Statute Details
- Title: Securities and Futures (Prescribed Excluded Derivatives Contracts) Regulations 2018
- Act Code: SFA2001-S628-2018
- Legislative Type: Subsidiary legislation (SL)
- Authorising Act: Securities and Futures Act (Cap. 289)
- Enacting Authority: Monetary Authority of Singapore (MAS)
- Enacting Formula / Power: Made in exercise of powers conferred by section 341 of the Securities and Futures Act
- Commencement: 8 October 2018
- Key Provisions:
- Regulation 1: Citation and commencement
- Regulation 2: Contracts/arrangements excluded from the definition of “derivatives contract”
- Current Version Status: Current version as at 27 March 2026 (per provided extract)
- Primary Policy Function: Prescribes certain commodity sale/purchase arrangements as not being “derivatives contracts” for the purposes of the Securities and Futures Act
What Is This Legislation About?
The Securities and Futures (Prescribed Excluded Derivatives Contracts) Regulations 2018 (“the Regulations”) are a targeted piece of subsidiary legislation under Singapore’s Securities and Futures Act (SFA). In plain terms, the Regulations address a definitional boundary: they specify that certain contracts for the sale and purchase of commodities should not be treated as “derivatives contracts” under the SFA, even though they may share some economic characteristics with derivatives.
Under the SFA, the term “derivatives contract” is central because it determines whether a contract falls within the regulatory framework for derivatives trading, licensing, conduct requirements, and other statutory controls. The Regulations therefore operate as a carve-out: they prescribe circumstances in which a commodity contract is excluded from the statutory definition of “derivatives contract”.
Importantly, the carve-out is not automatic for all commodity-linked arrangements. The Regulations focus on contracts that are genuinely connected to physical business needs—that is, fulfilling day-to-day operational requirements—rather than being used primarily for speculative or financial risk-transfer purposes. The Regulations also address the practical reality that parties may agree on settlement options, including cash settlement for part or all amounts, while still maintaining the overall physical delivery character of the arrangement.
What Are the Key Provisions?
Regulation 1 (Citation and commencement) is straightforward. It provides the short title and confirms that the Regulations come into operation on 8 October 2018. For practitioners, this matters mainly for determining whether the carve-out applies to contracts entered into after commencement (and for any transitional or interpretive questions that may arise in disputes or compliance reviews).
Regulation 2 is the substantive provision. It is titled “Contracts or arrangements excluded from definition of ‘derivatives contract’”. It provides that, for the purposes of the definition of “derivatives contract” in section 2(1) of the SFA, a contract or arrangement for the sale and purchase of one or more commodities (referred to as underlying commodities) is prescribed not to be a derivatives contract if two cumulative conditions are met.
First condition: purpose—day-to-day operational needs. Under Regulation 2(1)(a), the contract or arrangement must be “for the purpose of fulfilling the needs of the day‑to‑day operations of the business of one or more of the parties”. This is a functional test. It requires an assessment of the commercial rationale for entering into the contract. For example, a party that uses commodities in its manufacturing process or business operations may enter into supply arrangements to secure ongoing availability and manage operational continuity. By contrast, a contract entered into primarily to speculate on price movements or to create a financial exposure may not satisfy this condition.
Second condition: delivery obligations—physical delivery as the default. Regulation 2(1)(b) requires that, “subject to any settlement option that may be agreed amongst the parties”, the seller must be required to deliver the underlying commodities and the buyer must be required to take delivery. This is a key drafting feature. The Regulations do not require that there be no cash settlement at all; rather, they allow for settlement options that may permit cash settlement instead of delivery. However, the baseline contractual structure must still impose delivery and taking delivery obligations on the parties.
For practitioners, the phrase “subject to any settlement option” is critical. It suggests that the contract may contain optionality—such as an option for cash settlement in lieu of physical delivery—without losing the exclusion, provided the contract still requires delivery and taking delivery as the operative obligation. This can be relevant in commodity markets where parties sometimes negotiate settlement mechanisms for operational convenience, risk management, or logistical constraints.
Definition of “settlement option”. Regulation 2(2) defines “settlement option” as an option under which the parties may settle part or all of the amounts owing by payment of cash instead of delivery of the commodity or commodities. This definition is relatively narrow and contract-focused. It does not broaden the exclusion to arrangements that are purely cash-settled from the outset. Instead, it contemplates a contractual option that permits cash settlement instead of delivery, while still preserving the delivery-based structure of the underlying agreement.
Practical compliance implication: Because the exclusion depends on both purpose and delivery obligations, lawyers advising on commodity contracting should ensure that the contract documentation clearly supports (i) the operational purpose and (ii) the existence of delivery/taking-delivery obligations, with any cash settlement framed as an agreed settlement option rather than the default settlement method.
How Is This Legislation Structured?
The Regulations are concise and consist of an enacting formula followed by two operative provisions:
(1) Regulation 1: Citation and commencement. This sets the legal identity of the instrument and its effective date.
(2) Regulation 2: The exclusion mechanism. This regulation contains the substantive carve-out and includes both the two-part test (purpose and delivery obligations) and the definition of “settlement option”.
There are no additional parts or complex schedules in the provided extract. The legislative design is therefore “minimal but targeted”: it does not create a comprehensive derivatives regime; instead, it modifies the scope of what counts as a “derivatives contract” under the SFA.
Who Does This Legislation Apply To?
The Regulations apply to parties whose commodity sale and purchase arrangements might otherwise fall within the SFA’s definition of “derivatives contract”. In practice, this typically includes commodity traders, corporates that use commodities in their operations, and counterparties structuring supply or procurement arrangements that may have forward-looking or price-linked features.
However, the exclusion is not a matter of party type alone; it is a matter of contract characteristics. The arrangement must be for day-to-day operational needs and must require delivery and taking delivery, subject to any settlement option. Accordingly, the Regulations are relevant to in-house counsel and external advisers who draft, review, or negotiate commodity contracts and who must assess whether the contract triggers SFA derivatives regulation.
Why Is This Legislation Important?
This Regulations is important because it clarifies the boundary between physical commodity contracting and regulated derivatives contracting. Without such a carve-out, many commercial commodity arrangements—particularly those with forward delivery terms or price mechanisms—could be argued to fall within the broad concept of derivatives. That would create unnecessary regulatory friction for businesses whose primary intent is operational supply rather than financial trading.
From an enforcement and compliance perspective, the Regulations reduce uncertainty by prescribing a clear exclusion framework. For lawyers, the value lies in the ability to structure contracts to fit within the exclusion conditions. If the contract is intended to support operational needs, counsel should document the business purpose and ensure the contract imposes delivery and taking delivery obligations, while treating cash settlement as an optional feature rather than the core settlement method.
Finally, the Regulations can have downstream consequences for regulatory classification. If a contract is excluded from “derivatives contract”, it may fall outside certain SFA obligations that apply to derivatives. Conversely, if the exclusion conditions are not met—e.g., if the contract is primarily speculative or if it lacks delivery/taking-delivery obligations—the contract may be treated as a derivatives contract and subject to the broader derivatives regulatory regime. Therefore, the Regulations are not merely definitional; they affect risk allocation, compliance planning, and contract governance.
Related Legislation
- Securities and Futures Act (Cap. 289) — in particular the definition of “derivatives contract” in section 2(1) and the regulation-making power in section 341
- Futures Act — referenced in the provided metadata as related legislation (practitioners should consider how historical or overlapping regulatory concepts may be relevant to derivatives classification and market conduct)
Source Documents
This article provides an overview of the Securities and Futures (Prescribed Excluded Derivatives Contracts) Regulations 2018 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the official text for authoritative provisions.