SINGAPORE LAWS TO LIBERALISE LOCAL CAPITAL MARKET
Parliament passed laws increasing the
amounts and frequency of treasury bill issues and allowing the
government to raise up to 35 billion dlrs through issues of
registered stock, bearer bonds and book-entry securities.
    Both steps are aimed at establishing a wider domestic
capital market as part of Singapore's plans to expand its
financial sector, Finance Minister Richard Hu said.
    Banking sources said the new government securities market,
scheduled to have been launched on March 2, had been delayed
pending legislative approval of these bills.
    The 35 billion dlrs maximum which may be raised under the
Development Loan Bill (1987), against a ceiling of 15 billion
under current laws, is expected to satisfy demand for
government securities over the next four years, Hu said.
    He said 6.1 billion dlrs of the 15 billion has so far been
raised as development loans. The rest will be used up when
bonds are issued to absorb advance deposits of 13.9 billion
dlrs from the Central Provident Fund (CPF), a mandatory pension
savings scheme. Workers and employers contribute a respective
25 pct and 10 pct of a worker's salary to the CPF, which had
funds totalling 29.3 billion at end-1986.
    Regular government securities issues are needed to meet the
demand of banks, insurance companies, other financial
institutions and corporate and individual investors, Hu said.
    The Monetary Authority of Singapore (MAS) had said it
planned to launch trading by issuing taxable instruments
grossing seven billion dlrs in the first year and a gross 38
billion dlrs of paper over the next five years.
    Funds raised in excess of the government's budgetary needs
will not be channelled into increased spending, but will be
recycled back to the financial system, largely through the MAS,
Hu said.
    Hu said the current government securities market is
rudimentary, with the CPF holding three-quarters of the
outstanding debt and banks, discount houses and insurance
companies holding the rest. "The concentration of securities in
the hands of such long-term holders has left little scope for
trading activity," he said.
    "Moreover, the maturity of the bonds, mostly 20 years, was
not attractive to other investors who might have been expected
to deal more actively in the market. The infrequency of bond
issues exacerbated the lack of liquidity necessary for the
development of a market," Hu said.
    Hu said these obstacles have been resolved and regular
issues of government securities will be made, initially
carrying terms of up to five years and market-related yields.
    The minimum denomination is 1,000 dlrs for notes and bonds
-- aimed at individual investors -- and 10,000 dlrs for the
treasury bills, which are directed at corporate investors.
    Eight primary and registered dealers have undertaken to
make markets in order to ensure liquidity, he said.
    Hu said while the new government securities market will be
essentially domestic, non-residents are free to invest, but
interest earned will be subject to withholding tax.
    Hu said under the new Treasury Bills (Amendment) Bill, all
book entries of borrowings through treasury bill issues must be
made in records maintained by MAS.
    Hu said that instead of physical certificates having to
travel back and forth at each transaction, with side trips to
the MAS for registration, the MAS will maintain a computerised
system for updating records in a central register.
    Commercial banks and primary and registered government
securities dealers will each have two securities accounts with
the MAS, one for their own holdings and the other for holdings
on behalf of all their customers, Hu said.
    All trades will be reflected daily in changes in these
accounts, Hu said.
    "These institutions will in turn act as custodians of
government securities for their customers, rendering each an
individual accounting of his holdings."
    Hu said the new system will cut storage and handling costs
and paper work, reduce the danger of loss, theft, destruction
and counterfeiting, and permit greater speed and efficiency in
handling large volumes of transactions.
 REUTER
