Apparently there is a shady business going on in town, dealing in a type of foreign exchange contract known as a non-deliverable forward (NDF). Two parties agree to buy or sell a foreign currency for a fixed price at some future date. Both counterparties settle their trades with a "fixing rate" set daily by a panel of banks in Singapore. Although there are official rates set by Southeast Asian central banks, some of the traders are resorting to a "shadow" fixing system that has emerged in Singapore. Singapore is the biggest NDF market in Asia outside Japan.
Banks in Singapore run trading desks where NDFs are also traded speculatively, usually over the phone. In the aftermath of the manipulation scandal of the London Interbank Offered Rate, or LIBOR, one former UBS trader had raised concerns to his employer over the way in which reference rates were being set in Singapore, in particular "increasingly unrealistic" US dollar-rupiah rates. At least one bank, Bank Negara (Malaysia's central bank) has advised domestic banks to use a locally set reference rate for dollar-ringgit transactions, steering them away from the suspicious rates set in Singapore.
The attitude of the Monetary Authority of Singapore (MAS) is to direct banks to review their own processes for setting rates for NDFs. When derivatives broker Nick Leeson brought down the United Kingdom's oldest investment bank in 1995, Singapore authorities laid much of the blame on Barings' internal auditing and risk management practices. Yet the Singapore International Monetary Exchange (SIMEX) had allowed Leeson to trade, when he was denied a broker's license in the UK because of fraud on his application. Leeson pleaded guilty to two counts of "deceiving the bank's auditors and of cheating the Singapore exchange". That the deception and cheat occurred in Singapore gave the little red dot a big black eye.
By leaving the NDF market unregulated, Singapore is set to repeat the disaster of the unregulated over-the-counter (OTC) derivative markets, such as the credit default swaps, that triggered the 2008 global financial melt-down. Last we heard, MAS is expected to wrap up its review of the NDF market "soon".