS proposes to adapt certain provisions under the Securities and Futures Act (“SFA”), with necessary modifications and exclusions made for the said provisions to apply to DPTs. Examples of the SFA provisions that are proposed to be adapted to apply to DPTs are:

• False trading and market rigging
• Market manipulation
• False or misleading statements
• Fraudulently inducing persons to deal
• Employment of manipulative and deceptive devices
• Bucketing
• Cornering

The MAS also proposes to introduce insider trading prohibitions in relation to DPTs, civil penalty actions, civil remedies, attribution of liability that are similar to the relevant SFA provisions.

Implementation

After taking into consideration responses to the Consultation Paper, the MAS intends to first issue guidelines setting out its expectations for DPTSPs regarding market integrity risks. Following the guidelines, MAS will provide further details on the proposed regulatory updates for consultation.

In relation to the proposed prohibitions against unfair trading practices, the MAS intends to amend the PS Act and other relevant legislation. The proposed amendments will be published for consultation separately.


Your Contact

If you have any questions about the above, please feel free to contact any of our lawyers listed:

Heng Jun Meng, Managing Director (junmeng.heng@entralaw.com)
Ho Xiu Fen, Counsel (xiufen.ho@entralaw.com)

This alert is for general information only and is not a substitute for legal advice.