Singapore: Is a commodity derivative contract, which is physically settled and has embedded options, reportable?

The definition of “commodity derivatives contract” in the SF(RDC)R excludes derivatives  contracts with all of the following characteristics:  

(a) the contract is for the sale or purchase of underlying commodities (the  “underlying commodities”) for the purpose of fulfilling the needs of the day to-day operations of the business of one or more parties to the contract,  whether or not the contract contains a settlement option;  

(b) subject to any settlement option that may be agreed amongst the parties to  the contract, the seller of the underlying commodities is required to deliver  the underlying commodities; and 

(c) subject to any settlement option that may be agreed amongst the parties to  the contract, the buyer of the underlying commodities is required to take  delivery of the underlying commodities.  

If the above conditions are met, such contracts are not considered derivatives contracts  under the SF(RDC)R and hence are not subject to reporting obligations. The exclusion is  not dependent on whether the contract has embedded options.  

As explained in the response to feedback received on the Consultation Paper on Proposed  Amendments to the Securities and Futures (Reporting of Derivatives) Regulations⁵, the  intent is to exclude derivatives contracts on commodities which are for the purpose of  fulfilling the needs of the day-to-day operations of a business from reporting obligations  under the SF(RDC)R. However, this exclusion does not extend to derivatives contracts  which are entered into for the purposes of hedging financial risks, i.e. such derivatives  contracts are subject to reporting obligations.  

References:  

• Regulation 2 of the SF(RDC)R