UPDATE: A few people wrote that MAS has rules to require brokers such as MF Global to seperate client money from its own. Having a law is one thing but ensuring that it is followed by effective policing is another. Also, are Singapore investors using MF Global in the situation as investors of defunct s-chips - the MAS unable to go after the wrong doers because they are not in Singapore even though the crime was committed here. It is useless to have laws when it is hard to go after people who break it.
MF Global a financial dervatives broker has collapsed and filed for chapter 11 bankruptcy. MF Global was allowed to operate in Singapore offering exchange traded derivatives, futures, options, forex and OTC (over the counter products) such as contracts for difference.
MF Global collapsed due to wrong bets on European sovereign debts but that is not the main problem. The CEO, a former Goldman Sachs executive, dipped into client money to pay for losses. Now it is not clear how much money can be recovered[MF Global accounts shock leaves clients scrambling]
MF Global has been operating in Singapore[Link] and signing up clients here. The number of clients is about 1000 . However, MF Global is not the only one operating here. Over the years our financial sector has been deregulated to the point, many such brokers of various sizes have set up shop here. It is very hard to educate investors on the risk of setting up an account with these firms as they weave into our financial system and many Singaporeans simply believe they are safe because they are allowed to operate here - many are not aware that the Singapore govt, out of its aspiration to be a financial hub, has been deregulating to attract investment banks and brokers to set up here. These firms are allowed put out glossy advertisements in local financial magazines, on our cable channels and set up booths in Raffles Place and at exhibitions to sign up clients and some offer free 'educational' talks on investing. It is quite easy for them to sign on clients as they make themselves appear legitimate and safe but they are not well regulated or monitored by the authorities. The PAP govt jumped onto the bandwagon of deregulation but how wise is it when you allow your citizens to be exploited with so little or no benefit in return.
Several months ago, I decided to visit the office of one of these 'major' international brokers who has been advertising in our papers. magazines and at various Singapore websites. This broker has signed up thousands of clients offering an OTC product known as 'contract for difference'. I met the customer service officer (a Filipino) and the nice lady told me that the firm has hired 5 or 6 people - so they don't create much employment here.
Economists who view the financialization of the US economy negatively believe that much of the derivative trading has turned into nothing more than gambling. In the past, derivatives were used to hedge and pass on risks for businesses to speculators - it has turned into large casino. Most of the trading activity produce no net benefit for the economy. Singapore wants a piece of Wall Street but we take the best and leave out the less regulated modern day 'bucket shops' that will certainly bring grief and harm to our people. It is not clear if the MAS and the PAP govt will learn anything from this episode (MF Global collapse) but it is certainly time for us to rethink 'deregulation' even though nobody has Occupied Raffles Place because the police warned people not to be 'misguided'....but who really are the ones 'misguided'?...The ones who deregulated our financial industry to the point that left thousands stung by losses in toxic products or rogue brokers....or the few brave ones who wanted to Occupy Raffles Place?