Singapore, 30 May 2011: Reuters

Singapore will stand pat on the rules that govern oil trade and the way it allows global energy companies to operate in the country, as it opts not to follow suit on one of the biggest ever crackdowns by U.S. regulators. The city-state's interests aims to maintain its allure as a global financial and trading centre rather than risk imposing regulations that might keep trade away. Unlike in the U.S. and Europe, there is no public clamour among its voting public for any such action, and even if the government were to tightens norms, the impact on global trade would likely be limited.

"The Singapore government has always taken the position that it will not interfere with the commercial activities of trading companies, as long as they do not break the law," said oil consultant Richard Yap of GE Energy.

"I see no reason for them to change this view in the future, regardless of recent events in the U.S." International Enterprise (IE) Singapore, a government backed trade-promotion body that overseas oil markets, declined comment when asked if it is looking at tightening regulations in Singapore, following the crackdown in the U.S.

However, two years ago, its then-chief executive, Chong Lit Cheong, said Singapore will continue with the prevailing status quo of allowing the industry to regulate itself, but will nudge the market towards a more controlled environment driven by exchanges and clearing houses.

U.S. regulators launched one of the biggest ever crackdowns on oil price manipulation last Tuesday, suing two well-known traders and two trading firms owned by Norwegian billionaire John Fredriksen for allegedly making $50 million by squeezing markets in 2008.

The Commodity Futures Trading Commission (CFTC) said traders James Dyer of Oklahoma's Parnon Energy, and Nick Wildgoose of Europe-based Arcadia Energy, amassed large physical positions at a key U.S. trading hub to create the impression of tight supplies that would boost oil prices.

European regulators, particularly in the UK, have also tightened legislation since the crisis, but Singapore, the world's third largest oil-trading center and the largest in Asia, has made no moves to do so.

Singapore has benefited from the tightening of regulations in the West, as some players, mainly banks, boosted their presence in Asia at the expense of their trading operations in the West.

Oil markets in the island nation are self-regulated, and have been since the city-state became Asia's oil trading centre more than 10 years ago, with minimum government intervention.

"Trading plays are regarded as purely commercial activities: there is as much a possibility of the players losing money as that they would make money, and there is quite a big gap between that and blatant market manipulation," Yap of GE Energy said.

Most of the oil trading in Singapore is done in an OTC market, unlike in the U.S. and Europe where much of the trading is on exchanges. Trading plays in Asia tend to focus more on the region's oil product markets with the objective of impacting the pricing benchmarks in the short term, industry sources said, with little impact on oil futures contracts that serve as global benchmarks.

NOT IN INTEREST TO POLICE

In the oil-trading centres of New York and London, the markets come under a government regulatory body, such as the CFTC and the Financial Services Authority (FSA). Oil markets in the city-state come under the purview of the International Enterprise, rather than the Monetary Authority of Singapore (MAS) - which is both the central bank and the regulator of financial markets.

MAS regulates equities, currencies and futures markets as they can potentially impact retail investors, sources said. But physical oil trade between oil majors, trading houses and units of Wall Street banks have no direct impact on retail investment and so come under the IE's remit, sources said.

The presence of the world's biggest trading outfits enhances the nation's reputation as a global financial and trading centre and helps draw investments. Any move towards tighter regulations could drive companies away, industry sources said.

"Simply put, there is no incentive for Singapore to play the role of a global or Asian policeman in oil markets. If they over-regulate, there could be negative repercussions," another industry source said.

"Also, the activities of the oil companies have more impact on larger consuming countries in the region than on Singapore itself and it cannot be expected to police beyond its own small borders."

Traders in Singapore say their trading plays are purely commercial strategies, rather than price manipulation. Trading strategies are based on their view of market fundamentals, and expose them to the risk of losing money as well as the potential for big wins.

PROSECUTE ERRANT TRADERS

Industry sources also point out that in the latest case the CFTC is pursuing a civil suit, and not criminal charges, adding that Singapore has also prosecuted errant oil traders -- when they break the law.

Ex-Mitsui naphtha trader Noriyuki Yamazaki was sent to jail for two years in 2009 for cheating, after he hid more $80 million of losses from his company. Former China Aviation Oil chief executive Chen Jiulin was also jailed for four years and three months, after the Singapore-listed firm failed to disclose trading losses of $550 million to the Stock Exchange.

"It's the political climate over there. Since the crisis, the voting public blames the investment banks and their millionaire traders for every sin, real or imagined, and the government has to be seen to be doing something," a veteran Singapore-based Western trader said.

While the civil suit comes after three years of heightened scrutiny into oil price speculation by the CFTC, it also arrives at a time when President Barack Obama is seeking to reassure Americans he is trying to curb high U.S. gasoline prices and ensure they aren't subject to manipulation.

In contrast, gasoline prices are not an issue with the Singapore electorate, which has been paying market prices set by oil companies based on commercial considerations and with no intervention from the government.

Ends --

By Yaw Yan Chong, Reuters - for Commodities Now