CAPITAL MARKETS AND FINANCIAL ADVISORY SERVICES

(CMFAS) EXAMINATIONS

STUDY GUIDE

RES 1A RULES, ETHICS AND SKILLS FOR

SECURITIES EXCHANGE DEALERS
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© ALL RIGHTS RESERVED

The Institute of Banking and Finance

November 2024 (Version 1.1)

No part of this Study Guide may be reproduced, stored in a retrieval system, or transmitted in any form by
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without the prior permission of The Institute of Banking and Finance (IBF).

IBF shall not be responsible or liable for any loss or damage whatsoever that may be caused by or suffered as
a result of reliance on any statement, error or omission contained in this Study Guide.

This Study Guide contains information that are correct, current or applicable as of 30 September 2023. For the
latest set of rules and regulations, the reader or user is advised to refer to the latest set of rules and regulations
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You shall not modify, remove, delete, augment, add to, publish, transmit, sell, resell, license, create derivative
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Acknowledgements
IBF would like to express its gratitude to all members of the Capital Markets and Financial Advisory Services
(CMFAS) Examinations Board and CMFAS Examinations Industry Panel – Securities for their contributions and
support in the development of the CMFAS Study Guides and Examinations.

Study Guide Writers

IBF would like to thank the following study guide writers* for reviewing and updating the Study Guide:

Mr Jeth Lee, Vice President and Lead Counsel, Singapore Exchange Limited
Ms Yvette Cheak, ACE Compliance Pte Ltd

[*Information accurate as at date of appointment.]

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Preface
RES 1A – Rules, Ethics and Skills for Securities Exchange Dealers

The objective of the CMFAS RES 1A – Rules, Ethics and Skills for Securities Exchange Dealers (RES 1A)
Examination is to test candidates on their knowledge and understanding of the regulatory framework
including the laws and regulations and associated codes, notices, practice notes and guidelines
governing securities exchange dealing , ethical codes, standards of professional conduct and
fundamental skills relating to securities exchange dealing .

Candidates are required to pass the relevant modules of the CMFAS examinations pertaining to the regulated
activity that they intend to conduct. Once they have passed the relevant CMFAS examinations, candidates
must ensure that their notification to act as an appointed representative is lodged with MAS on the Public
Register via the Representative Notification Framework (RNF), before they can commence any dealings in
regulated activities. For details, please refer to the relevant MAS Notice on Competency Requirements for
Holders of Capital Markets Services Licence and Exempt Financial Institutions under the Securities and Futures
Act (SFA 04-N22).

The Study Guide contains regulatory requirements for Capital Markets Services Licence holders and their
representatives conducting regulated activities of dealing in capital markets products under the Securities and
Futures Act 2001. Candidates should take note that some of the regulatory requirements, in particular, the
business conduct requirements, are also applicable to exempt financial institutions (EFIs), such as banks and
their representatives, who conduct the same type of regulated activities. For example, Regulation 54 of the
Securities and Futures (Licensing and Conduct of Business) Regulations applies certain provisions of the SFA to
EFIs and their representatives.

Candidates who have passed the CMFAS Examinations are encouraged to continue on their learning journey
by attending IBF accredited programmes, attaining the required skills leading to IBF Certification. For more
information, please visit www.ibf.org.sg.

Organisation of the Study Guide

The Study Guide consists of 8 Chapters, starting with rules and regulations governing securities exchange
dealings, followed by the ethical codes and conduct and elementary skills relating to securities exchange
dealings in Singapore.

The emphasis in each Chapter is to ensure that candidates have a good understanding of the rules and
regulations, ethical principles and skills relevant to perform their roles effectively. Examples and case studies
are also used where appropriate in the Study Guide to enhance candidates’ understanding of key learning
points and application of the topics discussed.

A summary of each Chapter is provided below:

Chapter 1: The Capital Markets Industry in Singapore and Participants in the Capital Markets

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Provides an overview of the capital markets eco-system, regulatory bodies and the
relevant legislation and rules governing the conduct of capital markets activities in
Singapore.

Chapter 2: Licensing and Business Operations

Outlines the obligations and regulatory requirements governing the business operations
of Capital Markets Services licence holders and individual representatives in securities
dealing.

Chapter 3: The Trading System and Infrastructure

Explains the securities trading system and infrastructure, dealing mechanics and
settlement procedures.

Chapter 4: Market Conduct

Provides an overview of the rules and regulations prohibiting market misconduct in

relation to securities dealing.

Chapter 5: Ethics, Codes and Standards of Professional Conduct for Securities Dealing

Defines ethics and ethical behaviour in the context of securities exchange dealing.
Discusses ethical issues or ethical dilemmas faced by securities dealing representatives,
and the applicable ethical codes and professional standards of conduct that securities
dealing representatives should uphold in their professional capacities.

Chapter 6: Securities Dealing Practices and Skills

Describes key aspects of the client onboarding process. Discusses client servicing and
communication requirements, best execution practices and some aspects of risk
management and internal controls to securities dealing.

Chapter 7: Central Provident Fund Investment Scheme (CPFIS)

Provides an overview of CPFIS.

Chapter 8: Prevention of Financial Crimes

Provides an overview of the relevant legislation, rules and regulations for the prevention
of money laundering and countering the financing of terrorism.

We have included a set of Review Questions with the answers highlighted in bold to support candidate’s
learning.

A list of essential readings is also provided in Appendix H. Candidates should ensure that they complete the
essential readings before attempting the examination.

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The Appendices are provided for candidates’ reference and to enhance their understanding of the important
concepts covered in this Study Guide.

Study Guide Updates

The Study Guide is updated at appropriate intervals to reflect changes and developments in the financial
industry. Candidates should ensure that they have the latest version of the Study Guide before sitting for the
examination. Please refer to Updates to the Study Guides Page at www.ibf.org.sg for the latest updates.

Important Notes about the Examination

The RES 1A examination is conducted at the IBF Assessment Centre.

The examination includes questions that test candidates’ knowledge, understanding and application of the
relevant rules, ethics and skills for securities exchange dealing.

The examination comprises 80 multiple-choice questions, with a duration of 2 hours. The passing mark is 75%.

Candidates should note that they will NOT be tested on the amount of penalties applicable under the laws
and regulations, associated codes, notices and guidelines governing dealing in capital markets products.

For more information on the examination rules, regulations and other administrative procedures, please refer
to the IBF website at www.ibf.org.sg.

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Table of Contents
Acknowledgements .........................................................................................................................ii
Preface ................................................................................................................................. iii
RES 1A – Rules, Ethics and Skills for Securities Exchange Dealers...................................................... iii
Organisation of the Study Guide ..................................................................................................... iii
Study Guide Updates ...................................................................................................................... iii
Important Notes about the Examination .......................................................................................... v
Chapter 1:The Capital Markets Industry in Singapore and Participants in the Capital Markets............1
1.1 Introduction ...........................................................................................................................2
1.2 Institutional Participants in the Capital Markets......................................................................3
1.3 The Regulatory Framework and Regulatory Bodies .................................................................6
1.4 SGX Listing Framework ......................................................................................................... 11
Chapter 2: Licensing and Business Operations ................................................................................ 22
2.1 Introduction ......................................................................................................................... 22
2.2 Grant of Capital Markets Services Licence ............................................................................. 23
2.3 Registration of Representatives ............................................................................................ 31
2.4 Obligations of Representatives ............................................................................................. 35
2.5 Regulatory Requirements for Advertising.............................................................................. 38
2.6 Customer Accounts .............................................................................................................. 39
2.7 Privacy of Customer Information .......................................................................................... 48
2.8 Management of Customers’ Trading Accounts ...................................................................... 49
2.9 Keeping of Books and Audit .................................................................................................. 54
2.10 Customers’ Moneys and Assets............................................................................................ 58
Chapter 3: The Trading System and Infrastructure .......................................................................... 71
3.1 Introduction ......................................................................................................................... 72
3.2 SGX-ST Products ................................................................................................................... 74
3.3 Risk Management and Order Processing ............................................................................... 75
3.4 Trading Mechanics ............................................................................................................... 78
3.5 Settlement Procedures ......................................................................................................... 92
Chapter 4: Market Conduct ............................................................................................................ 95
4.1 Introduction ......................................................................................................................... 95
4.2 Market Misconduct .............................................................................................................. 96
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4.3 False Trading and Market Rigging Transactions ..................................................................... 97

4.4 Securities Market Manipulation ........................................................................................... 99
4.5 False or Misleading Statements and Information .................................................................. 99
4.6 Fraudulently Inducing Persons to Deal in Capital Markets Products ..................................... 100
4.7 Employment of Manipulative and Deceptive Devices .......................................................... 100
4.8 Dissemination of Information about Illegal Transactions ..................................................... 101
4.9 Insider Trading ................................................................................................................... 102
4.10 Securities Hawking ............................................................................................................. 106
4.11 Other Market Conduct Rules and Guidelines ....................................................................... 106
4.12 Vigilant Practices Against Market Misconduct ..................................................................... 111
4.13 SGX-ST Regulatory Tools to Uphold Fair, Orderly and Transparent Markets ......................... 115
4.14 Duty to Report Market Misconduct..................................................................................... 118
4.15 Penalties for Misconduct under the SFA .............................................................................. 118
4.16 Penalties for Market Misconduct under the SGX-ST Rules ................................................... 119
Chapter 5: Ethics, Codes and Standards of Professional Conduct for Securities Dealing .................. 121
5.1 Introduction ....................................................................................................................... 121
5.2 The Ethical Framework ....................................................................................................... 123
5.3 Ethical Dilemmas................................................................................................................ 126
5.4 Professional Ethics, Codes and Standards of Professional Conduct forSecurities Dealing ...... 127
5.5 Applying the Ethical Framework to Resolve Ethical Dilemmas ............................................. 141
Chapter 6: Securities Dealing Practices and Skills .......................................................................... 144
6.1 Introduction to the On-boarding and Advisory Process........................................................ 144
6.2 Client On-boarding Process................................................................................................. 145
6.3 Present Coherent View of Investment and Trading Strategies .............................................. 154
6.4 Best Execution Practices for Securities Dealing .................................................................... 154
6.5 Risk Management and Internal Controls for Securities Dealing ............................................ 159
6.6 Types of Accounts .............................................................................................................. 162
6.7 Developing a Strong Client Relationship Built on Trust ........................................................ 165
6.8 Credit Risk Management .................................................................................................... 166
Chapter 7: Central Provident Fund Investment Scheme (CPFIS) ..................................................... 168
7.1 General Information and History of CPFIS ........................................................................... 168
7.2 Differences between CPFIS-OA and CPFIS-SA ...................................................................... 169
7.3 What is a CPF Investment Account? .................................................................................... 170
7.4 Eligibility Criteria ................................................................................................................ 170

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7.5 Opening a CPFIS Investment Account .................................................................................. 171

7.6 Processes for Purchase and Sale of Investments (CPFIS-OA only) ......................................... 171
7.7 Service Providers under the CPFIS ....................................................................................... 172
7.8 Criteria for Inclusion of Investment Products under CPFIS ................................................... 173
7.9 Transfer of Monies from CPF Investment Account to CPF Ordinary Account ......................... 176
7.10 Dividends and Profits Earned .............................................................................................. 176
7.11 Charges… ........................................................................................................................... 177
7.12 Release of Investment Holdings .......................................................................................... 177
7.13 Bankruptcy ........................................................................................................................ 177
7.14 Death….. ............................................................................................................................ 178
Chapter 8: Prevention of Financial Crimes .................................................................................... 179
8.1 Introduction to Prevention of Financial Crimes.................................................................... 179
8.2 Anti-Money Laundering and Counter-Terrorism Financing Regime in Singapore ................... 186
8.3 The Regulatory Framework of Financial Crimes – Rules and Regulations .............................. 187
8.4 MAS Notices and Regulations on Prevention of Money Laundering and Countering the Financing
of Terrorism ....................................................................................................................... 194
8.5 Targeted Financial Sanctions related to Anti – Money Laundering and Terrorism Financing .. 195
8.6 Designation of Tax Crimes as Money Laundering Predicate Offences in Singapore ............... 196
8.7 The Three Lines of Defence ................................................................................................. 198
8.8 Governance ....................................................................................................................... 200
8.9 Client Onboarding .............................................................................................................. 201
8.10 Enterprise-Wide Risk Assessment ....................................................................................... 221
8.11 Risk Controls for New Products, Practices and Technologies ................................................ 222
8.12 Operational Risk Controls to Prevent Financial Crimes ........................................................ 222
8.13 Reporting and Filing Requirements ..................................................................................... 223
8.14 Penalties and Risks for Non- Compliance............................................................................. 224
8.15 Internal Policies, Compliance, Audit and Training ................................................................ 224
8.16 Effectiveness of AML/CFT Framework ................................................................................. 225
Appendix A: Guidelines on Fit and Proper Criteria........................................................................ 228
Appendix B: Criteria for the Assessment of a Customer Account Review ...................................... 233
Appendix C: Criteria for the Satisfaction of the Customer Knowledge Assessment ........................ 234
Appendix D: Risk Warning Statement for Overseas-Listed Investment Products ........................... 236
Appendix E: Excluded Investment Products ................................................................................. 239
Appendix F: Examples of Suspicious Transactions ........................................................................ 241
Appendix G: Review Questions.................................................................................................... 246

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Appendix H: Essential Readings .................................................................................................... 255

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 1 | Chapter 1 - The Capital Markets Industry in Singapore and Participants in the Capital Markets

Chapter 1:
The Capital Markets Industry in
Singapore and Participants in the
Capital Markets
Learning Objectives
The candidate should be able to understand the:

✓ Basic features of the capital markets, including primary and secondary markets, exchanges (over-the-
counter and regulated) and financial intermediaries.

✓ Different business activities undertaken by institutional participants in the capital markets.

✓ Roles of each regulatory body and self-regulating organisation in the regulation of the capital markets
industry:
• Monetary Authority of Singapore (MAS);
• Singapore Exchange Securities Trading Limited (SGX-ST);
• The Central Depository (Pte) Limited (CDP);
• Singapore Exchange Derivatives Trading Limited (SGX-DT);
• Singapore Exchange Derivatives Clearing Limited (SGX-DC); and
• Singapore Exchange Regulation Pte Ltd (SGX RegCo).

✓ Origin of the relevant rules and requirements governing securities and derivatives trading and clearing
including:
• Securities and Futures Act (SFA);
• Securities and Futures Regulations (SFR);
• SGX-ST Mainboard and Catalist Rules;
• SGX-ST Rules;
• CDP Clearing Rules;
• CDP Settlement Rules;
• CDP Depository Rules;
• SGX Futures Trading Rules; and
• SGX-DC Clearing Rules.

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1.1 Introduction

1.1.1 The Capital Markets in Singapore

1.1.1.1 The Primary Market

An important function of the capital markets is to provide opportunities for businesses to raise capital to fund
their business activities. These capital-raising activities take place in the primary market.

Businesses raise capital through the issuance of various securities instruments such as shares / common stock
/ equity securities, bonds / fixed income securities and company warrants. Investors would then provide the
capital by buying these instruments.

When investors buy these instruments, they are taking on risk as the price of financial instruments fluctuates
in accordance with the company’s performance. Changes in the value of the instruments would eventually
lead to the investors wishing to sell their holdings, either to realize a profit, or to remove a poorly performing
instrument from their investment portfolio.

1.1.1.2 The Secondary Market

Trading activity that takes place outside of the initial capital-raising activities (i.e. in the primary market) take
place in the secondary market. As such, it can be said that the secondary market allows investors to manage
or transfer their risk to other parties.

Risk transfer or risk management can also be achieved by trading in futures or derivatives products instead of
simply selling the shares or bonds. Some examples of derivatives include futures, options, issuer or company
warrants and leverage certificates.

The markets operated by the Singapore Exchange Limited (SGX) and its subsidiaries provide capital-raising and
risk management opportunities to the global market through their product offerings (refer to Table 1.1.1).

Table 1.1.1: Examples of Products Offered by SGX for Capital Raising and Risk Management

Capital Raising Risk Management

SGX-ST • Shares • Issuer Warrants

• Bonds • Leverage Certificates
• Company Warrants
SGX-DT • Futures
-
• Options

1.1.2 Exchanges

Primary and secondary market activities can either take place in the over-the-counter (OTC) markets or on
regulated exchanges. The OTC market is also known as the “call around” market, because market participants
call each other directly to determine each other’s interest to buy or sell any given capital markets product.

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An exchange provides a centralized market where buyers and sellers can congregate. This allows for the
efficient discovery of the prices and quantities at which each participant is interested to buy or sell capital
markets products. In order to trade on an exchange, the buyer or seller needs to either be a Trading Member
of the exchange, or a customer of a Trading Member of the exchange.

1.1.3 Financial Intermediaries

There are different types of financial intermediaries that connect the businesses that need to raise capital with
public investors.

In the primary market, the process of raising capital through new securities is a complex process through which
businesses can reach out to potential investors. For example, in the equity market, new shares are issued
through a process termed the Initial Public Offering (IPO) where a business is required to present investors
with accurate information on its financial standing, future potential and any other relevant information.
Financial intermediaries such as banks or financial institutions with a capital markets services licence to advise
on corporate finance are usually appointed as issue managers, as most businesses are unlikely to have such
expertise in-house.

In the secondary market, it would be difficult for an investor who is holding a security to directly find a buyer
for the same security. In this case, other financial intermediaries such as brokers function as a middle agent
to match selling interest and buying interest or route sell or buy orders to an exchange for matching.

1.2 Institutional Participants in the Capital Markets

1.2.1 Banks

There are different types of banks licensed under the Banking Act 1970, which may provide capital markets
services, e.g. dealing in capital markets products1.

The types of banking licences include:

i. Qualifying Full Banks/ Full Banks;
ii. Wholesale Banks; and
iii. Merchant Banks.

1.2.1.1 Qualifying Full Banks/Full Banks

Qualifying Full Banks and Full Banks provide the whole range of banking business approved under the Banking
Act and are allowed to take deposits of any amount in any currency, including offering savings accounts. They
also provide capital markets products, custodial business, underwriting, corporate finance activities and some
even offer insurance products as distributors for insurance companies. As they do not have restrictions in
offering deposit products, many of the Qualifying Full Banks or Full Banks are also in the retail banking business

1 SFA Second Schedule, Part II – Interpretation -“Dealing in capital markets products” means (whether as principal or agent) making or
offering to make with any person, or inducing or attempting to induce any person to enter into or to offer to enter into any agreement
for or with a view to acquiring, disposing of, entering into, effecting, arranging, subscribing for, or underwriting any capital markets
products.
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as well. Their clientele base is more diversified with mass retail, private banking, accredited and institutional
clients.

1.2.1.2 Wholesale Banks

Wholesale Banks provide the full range of banking business but are restricted in their deposit taking activities.
Wholesale Banks are allowed to take foreign currency deposits in any amount but are restricted to take
deposits in Singapore dollars. They can accept Singapore dollar fixed deposits of at least S$250,000. While they
may operate Singapore dollar saving or current accounts, such Singapore dollar savings or current account
should not be interest-bearing when such account is opened for a Singapore resident who is a natural person,
except with prior approval of MAS.

Many wholesale banks therefore prefer to solicit business from high net-worth individuals through their
private banking arms. Such clients are usually more interested in capital markets products for investment.

1.2.1.3 Merchant Banks

Merchant Banks are licensed under section 55S of the Banking Act 1970 since 1 July 2021. They are not allowed
to accept Singapore deposits or borrow Singapore dollars from the public in any form except from banks,
finance companies, shareholders and companies controlled by shareholders. Merchant banks are not found
in the retail space but can undertake banking business or deposit taking business in accordance with the
Banking Act and Banking (Merchant Banks) Regulations 2021.

1.2.2 Capital Markets Services (CMS) Licence Holders

CMS licence holders which deal in capital markets products include (amongst others):
i. Broker / dealer companies;
ii. Corporate finance advisory companies; and
iii. Providers of custodial services for capital markets products.

1.2.2.1 Broker/Dealer Companies

Apart from banks, broker/dealer companies are another class of financial intermediaries. Unlike banks, these
companies do not engage in deposit-taking activities, but instead specialise in matching buyers with sellers.
In the context of the capital markets eco-system, broker/dealer companies would also be Trading or Clearing
Members which provide trading or clearing services to their customers, allowing the customers to trade on
the exchange2.

1.2.2.2 Corporate Finance Advisory Companies

Corporate finance advisory companies provide corporate finance advisory services including acting as issue
managers or sponsors for listings on the Mainboard or Catalist of SGX-ST, as the case may be. They also advise
on arrangements, reconstructions and take-overs, acquisitions and disposals.

2 Refer to Sections 1.3.2 to 1.3.7 for details about the Trading and Clearing Members of the SGX securities and futures markets.

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1.2.2.3 Providers of Custodial Services for Capital Markets Products

These entities are required to hold a CMS licence in providing custodial services. Custodians serve institutional
clients, as well as individual clients. Besides providing general custodial services, custodians maintain records
of the movement of capital markets products to and from their clients’ accounts and are the interface for their
clients to the exchanges for the settlement and delivery of capital markets products. Some custodians also
provide product financing3 and specified products lending4 services. Specified products lending is deemed as
dealing in capital markets products and consequently, an entity which carries out specified products lending
is required to have a CMS licence in respect of dealing in capital markets products. Product financing and
specified products lending are not similar activities and require a different type of CMS licence.

1.2.2.4 Others (Non-CMS Licence Holders) – Finance Companies or Remote Trading and Clearing
Members5

Finance companies are licensed under the Finance Companies Act 1967 and therefore are not required to
apply for a CMS licence for regulated activities which are not prohibited by the Finance Companies Act or
where the finance company has been granted an exception under Section 25(2) of the Finance Companies Act
and are exempted institutions. In providing such financing services, finance companies also provide custodial
services to their clients and thus are responsible for the records of movement in the custodian accounts.
Finance companies are subject to MAS’ regulation, supervision and inspections.

Overseas-based remote trading and clearing members of a Singapore exchange, recognised market operator
or clearing house are exempted from holding a CMS licence6. This is provided that the remote member:
i. is incorporated outside of Singapore;
ii. is a member of an approved exchange or clearing house or recognised market operator or clearing house
under the SFA, as the case may be, on which the relevant securities or derivatives are traded or cleared;
iii. does not serve any customer resident in Singapore;
iv. is not a regulated financial institution in Singapore;
v. carries on business in a jurisdiction where the relevant regulator has an arrangement with MAS for
information exchange and co-operation in respect of derivatives supervision; and
vi. is regulated in respect of such activities by the relevant regulator in its home jurisdiction.

In addition, a SGX remote clearing member cannot have FI affiliate regulated by MAS. This criterion does not
apply to a remote trading member.

3 SFA Second Schedule, Part II – Interpretation.

4 SFR (Licensing and Conduct of Business) Regulations, Regulation 45 – Specified Products Borrowing and Lending.
5 Securities and Futures (Exemption from Requirement to Hold Capital Markets Services Licence) Regulations, Regulation 4.
6 Securities and Futures (Exemption from Requirement to Hold Capital Markets Services Licence) Regulations, Regulation 4.

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1.3 The Regulatory Framework and Regulatory Bodies

Singapore’s regulatory framework for capital markets seeks to promote a sound, stable and progressive
financial services sector through regulation and supervision. Specifically, it seeks to safeguard interests of
investors and maintain confidence and stability in the market by:
i. Keeping risks at acceptable levels to maintain both the stability of the financial system as a whole and the
soundness of individual institutions;
ii. Maintaining a safe and efficient financial market infrastructure;
iii. Ensuring fair, orderly and transparent organised markets; and
iv. Keeping customers well-informed and empowered.

To achieve these objectives, the securities and derivatives markets, in particular, are regulated by regulatory
bodies including:
• MAS;
• SGX
• SGX RegCo;
• SGX-ST;
• CDP;
• SGX-DT; and
• SGX-DC.

These regulatory bodies are responsible for originating and issuing the relevant rules and requirements
governing the trading and clearing of securities and derivatives trading, including:
• SFA and SFR;
• SGX-ST Mainboard and Catalist Rules;
• SGX-ST Rules;
• CDP Clearing Rules;
• CDP Settlement Rules;
• CDP Depository Rules;
• SGX Futures Trading Rules; and
• SGX-DC Clearing Rules.

1.3.1 Roles of the Regulatory Bodies

1.3.1.1 Monetary Authority of Singapore (MAS)

MAS was established under the MAS Act 1970, which came into force in 1972. Its mission is to promote
sustained non-inflationary economic growth, and a sound and progressive financial centre. Its functions are
to:
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i. Act as the central bank of Singapore, including the conduct of monetary policy, the issuance of currency,
the oversight of payment systems and serving as banker to and financial agent of the Government;
ii. Conduct integrated supervision of financial services and financial stability surveillance;
iii. Manage the official foreign reserves of Singapore; and
iv. Develop Singapore as an international financial centre.

MAS is responsible for, amongst others, the administration of the following legislations which are relevant to
the capital markets industry, including:
• SFA, the main legislation governing the capital markets industry in Singapore;
• Securities and Futures (Licensing and Conduct of Business) Regulations (SFR(LCB));
• Securities and Futures (Organised Markets) Regulations;
• Securities and Futures (Clearing Facilities) Regulations;
• Securities and Futures (Financial and Margin Requirements for Holders of Capital Markets Services
Licence) Regulations; Securities and Futures (Corporate Governance of Approved Exchanges, Approved
Clearing Houses and Approved Holding Companies) Regulations; and
• Financial Services and Markets Act 2022.

The SFA gives MAS a wide range of powers to enable the sound development of the capital markets. These
include (but are not limited to) the power to:
• Approve exchanges and clearing houses;
• Review any amendments to rules and regulations of the exchanges and clearing houses;
• Take disciplinary actions (such as warning, fine, reprimand, suspension of licence, revocation of licence and
issuance of prohibition order) if the licensed person contravenes any condition or restriction imposed on
its licence, or any direction issued to it by MAS under the SFA, or any provision in the SFA;
• Inspect the books of exchanges, a person operating an exempt market, clearing house, a person operating
an exempt clearing facility, a holder of a CMS licence, an exempt person or a representative; and
• Conduct investigation into alleged or suspected contravention of any provision of the SFA or written
direction issued under the SFA.

1.3.1.2 Singapore Exchange Limited (SGX)

SGX is Asia’s leading and trusted market infrastructure, operating equity, fixed income and derivatives markets
to the highest regulatory standards. As Asia’s most international, multi-asset exchange, SGX provides listing,
trading, clearing, settlement, depository and data services, with a large proportion of listed companies and
bonds originating outside of Singapore.

SGX is the world’s most liquid offshore market for the benchmark equity indices of China, India, Japan and
ASEAN and offers commodities and currency derivatives products. Headquartered in AAA-rated Singapore,
SGX is globally recognised for its risk management and clearing capabilities.

SGX offers a fully integrated value chain from trading and clearing, to settlement and depository services.

In conducting its regulation of the markets, SGX has adopted six guiding principles:
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• Guiding Principle One: Disclosure-Based Regulation – The facilitation of fair access to information for all
market users for achieving a fair, orderly, and transparent market.
• Guiding Principle Two: Comprehensive Risk Management - SGX focuses regulatory attention on the safe
and efficient operation of its clearing houses and requires a comprehensive, integrated, and reliable
approach to the management of the counterparty risks from clearing and trading members as well as
other risks within the clearing houses.
• Guiding Principle Three: Risk-Based Targeting of Regulatory Activities - SGX adopts a pragmatic risk-
based approach. Supervisory activities focused on principles one and two are tailored according to risk
profiles developed for issuer sponsors and Member firms. Resources are allocated to those matters that
it considers as posing the greatest risks to achieving a fair, orderly, and transparent market and safe and
efficient clearing outcomes.
• Guiding Principle Four: Balanced Approach to International Best Practice - SGX aims to ensure that its
rules and regulatory activities are consistent with international best practice for exchanges and clearing
houses, striking an appropriate balance between internationally recognised practices and local needs and
conditions.
• Guiding Principle Five: Transparency - SGX seeks to be open and transparent in all its regulatory
operations to the extent consistent with its statutory obligations and the public interest.
• Guiding Principle Six: SGX as a Frontline Regulator and Managing Regulatory Conflict - MAS is the
statutory regulator and has oversight over SGX’s regulatory responsibilities. SGX performs a frontline
regulatory role in maintaining fair, orderly, and transparent markets, as well as safe and efficient clearing
facilities.

SGX maintains a close collaborative relationship with other regulatory and enforcement agencies such as the
MAS, Commercial Affairs Department of the Singapore Police Force and the Accounting and Corporate
Regulatory Authority on matters such as regulatory policies, risk management, regulatory oversight, and
enforcement actions.

1.3.1.3 Singapore Exchange Securities Trading Limited

SGX-ST is a subsidiary of SGX which is incorporated under the Companies Act 1967. It undertakes the day-to-
day regulation of the securities market and administers the SGX-ST rules, which governs the access to and
conduct in the securities market of the SGX-ST. SGX-ST Members are required to adhere to the SGX-ST Rules.

SGX-ST is the only approved securities exchange in Singapore and is responsible for setting the rules and
membership and trading requirements of the exchange. SGX-ST can mete out disciplinary action for non-
compliance with any of the requirements.

SGX-ST allows companies and investors to achieve capital-raising and investment objectives through its rules,
such as the listing requirements for companies that wish to raise capital and to have their securities traded on
SGX-ST. Companies which are already listed can also raise further capital through the market and SGX-ST.

Companies can choose to be listed on the SGX Mainboard or Catalist. The Mainboard caters to the needs of
more established companies, with higher entry and listing requirements such as minimum profit and market
capitalisation levels. Catalist caters to the needs of smaller or fast-growing companies and has a different
model where companies must be brought to list by approved Sponsors via an initial public offering (IPO). For
these companies to be listed on Catalist, there is no quantitative entry criteria required by SGX. Instead,
Sponsors will decide if the listing applicant should be listed.

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The listing requirements applicable to all companies that wish to be listed on the SGX-ST platforms are covered
in the SGX-ST Listing Manual7, which contains the rules and regulations for, among others:
• Listing Requirements;
• Acquisitions;
• Realizations;
• Takeovers; and
• Timely disclosure of corporate information.

1.3.1.4 The Central Depository (Pte) Limited

CDP, established in 1987, is a wholly owned subsidiary of SGX. It provides integrated clearing, settlement and
depository facilities for the securities market, including equities, fixed income instruments and funds. CDP
principally serves the Singapore market but has links with other central depositories to support settlement of
cross-border trades.

CDP holds the book-entry securities deposited with it as a bare trustee for the collective benefit of depositors.
Securities are immobilized at CDP where ownership is transferred via book-entry. The physical certificates of
immobilized instruments are safe kept with a CDP nominated custodian bank.

All trades executed on SGX are required to be settled on T+28. Each trade is settled on a gross basis during an
end-of-day settlement run. During the run, securities are transferred from a seller's securities account to that
of the buyer and vice versa. SGX has introduced, in 2021, an Intra-day Settlement Run, to facilitate earlier
settlement of securities, thereby reducing counterparty risks in the securities clearing system.

For investors who hold direct accounts with CDP, they should ensure that their trading accounts maintained
with SGX-ST members are linked to their direct securities accounts before trading. The linkage effectively is a
standing instruction from the investor to CDP, to act upon the sole instruction of the SGX-ST member to debit
securities from and credit securities into the securities account pertaining to sell and buy contracts executed
through that trading account.

In 2008, CDP launched the Pre-Settlement Matching Service (PSMS) to replace the manual processes where
depository agents and SGX-ST members agree trade details over the phone before manually affirming the
transaction settlement details in CDP. PSMS positions Singapore securities processing in line with global
markets by introducing a straight-through-processing environment to automate the pre-settlement matching
process prior to settlement at the CDP. This automation, through PSMS, improves operational efficiency and
minimizes operational risk by eliminating errors and delays associated with manual processing and mitigates
the risk of settlement failures through the early matching of settlement instructions. Depository agents and
SGX-ST members will either upload a data file or manually input settlement instructions into PSMS without
prior communication with their settlement counterparts.

Participants can choose to settle their transaction on a Delivery-versus-Payment (DVP) or Free-of-Payment

(FOP) basis. For DVP transactions, CDP acts as central counterparty between participants and ensures there is

7 The SGX-ST Listing Manual contains the Mainboard Listing Rules and the Catalist Listing Rules. Refer to the SGX website for further
details https://rulebook.sgx.com/.
8 SGX-ST Rule 9.2 – Settlement Basis and Eligibility for Clearing by CDP. Refers to 2 exchange business days after the trade day.

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a simultaneous transfer of cash and securities. For transactions settled on a FOP basis, participants make their
money settlement without involving CDP. DVP rules govern the settlement of trades on a delivery-versus-
payment basis through CDP.

Clearing Members of CDP must adhere to the following CDP rules, where applicable:

• CDP Clearing Rules;

• CDP Settlement Rules; and

• CDP Depository Rules.

1.3.1.5 Singapore Exchange Derivatives Trading Limited (SGX-DT)

SGX-DT, established in 1978, is a wholly owned subsidiary of SGX. It carries on the business of establishing,
conducting and regulating a futures market with underlying assets including commodities and financial
instruments under the SFA.

SGX-DT lays down the rules and requirements to ensure orderly trading and settlement of futures and options
on various products, including interest rates, equity and equity indices and energy, covering major markets
such as Asia, Europe and the United States. These are contained in the Futures Trading Rules, which govern
SGX-DT Trading Members.

1.3.1.6 Singapore Exchange Derivatives Clearing Limited (SGX-DC)

SGX-DC is a wholly owned SGX subsidiary, and provides clearing for:

• Products listed and traded on SGX-DT; and

• OTC commodity and financial derivatives trades registered for clearing via the SGX Titan OTC platform.

SGX-DC is now a Qualifying Central Counterparty (Qualifying CCP). Bank members and subsidiaries of a
banking group (which are SGX-DC Members) are subject to lower capital requirement for their trade and
default fund exposures under the Basel III framework introduced by the Basel Committee on Banking
Supervision (BCBS). Similarly, this means that as an SGX-DC bank member or participant, one will benefit from
lower capital costs.

SGX-DC Clearing Members are governed by the SGX-DC Clearing Rules.

1.3.1.7 Singapore Exchange Regulation Pte Ltd (SGX RegCo)

In 2017, SGX established SGX RegCo as an independent regulatory subsidiary of SGX to enhance the
governance of SGX as a self-regulatory organisation and explicitly segregate the exchange’s regulatory
functions from its commercial and operating activities. SGX RegCo undertakes all the front-line regulatory
functions and has a separate board of directors from SGX.

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1.4 SGX Listing Framework

SGX-ST provides an avenue for companies to raise capital for their businesses. It also sets the rules for this
avenue through its listing requirements.

1.4.1 Listing Process

A company seeking listing on SGX-ST must first apply for listing to SGX-ST. Before making the application, the
company will first have to engage an adviser as the issue manager to prepare for the listing application. Such
services are usually provided by a bank or a financial institution with a CMS licence that allows it to advise on
corporate finance matters. The company then authorises the issue manager to deal with SGX-ST on its behalf.

The issue manager plays an active role in the listing process. It will gather the required information, liaise with
SGX-ST on matters relating to the application and makes the final submission. Services of legal and accounting
firms are usually engaged to oversee the legal and accounting aspects of the application, especially on the
factual and legal representation and disclaimers.

1.4.2 Initial Public Offer (IPO) Timeline

1.4.2.1 Main Board

A company seeking to list on the Main Board of the SGX-ST must appoint an accredited issue manager to act
as the sponsor for the applicant's listing on SGX-ST. The issue manager lodges the listing application and liaises
with SGX-ST on all matters relating to the listing application. There are two parts to the timeline: pre-
submission preparation, when diligence is undertaken and materially completed and post-submission
approval and listing. Prior to the submission of the full listing application, the issue manager, on behalf of the
company, may submit a pre-consultation application to SGX-ST to consult on specific issues that may materially
affect the issuer’s eligibility to list.

The submission process comprises two stages, which should be submitted sequentially to the SGX-ST:

• Section (A), which sets out general information of the company and highlights the key matters relating to
the issuer (e.g., board of directors and key management, corporate structure and business model,
regulatory compliance and historical financials) for SGX-ST's attention; and

• Section (B), which sets out additional information on the company and the invitation structure and which
should be submitted together with the full listing application (including the relevant
undertakings/confirmations required under the Listing Manual and the prospectus/shareholders' circular).

The average timeline from submission to listing approval and trading is as follows:
i. Review of Section (A) by SGX-ST – 4 to 6 weeks if there are no material issues;
ii. Review of Section (B) by SGX-ST and concurrent pre-lodgement review of the draft prospectus by the MAS
- typically 4 weeks;
iii. Research blackout (if any) – 2 weeks;
iv. Lodgement and public exposure on MAS Opera - minimum 7 calendar days;

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v. Registration and launch – 1 to 2 weeks; and

vi. Listing and trading commences.

1.4.2.2 Catalist

A company seeking to list on Catalist must appoint a full sponsor. The sponsor submits the pre-admission
notification and listing confirmation to SGX-ST, lodges the offer document with SGX-ST (acting as agent on
behalf of the MAS) on behalf of the company and liaises with SGX-ST on all matters relating to the listing. There
are two parts to the timeline: pre-submission preparation and post-submission approval and listing. Prior to
the submission of the pre-admission notification, the sponsor may consult SGX-ST to seek pre-clearance on
any material issues to reduce any delays in the processing of the pre-admission notification.

The pre-admission notification is then submitted to the SGX-ST with the full listing application (including the
relevant undertakings/confirmations required under the Listing Manual and the offer document).

The average timeline from pre-admission to listing approval and trading is as follows (refer to Figure 1.4.2):
i. SGX-ST review of the pre-admission notification – 2 weeks to 4 weeks;
ii. Lodgement and public exposure on SGX-ST’s website – 2 weeks;
iii. Registration and launch – 1 to 2 weeks; and
iv. Listing and trading commences.

Figure 1.4.2: Timeline to Launch

ii) Lodgement and Public

i) MAS or SGX-ST iii) Registration and
Exposure on Opera/ iv) Trading commences
approval Launch
SGX-ST Website

1.4.3 Listing Requirements

1.4.3.1 Methods of Listing

Primary Listing - Companies must meet SGX-ST’s initial listing requirements outlined below for either a
Mainboard or Catalist Listing. After listing, companies must comply with all SGX-ST’s continuing listing
obligations.

Secondary Listing - Companies that are already listed on an acceptable exchange (referred to as the “home
exchange”) may seek a secondary listing on SGX-ST Mainboard without having to comply with SGX-ST’s
continuing listing obligations. Secondary-listed companies must make announcement to SGX-ST and provide
all information and documents to it at the same time as they are released to the home exchange. They must
comply with all the rules of the home exchange and the laws of the jurisdiction in which the company is
incorporated.

1.4.3.2 Global Depository Receipts (GDR)

A company that is already listed on an overseas exchange must abide by the rules of its home exchange. It can
also choose to list and raise funds via GDRs on SGX-ST’s Mainboard. GDRs are specialist products offered only
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to institutional and accredited investors. GDR issuers must provide all information and documents (in English)
to SGX-ST at the same time as such information are released to the home exchange.

1.4.4 Initial Public Offering (IPO) or Introduction

A company seeking listing on SGX-ST, whether on a primary or secondary listing basis, should at the beginning
indicate its listing preference and at the point of application do the following:

i. For an IPO – The company should indicate whether it intends to issue new shares or offer existing shares
to the investing public. It should then lodge a prospectus with MAS prepared in accordance with the
relevant regulations. During the listing process, the prospectus will be subject to public comments for up
to 2 weeks.
ii. For an Introduction - If the intention is to list by way of introduction, no shares will be offered to the
investing public. This route is suitable for companies that do not require funds at the point of listing but
needs to pave the way i.e. by introducing itself in the market. An introductory document has to be
submitted to SGX-ST which is to be prepared based on the requirements in the relevant regulations. The
introductory document will not be subjected to public comments.

1.4.5 Mainboard Admission Requirements

An entity seeking to list on the Mainboard via an IPO must meet the admission requirements9 summarized in
the Table 1.4.5. Review of (i) the listing documents is done by SGX-ST; and (ii) the prospectus is done by SGX-
ST and MAS.

Table 1.4.5: Mainboard Admission Criteria

Entities intending to join SGX-ST’s Mainboard must meet one of the following
quantitative requirements:
• Minimum consolidated pre-tax profit of at least S$30 million for the latest
financial year with operating track record of at least 3 years;
• Profitable in the latest financial year, and has a market capitalization of not
less than S$150 million based on the issue price and post-invitation issued
Quantitative
share capital with operating track record of at least 3 years; or
Requirements
Operating revenue in the latest completed financial year and a market
capitalization of not less than S$300 million based on the issue price and post-
invitation issued share capital. Real Estate Investment Trusts and Business
Trusts who have met the S$300 million market capitalization test but do not
have historical financial information may apply under this rule if they are able
to demonstrate that they will generate operating revenue immediately upon
listing.
Financial Position The entity must be in a healthy financial position, having regard to whether its group
and Liquidity has a positive cash flow from operating activities.

9 Refer to SGX website: https://www.sgx.com/securities/mainboard

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Prior to listing, all debts owing to the group by its directors, substantial
shareholders, and companies controlled by the directors and substantial
shareholders must be settled.
A MOG listing aspirant unable to satisfy the Quantitative Requirements and/or the
positive cash flow requirement for listing, may list its securities if they satisfy the
following additional conditions:
• Has market capitalisation of not less than S$300 million based on the issue
price and post-invitation issued share capital; and
• Discloses its plans, milestones and capital expenditure to advance to
production stage. These plans must be substantiated by the opinion of an
Mining, Oil and Gas independent qualified person.
(MOG)
Requirements Requirement for all MOG companies:
• Have established existence of a meaningful portfolio of reserves in a defined
area, which must be substantiated by an independent qualified person’s
report;
• Have sufficient working capital for 18 months from listing; and
• Have at least one independent director with appropriate industry experience
and expertise.

• For market capitalisation < S$300 million, 25% of issued shares in the hands of
at least 500 shareholders (For market capitalisation > S$300 million,
shareholding spread varies between 12-20%); and
Shareholder Spread • At least 500 shareholders worldwide in the case of a secondary listing and
where the Exchange and the primary home exchange do not have an
established framework and arrangement to facilitate the movement of shares,
at least 500 shareholders in Singapore or 1,000 shareholders worldwide.

• At least 2 independent directors for all issuers

Independent
• For foreign issuers, there must be at least 2 Singapore resident independent
Directors
directors.

• Where an issuer satisfies the profitability test, promoters cannot sell any of
their shareholdings for 6 months after listing.
• Where an issuer satisfies the market capitalisation test, promoters cannot sell
any of their shareholdings for 6 months after listing, and 50% of their
shareholdings thereafter for the next 6 months.
Moratorium
• For Pre-IPO investors who had acquired their shares within the 12-month
period prior to IPO and hold ≥ 5% shareholding, the “profit portion” of their
shareholdings are subjected to a moratorium period of 6 months after IPO. The
profit portion is calculated by multiplying the percentage difference between
the IPO price and price paid by the investor for the shares, by the number of
shares held.

IPO Documentation Prospectus to be lodged on MAS OPERA website.

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Singapore Financial Reporting Standards (International), International Financial

Reporting Standards, or US Generally Accepted Accounting Principles10.
Accounting and
Auditing Standards The annual financial statements must be audited by certified public accountants in
accordance with Singapore Standards on Auditing, International Standards on
Auditing, or US Generally Accepted Auditing Standards.

Domicile At the discretion of the issuer.

Trading and
At the discretion of the issuer.
Reporting Currency
Business Operations No requirement for operations in Singapore.

Rules relating to disclosure of material information, periodic reporting, additional

Continuing
share issuance, corporate transactions, corporate governance guidelines, interested
Obligations
persons transaction and free float will apply.

1.4.6 Catalist Listing

1.4.6.1 Sponsorship

A company seeking a listing on Catalist can only choose the primary listing route. The company must also have
a full sponsor for the Catalist listing, who has been authorised by SGX-ST.

Full and Continuing Sponsors are authorised by SGX-ST based on stringent eligibility criteria which include
experience in corporate finance and compliance advisory work, and they are closely supervised and regulated
through the continuing obligation route. They are required to employ a minimum number of qualified
professionals who must be registered by SGX-ST as “Registered Professionals”.

Full Sponsors are responsible for the admission of listing applicants for listing on Catalist. Continuing Sponsors
are responsible for advising Catalist companies on the interpretation and compliance with their continuing
obligations under the Catalist Rules as SGX-ST no longer undertakes direct supervision over admission and
continuing obligations of companies listed on Catalist. Such admission and supervision have been transferred
to the sponsors.

A company seeking listing through Catalist must comply with listing requirements even though there is no
minimum quantitative entry criteria set by SGX-ST. The admission of the company is based on the sponsor’s
assessment of its suitability for listing. SGX-ST will normally admit a listing applicant to Catalist on receipt of
conforming documents from the Full Sponsor. However, SGX-ST may impose conditions on an admission, or
delay or refuse an admission.

A company on Catalist must engage a Continuing Sponsor on an ongoing basis for as long as they are listed on
Catalist. Continuing Sponsors take direct supervision responsibility of the company listed on Catalist, but SGX-
ST retains the power to discipline them for breaches of rules and regulations. Refer to Table 1.4.6.1 on
summary of Catalist Admission Criteria.

10
Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations, 5th Schedule, Part
9 – Financial Information, paragraph 8(a); SGX Mainboard Rule 220 – Chapter 2 Equity Securities, Part V Listing Requirements for
Foreign Issuers.
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Table 1.4.6.1: Catalist Admission Criteria

Quantitative
• No minimum quantitative criteria required by SGX-ST.
Requirements
• Have established existence of resources in a defined area, which must be
Mining, Oil and Gas substantiated by an independent qualified person’s report. The resources
(MOG) must be at least Inferred Resources (for minerals) or Contingent Resources
Requirements (for oil and gas); and
• Have sufficient working capital for 18 months from listing.

• 15% of post-invitation share capital in public hands.

Shareholder Spread
• At least 200 shareholders.

• At least 2 independent directors for all issuers.

Independent
Directors • For foreign issuers, there must be at least 1 Singapore resident independent
director.

• At the time of IPO, if promoters as a group hold more than 50% of the post-
invitation share capital, they may sell but must retain at least 50%. If they hold
less than 50% of the post-invitation share capital at IPO, they may not sell
any shares at the time of IPO.
• After IPO, promoters cannot sell any of their shareholdings for 6 months. They
may sell up to 50% of their shareholdings thereafter for the next 6 months;

Moratorium • For Pre-IPO investors who had acquired their shares within the 12- month
period prior to IPO, the “profit portion” of their shareholdings is subjected to
a moratorium period of 12 months after IPO. The profit portion is calculated
by multiplying the percentage difference between the IPO price and price paid
by the investor for the shares, by the number of shares held.
• Promoters of an MOG company are not to sell any of their shareholdings for
12 months after IPO. They may sell up to 50% of their shareholdings for the
next 6 months.

• Offer document.
IPO Documentation
• Lodged on SGX Catalodge website.

Accounting Singapore Financial Reporting Standards (International), International Financial

Standard Reporting Standards, or US Generally Accepted Accounting Principles.

Domicile At the discretion of the issuer.

Business Operations No requirement for operations in Singapore.

• Rules relating to disclosure of material information, periodic reporting,

Continuing
additional share issuance, corporate transactions, corporate governance
Obligations
guidelines, interested persons transaction and free float will apply.

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• Additional requirement to retain a Sponsor at all times will apply to Catalist

companies.

1.4.6.2 Offer Document

Before registering with Catalist, the company has to lodge an Offer Document on SGX’s Catalodge website.
The Offer Document must comply with the same disclosure requirements as a prospectus prepared in
accordance with the Securities and Futures (Offer of Investments) (Securities and Securities-based Derivatives
Contracts) Regulations. This includes the provisions relating to civil and criminal liability under the SFA.

The Offer Document is to be lodged with SGX-ST, acting as agent of MAS. The Offer Document will be posted
on the SGX’s Catalodge website for a period of at least 14 days for public comments, providing an avenue for
public to air any concerns they may have of the company and its status.

1.4.6.3 Differences between the Mainboard and Catalist Listing Requirements

The main differences between the Mainboard and Catalist Listing requirements are shown in the table below:

Table 1.4.6.3: Differences between the Mainboard and Catalist Listing Requirements

Mainboard Catalist

Target Companies Established Companies Fast Growing Companies

(Quantitative entry criteria) (No Quantitative entry criteria)

Regulatory Approach Exchange-regulated and supervised Exchange-regulated, sponsor -supervised

Review of IPOs and SGX-ST Sponsors

Post-IPO Supervision

Key Advantages to • Established Mainboard branding • Faster time to market

Companies
• Access to wider range of • Easier subsequent fundraising,
institutional investors acquisitions and disposals
• Open to more product type • Ongoing Sponsor guidance

Quantitative Yes No
admission criteria
For IPOs For IPOs
Maximum thresholds
• There is no maximum allocation
for fund-raising • Nil
to retail investors but a
minimum of 5% of the number, For Secondary Offerings
or S$50 million in value, of the • Non-Pro-rata: 50% to 100%
securities offered, whichever is
lower, must be allocated to the • Pro-rata: 100%
public subscription tranche11.

11 SGX Mainboard Rule 233A (1) – Chapter 2 Equity Securities, Part IX Methods of Offering, Public Subscription Tranche.

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Mainboard Catalist
For Secondary Offerings
• Non-pro-rata (not offered to
existing shareholders): 20%
• Pro-rata (offered to existing
shareholders in proportion to
their shareholdings): 50%

Thresholds for 20% or more of ratios calculated in • Acquisition: 75% or more of

Shareholder Approval comparison to specified Benchmarks
for Acquisitions and benchmarks (Benchmarks)
• Disposal: 50% or more of Benchmark
Disposals
• Fundamental change in business

1.4.7 Mainboard and Catalist Continuing Listing Obligations

Both methods of listing require similar continuing listing obligations.

1.4.8 Roles and Responsibilities of the Sponsor and SGX-ST with regard to Catalist

1.4.8.1 Sponsors’ Roles and Responsibilities

SGX-ST may authorise a sponsor to act as a full sponsor or continuing sponsor12. Full sponsors may undertake
activities relating to bringing an applicant to list on Catalist, including initial public offerings (IPO), and post-
IPO continuing sponsorship. Continuing sponsors only undertake sponsorship of issuers already listed on
Catalist.

The main obligations are summarized below and include:

i. Ensuring that it continues to fulfil the eligibility criteria or conditions imposed by SGX-ST;
ii. Seeking SGX-ST’s advice if a situation may adversely affect the reputation of the Exchange or the integrity
of the market;
iii. Seeking SGX-ST’s advice about the application or interpretations of rules;
iv. Notifying SGX-ST promptly on the employment of new professionals to be registered and the resignation
of registered professionals;
v. Having adequate systems and resources to discharge its obligations including having sufficient number of
registered professionals who are “Fit and Proper”;
vi. Acting professionally, transparently and efficiently in its dealings with the listing applicants or companies
as follows:
a. Exercising due care and professionalism;
b. Maintaining regular contact with the companies;

12 SGX-ST Catalist Rule 203 – Chapter 2 Sponsors, Part I Scope of Chapter.

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c. Seeking assistance of other appropriately qualified and suitable professionals such as specialist in law
and accounting whilst retaining its overall management and responsibility of the activity;
d. Avoiding conflict of interest situations and remaining independent in its relations with the listing
applicant; and
e. Accepting sponsorship of companies that are willing to submit to SGX-ST’s rules and thus allowing
itself to discharge its obligations under the rules.

1.4.8.2 SGX’s Role and Responsibilities

SGX-ST’s role is to lay down the rules and review the performance, processes and controls of the sponsors
against these rules. In carrying out their reviews, they ascertain:
i. The quality and due diligence standards of the sponsor’s assessment process;
ii. The quality of its continuing activities; and
iii. Whether there are breaches of the rules.

1.4.8.3 SGX’s Actions for Non-Compliance on Sponsors and Registered Professionals

In the event of breaches of the rules by the sponsors or its registered professionals, SGX-ST can take the
following actions:
i. Reprimand the sponsor or registered professional privately or publicly;
ii. Require the sponsor or registered professional to attend an education program focused on complying with
the rules;
iii. Require rectification measures to be taken by the sponsor or registered professional;
iv. Impose conditions and restrictions on the activities of the sponsor or registered professional; or
v. Suspend the sponsor or registered professional from carrying out some or all its activities for a period of
time with the suspension possibly being announced to the market.

1.4.9 Explanation of Terms

The term “Listing” means being listed on the official boards of SGX-ST and issuers “listed” will appear on the
official list of the SGX-ST.

“Quotation” refers to companies that are quoted, may be dealt with over-the-counter (OTC) and may not be
listed on the SGX-ST’s official list. In such instances where companies are quoted but not listed, SGX-ST acts
only as a platform provider for the trades and prices of these companies are quoted on the GlobalQuote
platform. These companies are not required to meet listing requirements or continuing listing requirements.

1.4.10 Access to Material Information about Listed Issuers

Listed issuers must announce all material information which investors would reasonably require to have in
order to make informed decisions on listed securities. They are to do this through the SGXNet system which is
accessible by the public on SGX website https://www.sgx.com/.

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Such information includes information about its subsidiaries and associated companies which are necessary
to be reported to avoid the establishment of a false market or would be likely to materially affect the price or
value of the listed company’s shares.

Apart from this general obligation to announce all material information, listed issuers are required to make
specific disclosures, for example in the case of a major acquisition or a major disposal.

1.4.11 Shareholders’ Rights to Vote at Meetings

Notices convening meeting shall specify the place, day and hour of the meeting and a meeting to consider
special businesses shall be accompanied by a statement regarding the effect of any proposed resolution in
respect of such businesses. Notices shall be given to all shareholders at least 14 days before the meeting for
ordinary resolutions and 21 days for special resolutions. At least 14 days’ notice of every such meeting shall
be given by advertisement in the daily press. Listed issuers are required to hold all general meetings in
Singapore, unless prohibited by laws and regulations in the jurisdiction of incorporation.

A holder of ordinary shares shall be entitled to be present and to vote at any general meeting. Shareholders
who are unable to attend a shareholders’ meeting may appoint a proxy to attend and vote on its behalf. All
resolutions at general meetings shall be voted by poll.

1.4.12 SGX’s Actions on Breaches whether on Mainboard or Catalist 13

Breaches of the SGX-ST Mainboard Rules or Catalist Rules may be investigated by SGX-ST and further
disciplinary actions may be brought after a disciplinary hearing process. The enforcement actions that SGX-ST
may take include but are not limited to the following:
i. issuing a private warning to an issuer, its directors, executive officers and issue managers (Relevant
Persons);
ii. offering a composition sum to an issuer;
iii. requiring an issuer to implement an effective education or compliance programme or undertake an
independent review of internal controls and processes;
iv. requiring a Relevant Person to perform remedial actions to rectify the consequences of contraventions;
v. suspending or restricting the activities of an issue manager if the integrity of the market may be
adversely affected or if the Exchange thinks it necessary in the interests of the public or for the
protection of investors;
vi. halting or suspending trading of listed securities of an issuer;
vii. removing an issuer from the Official List; and/or
viii. imposing any other requirements on a Relevant Person which the Exchange considers appropriate.

13 SGX Mainboard Rule 1405(3)(c) – Chapter 14 Disciplinary and Appeals Procedures, and Enforcement Powers of the Exchange, Part
III Administrative and Enforcement Powers of the Exchange.

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The Disciplinary Committee may impose a range of sanctions against a Relevant Person, including issuing
public reprimands against a Relevant Person14.

1.4.13 Listing of Debt Securities on SGX-ST

Besides listing on SGX-ST Mainboard and Catalist, entities can list debt securities on SGX-ST, which gives them
access to the debt capital markets in Singapore. Types of debt securities listed on SGX-ST include fixed and
floating-rate bonds, convertible and exchangeable bonds, covered bonds, asset-backed securities, loan
participation notes, and hybrid capital securities (e.g. preference shares).

The listing of debt securities is similarly subject to listing requirements regarding the issuer’s profile, trustee
and trust deed, offering memorandum, listing fees and continuing obligations15.

1.4.14 Listing of Special Purpose Acquisition Companies (SPACS) on SGX-ST

Early 2022, SGX introduced the Special Purpose Acquisition Companies (SPACs) Framework to introduce a new
listing vehicle to the Singapore market. SPACs are formed to raise capital through IPOs for the sole purpose of
acquiring operating business(es) or asset(s) (i.e. business combination). Such acquisitions may be in the form
of a merger, share exchange or other similar business combination methods. Prior to a business combination,
SPACs are listed investment vehicles with no prior operating history and revenue-generating business/asset
at IPO. Unlike traditional IPOs, SPAC listings have a shorter time to market due to the absence of business
fundamental operations and financials at IPO. SPACs have no historical financial results to disclose, assets
description, and minimal business-related risks at IPO. More information on a SPAC’s target assets/business
can be found upon announcement of a proposed business combination agreement (i.e. a proposal to acquire
or combine with an operating company).

14SGX Mainboard Rule 1417(2) – Chapter 14 Disciplinary and Appeals Procedures, and Enforcement Powers of the Exchange, Part IV
Disciplinary Proceedings, The written grounds of the Disciplinary Committee and sanctions.
15 Refer to SGX website for further info: https://www.sgx.com/fixed-income/listing-debt-securities.

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Chapter 2:
Licensing and Business Operations
Learning Objectives
The candidate should be able to understand:
✓ The regulatory requirements for the grant of a Capital Markets Services licence.

✓ The SGX-ST Rules governing trading practices and conduct.

✓ The requirements for notification as appointed representatives under MAS’ Representative
Notification Framework.

✓ The requirements for registration with SGX-ST and the obligations of Representatives.

✓ The regulations and guidelines for advertising.

✓ The regulations and guidelines for opening of customer trading accounts.

✓ The laws and regulations for safeguarding the confidentiality of customer information.

✓ The rules and regulations on managing customer trading accounts.

✓ The rules and regulations on record keeping, audit and the protection of customers’ moneys and assets.

2.1 Introduction

This Chapter focuses on the regulatory requirements16 governing the business operations of Capital Markets
Services (CMS) licence holders and Individual Representatives.

CMS licence holders are licensed and regulated under the SFA. A corporation may make an application for a
CMS licence17 to carry on business in one or more of the regulated activities as specified in the SFA. Individuals
acting for CMS licence holders to carry out the regulated activities are required to be appointed, provisional
or temporary representatives under the SFA, unless otherwise exempted18.

MAS supervises CMS licence holders and their representatives via a framework of legal and regulatory
requirements to ensure that they are well-managed and resilient against systemic risks.

16 These include transitional requirements that could apply to obligations specified in this chapter.
17 SFA Section 86(1) - Grant of CMS Licence.
18 SFA Section 99B – Acting as representative.

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Confidence and stability are core to an efficient and well-functioning capital markets. Therefore, in addition
to requiring CMS licence holders to be licensed, MAS requires them to conduct business professionally and act
responsibly by having adequate resources, tools, systems, processes and controls in place to provide efficient
and quality services. CMS licence holders must also ensure that their representatives are properly trained and
competent to give fair and professional advice to their clients.

2.2 Grant of Capital Markets Services Licence

A CMS licence will only be granted to a corporation. A corporation proposing to conduct regulated activities
under the SFA would need to hold a CMS licence under the SFA unless it is exempted under the Third
Schedule19 to the SFA or is an exempt institution20.

The minimum licensing admission criteria for corporations applying for a CMS licence ensure that only
financially sound and reputable corporations that are prudently managed and directed by officers who are
competent and have integrity, are granted a CMS licence.

2.2.1 Base Capital Requirements

A corporation granted a CMS licence needs to satisfy the Base Capital Requirements (BCR)21 for its proposed
regulated activities22. The BCR for dealing in capital markets products that are securities, units in Collective
Investment Scheme (CIS) and/or exchange-traded derivatives are in Table 2.2.1:

Table 2.2.1 – Entity Classification and Base Capital Requirements

Entity classification BCR (S$)

Clearing member23 5 million
Trading member24 1 million
Non-member25 1 million
Introducing broker26 500,000
Others27 50,000

19 SFA Third Schedule – Specified Persons.

20 SFA Section 99 - Exemptions from requirement to hold CMS Licence; SFR (LCB) - Second Schedule (Exemptions from Section 82(1)
and 99B(1) of the Act; SFR (Exemption from Requirement to Hold CMS Licence) Regulations.
21 SFR (Financial and Margin Requirements for Holders of CMS Licences) First Schedule – Base capital requirements; MAS Guidelines

on Criteria for the Grant of a CMS licence other than for Fund Management and Real Estate Investment Trust Management (SFA04-
G01) - Annex 1(AA).
22 Where more than one BCR is applicable, the amount of BCR required shall be the highest of the applicable BCRs.
23 Refers to a corporation which is a member of an approved clearing house.
24 Refers to a corporation (not being an introducing broker or a corporation who qualifies for S$50,000 base capital under table AA)

which is a member of an approved exchange.

25 Refers to a corporation (not being an introducing broker or a corporation who qualifies for S$50,000 base capital under table AA)

which is not a member of an approved exchange.

26 Refers to a corporation that does not carry any customer’s positions in those capital markets products, margins or accounts in its

own books, and either (i) carries on the business only of soliciting or accepting orders for the purchase or sale of any of those capital
markets products from any customer; or (ii) accepts money or assets from any customer as settlement of, or a margin for, or to
guarantee or secure, any contract for the purchase or sale of those capital markets products by that customer.
27 Refers to a corporation which deals in securities, units in a collective investment scheme or exchange-traded derivatives contracts

which (i) does not carry any customer’s positions in those capital markets products, margins or accounts in its own books; (ii) deals
in those capital markets products only with accredited investors, expert investors or institutional investors; (iii) does not accept
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CMS licence holders who are Members of any Approved Exchange are required to satisfy the higher of the
base capital requirements as stipulated in (i) the First Schedule of the SFR(FMR) , and (ii) the rules of the
respective Approved Exchange in relation to the relevant class of membership.

2.2.2 General Criteria for CMS Licence Holders28

The applicant should be primarily engaged in the business of conducting one or more of the regulated activities
specified in the Second Schedule to the SFA and be operating out of a physical office in Singapore. The
applicant must satisfy that it will discharge its duties efficiently, honestly and fairly.

MAS would consider whether the applicant is a reputable entity that has an established track record in the
proposed activity to be conducted in Singapore or in a related field, for at least the past 5 years. The applicant
and its holding company or related corporation should be subjected to proper supervision by its home
regulatory authority, where applicable. In addition, the applicant, its officers, employees, representatives and
substantial shareholders must be “fit and proper” persons in accordance with the MAS Guidelines on Fit and
Proper Criteria (FSG-G01)29.

2.2.3 Criteria for the Board of Directors, Chief Executive Officer and Representatives of the
Applicant30

The board of directors and senior management of the applicant should uphold good corporate governance
standards and practices in directing and managing the applicant’s business. The board of directors should
comprise a minimum of 2 members, at least one of whom is resident in Singapore. The Chief Executive Officer
(CEO)31 of the applicant should also be a resident in Singapore.

The applicant must obtain MAS’ approval before appointing a person as:
i. its CEO;
ii. in the case of a locally incorporated company, its director who resides in Singapore or is to reside in
Singapore; or
iii. in the case of a foreign company, its director who resides in Singapore or is to reside in Singapore;
iv. its director who is directly responsible for its business in Singapore.

The applicant must also obtain MAS’ approval to change the nature of the appointment of a person as a
director from one that is non-executive to one that is executive32. The applicant should also inform MAS of
any person ceasing to hold office as its CEO or director.

money or assets from any customer as settlement of, or as a margin for, or to guarantee or secure, any contract for the purchase or
sale of those capital markets products by that customer; and (iv) does not enter into any transaction with any customer to deal in
those capital markets products as principal.
28 MAS Guidelines on Criteria for the Grant of a CMS Licence other than for Fund Management and Real Estate Investment Trust

Management (SFA04-G01), Paras 3.1 to 3.8.

29 MAS Guidelines on Fit and Proper Criteria (FSG-G01).
30 MAS Guidelines on Criteria for the Grant of a CMS Licence other than for Fund Management and Real Estate Investment Trust

Management (SFA04-G01), paragraphs 3.9 to 3.15.

31 SFA Section 2(1) – Interpretation.
32 SFR (LCB) Regulation 12(1) – Application for appointment of chief executive officer and director.

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In addition, the applicant is required to employ at least 2 full time individuals in respect of each regulated
activity for which the corporation is seeking to be licensed to conduct. These individuals must be appointed as
representatives for the relevant regulated activity as required under the SFA.

2.2.4 Notification of Change of Particulars

A CMS licence holder is required to inform MAS within 14 days of any change in particulars if it ceases to carry
on business in the regulated activity it is licensed for, or if there is a change in the CMS licence holder’s
records33 as follows:
1. The CMS licence holder’s name;
2. The address of the principal place of business in respect of the licensed activity;
3. The regulated activity or activities, or where such activity concerns any type or types of capital markets
products, to which its licence relates;
4. Where the business is carried on under a name or style other than the name of the CMS licence or the
name or style under which the business is carried on; and
5. Such other information as may be prescribed.

These changes must be reported within 14 days as the information is required by MAS for publication and
communication to the investing community and market participants to enable them to assess the impact of
the changes.

2.2.5 Lapsing, Revocation and Suspension of CMS Licence

A CMS licence will lapse if the CMS licence holder is wound up or dissolved, whether in Singapore or elsewhere
or upon any other occurrence that may be prescribed by the MAS. MAS may also revoke or suspend a CMS
licence if, among other things, it has reasons to believe that the CMS licence holder or its representatives or
officers had failed to discharge its/his duties efficiently, honestly and fairly, or had not acted in the best interest
of its/his customers or had breached the conditions imposed on their licences34.

Heavy financial penalties are imposed if a CMS licence holder continues to carry on business after its licence
had lapsed or been suspended or revoked. This is to ensure that participants are not misled into dealing with
errant CMS licence holders which may result in financial losses or credit issues for the unknowing participants.

2.2.6 Approval of CEOs and Directors

To ensure that CMS licence holders are soundly and prudently managed or directed by “fit and proper”
persons, CMS licence holders are also required to seek MAS’ prior approval for the appointment of a CEO or
director35. This prevents individuals who are not of good standing from being appointed, especially if they have
been convicted in Singapore or elsewhere of dishonesty or fraud or are undischarged bankrupts, have entered
into a compromise or scheme of arrangement with creditors or have unsatisfied judgement debts.

33 SFA Section 94(1) - Records of holders of CMS Licence.

34 SFA Section 95 - Lapsing, Revocation and Suspension of CMS Licence.
35 SFA Section 96(1) - Approval of Chief Executive Officer and Director of Holder of CMS licence; SFR (LCB) Regulations, Regulation 12 -

Application for Appointment of Chief Executive Officer and Director.

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This expectation of CMS licence holders to meet the “fit and proper” criteria requirements continues even
after a CMS licence has been granted and is monitored on a continuing basis. MAS has the power of authority
to direct the CMS licence holder to remove its CEO or directors if they fail to meet the “fit and proper” criteria,
e.g. if they had been convicted of an offence involving fraud or dishonesty, is an undischarged bankrupt, or
had failed to discharge their duties of office in ensuring the CMS licence holder’s compliance with its duties
set out in Regulations 13A of the Securities and Futures (Licensing and Conduct of Business Regulations
(SFR(LCB)).

2.2.7 Duties of CMS Licence Holders

CMS licence holders must comply with all laws and rules governing their operations. To provide reasonable
assurance on the safety, effectiveness and efficiency of their business operations, CMS licence holders must
institute adequate internal controls commensurate with the nature, scale and complexity of the business36.
These include:
1. Implementing effective written policies on all operational areas, including financial policies, accounting
and internal controls, and internal audit and complying with these policies ;
2. Putting in place compliance functions and arrangements, including specifying the roles and
responsibilities of officers and employees to ensure compliance with all applicable laws, codes of conduct
and standards of good practice to protect investors and reduce the CMS licence holder’s risk of incurring
legal or regulatory sanctions that may be imposed by MAS or any other public authority, financial loss,
and reputational damage;
3. Identifying, addressing and monitoring the risks associated with the trading or business activities;
4. Ensuring that their business activities are subject to adequate internal audit;
5. Ensuring that internal audits of the CMS licence holder or holding company (if any) include inquiring into
the CMS licence holder’s compliance with all relevant laws and all relevant business rules of any approved
exchange and approved clearing house;
6. Setting out in writing the limits of discretionary powers of each officer, committee or sub-committee or
other group of persons empowered to commit the CMS licence holder to any financial undertaking or to
expose it to any business risk (including any financial, operational or reputational risk);
7. Keeping a written record of the steps taken by the CMS licence holder to monitor compliance with its
policies, accounting and operating procedures, and the limits on discretionary powers;
8. Ensuring accuracy, correctness and completeness of any report, book or statement submitted by the CMS
licence holder to its head office (if any) or to MAS; and
9. Ensuring effective control and segregation of duties to mitigate potential conflicts of interest that may
arise from the CMS licence holder’s operations.

CMS licence holders also have the responsibility to implement clearly defined policies and procedures for
ensuring that only qualified persons are appointed as representatives for conducting regulated activities. CMS
licence holders must ensure that their representatives pass the requisite CMFAS examinations or are
exempted from the examinations before registering them as representatives. They are required to maintain a
register which includes information on the type of regulated activities conducted by representatives, the date
on which its representatives completed the applicable examinations or non-examinable courses and the basis
for exemption if a representative is not required to pass a certain module of the CMFAS examination.

36 SFR (LCB) Regulations, Regulation 13 - Duties of Holder of CMS Licence.

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CMS licence holders must also ensure that independent and rigorous due diligence checks are conducted to
ensure that representatives meet “fit and proper” criteria. They have to file a “Report on Misconduct of
Representative” if any of their representatives fail to meet the “fit and proper” criteria or have committed acts
relating to market misconduct within 14 days after the discovery of the misconduct37.

CMS licence holders who fail to comply with their prescribed duties will be guilty of an offence which is
punishable with a fine.

2.2.8 Trading Practices and Conduct

CMS licence holders and their representatives who are registered with SGX-ST as Trading Members and
Representatives respectively, must adhere to SGX-ST Rules governing trading practices and conduct.

2.2.8.1 Acting as Principal to Customer38

A Trading Member and its representative must ensure that they inform their customer, who is not a holder of
a CMS licence, beforehand if they are trading as principal39, and not as agent, with the customer. Any contract
notes relating to the transaction must show that the Trading Member and its representative had acted as
principal.

2.2.8.2 Acting as Agent40

When acting as an agent in the execution of a customer’s order, a Trading Member and its representative
must ensure that they:
i. Carry out the customer’s instructions;
ii. Exercise skill, care and diligence;
iii. Act in good faith;
iv. Act in the best interest of customers, and comply with any obligation for best execution as set out in the
applicable laws and regulations (refer to Section 2.2.8.11);
v. Disclose all circumstances and risks that could reasonably be expected to affect a customer’s decision, if
asked by a customer;
vi. Inform the customer of the current best bid and offer prices on the Trading System, if asked by the
customer;
vii. Disclose the commission and any benefit directly or indirectly receivable on the transaction;
viii. Do not enter into a transaction that may conflict with a duty to the customer, unless the customer is
informed and consents to the transaction; and
ix. Do not disclose a customer’s order unless:
(a) The prior written consent of the customer for the disclosure of the information is obtained;
(b) The disclosure is for the effective execution of the customer’s order;

37 MAS Notice on Reporting of Misconduct of Representatives by Holders of CMS Licence and Exempt Financial Institutions (SFA 04-
N11).
38 SGX-ST Rule 5.4 - Acting as Principal to Customer.
39 As defined under SFR (LCB) Regulations, Regulation 47B – Dealing in Securities as Principal.
40 SGX-ST Rule 5.5 - Acting as Agent to Customer.

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(c) The disclosure is necessary for the risk management or operations of the trading member if these
functions have been outsourced by the Trading Member; or
(d) The disclosure is required or permitted under the applicable laws or under SGX-ST Rules; and
(e) Ensures that the person to whom it discloses the customer’s order maintains confidentiality of such
information.

2.2.8.3 Separation of Customer and Proprietary Trading Activities

Trading Members must have procedures to prevent any conflict of interest between their customers’ trading
activities and their own proprietary trading activities41.

2.2.8.4 Precedence of Customers Orders

A Trading Member or its Representative must not deal in securities for his own account42 or for a Prescribed
Person’s43 account if the Representative has an unexecuted order on the same terms as a customer44.

This rule will not apply under the following circumstances:

i. The Trading Member or Representative does not have access to customer’s order flow information while
executing for his own accounts or for the Prescribed Person’s account;
ii. The customer has prescribed that the order be executed under specified conditions and the Trading
Member or Representative is unable to execute the order by reason of those conditions; or
iii. The transaction is entered into in circumstances prescribed by SGX-ST.

2.2.8.5 Arrangement with Customers45

A Trading Member or its Representative must not:

i. Accept a share in the profits of a customer’s account or have any arrangement with a customer to share
in the profits of the customer’s account;
ii. Have any arrangement with a third party to allocate profits or losses to a customer’s account carried on
the books of the Trading Member; or
iii. Lead a customer to believe that the customer will not suffer loss as a result of opening an account or
dealings.

41 SGX-ST Rule 5.6.1 - Separation of Customer and Proprietary Trading Activities.

42 “Own account” means an account in which the Trading Member or the Trading Representative has a beneficial interest in.
43 SGX-ST Rule 5.7.2 Precedence of Customer Orders, where “Prescribed Person” means:

a. The Trading Representative’s Trading Member;

b. A director of the Trading Member;
c. An employee, Trading Representative or agent of the Trading Member;
d. A person, a group of persons, a corporation or a group of corporations, or family trusts, whom the Trading Member, or any
director, officer, Trading Representative, employee or agent of the Trading Member is associated with or connected to.
44 SGX-ST Rule 5.7.1 – Precedence of Customer Orders.
45 SGX-ST Rule 5.8.1 – Arrangement with Customers.

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2.2.8.6 Management of Customers’ Margins by Trading Members46

Where the Trading Member collects margins from the customer in connection with trades executed on SGX-
ST, the following shall apply:
i. Trading Members may impose margin requirements, hair-cut rates or discounts, payment periods for
customers to deposit collateral, valuations of positions and collateral, and making calls for additional
margins, as it sees fit; and
ii. Where a customer fails to meet a margin call, the Trading Member shall have the discretion to take such
action as it may deem appropriate, without giving notice to the customer, to reduce its exposures to the
customer. Such actions may include liquidating all or any part of the customer’s collateral deposited with
the Trading Member or taking action to liquidate or offset all or any part of the customer’s positions. SGX-
ST may also order the Trading Member to immediately take such action to offset all or part of the positions
of the customer to rectify the deficiency.

2.2.8.7 Trading Authority

Before accepting any orders for a customer’s account from a third party, a Trading Member must obtain
written authorisation from the customer authorising the third party to trade for the customer’s account47.

2.2.8.8 Control of Operations48

A Trading Member must have processes in place to minimise and manage any conflicts of interest, including
but not limited to separating its front and back-office functions.

2.2.8.9 Trading by Employees and Agents49

A Trading Member must have in place procedures to:

i. Ensure that its Directors, Officers, Representatives, employees and agents who are privy to confidential
information relating to dealing in securities or futures contracts do not use such information to trade for
their own benefit.

ii. Monitor the trading activities of its Directors, Officers, Representatives, employees and agents, whether
those trading activities are conducted through the Trading Member or another Trading Member.

This Rule does not require a Trading Member to approve remisiers' personal trades. However, as a good
control measure, Trading Members should conduct more frequent reviews of the trading activities of its
remisiers. This is also in line with SGX-ST Rule 4.19.2 which requires a Trading Member to have in place
procedures to monitor the trading activities of its remisiers, amongst other persons.

The frequency of these reviews should be conducted at a level where the Trading Member is confident that
its remisiers’ trading activities are above board.

46 SGX-ST Rule 5.9 – Customer Margin Management for Trading Members.

47 SGX-ST Rule 4.22 - Trading Authority.
48 SGX-ST Rule 4.9.3 – Control of Operations.
49 SGX-ST Rule 4.19– Trading by Employees and Agents.

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2.2.8.10 Compliance Review

A Trading Member must carry out checks from time to time to ensure its and its Directors’, Officers’,
Representatives’, employees’ and agents’ compliance with the regulatory requirements of MAS or any
relevant regulatory authority, SGX-ST rules, any approval conditions and its policies and procedures. The
checks must be carried out by internal audit or compliance department or a person whose reporting line is
independent of dealing, sales and operations50.

2.2.8.11 Best Execution Requirements

MAS has issued a Notice in September 2020 together with accompanying guidance51 on best execution
requirements for financial institutions including CMS licence holders. A CMS licence holder which places
and/or executes customers’ orders for capital markets products must, in a manner that is commensurate with
the nature, scale and complexity of its business, implement written policies and procedures to deal with:

i. customers’ orders on the best available terms; and

ii. comparable customers’ orders in accordance with the time of receipt of such orders.

To achieve the best available terms for customers’ orders, the CMS licence holder should consider different
factors holistically, including but not limited to price, costs, speed and likelihood of execution and settlement,
size and nature of the customer’s order, where appropriate. The relative importance of the factors should
consider the circumstances of the order and type of capital markets product. Please refer to Section 6.5 for
further discussion on Payment for Order Flow (PFOF) in placing and/or executing customers’ orders.

The CMS licence holder should monitor the effectiveness of its best execution policies and procedures. It
should also provide adequate disclosure to customers on such policies in a clear and easily understood
manner.

2.2.8.12 Opt-in Framework for Accredited Investors52

A person who satisfies the accredited investor thresholds under the SFA may only be treated as an accredited
investor if he opts in to being treated as such. An accredited investor may also opt out of being treated as an
accredited investor (and instead opt to be treated as a retail investor) at any time.

A CMS licence holder must provide the potential accredited investor with a statement that it has assessed the
investor to be an accredited investor, give a prescribed warning of the risks involved53 and sufficient
information to allow the investor to make an informed decision, and request for the investor’s consent to be
treated as an accredited investor. The investor may at any time withdraw his or her consent in this regard.

It should be noted that the accredited investor status of a customer has a material impact on the manner in
which a CMS licence holder or a representative may deal with the customer. This includes the level of
disclosure required, the instruments that the customer may trade, and the applicability of other exemptions
from conduct of business requirements.

50 SGX-ST Rule 4.7 - Compliance Review.

51
MAS Notice on Execution of Customers’ Orders (SFA 04-N16), and MAS Guidelines to MAS Notice SFA 04-N16. The MAS Notice and
Guidance were issued on 3 September 2020 and took effect on 3 March 2022.
52 Securities and Futures (Classes of Investors) Regulations 2018, Regulation 3.
53 Securities and Futures (Classes of Investors) Regulations 2018, First Schedule.

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2.3 Registration of Representatives

Individuals intending to conduct any regulated activity under the SFA must be an appointed representative,
temporary representative54 or provisional representative55 in respect of that type of regulated activity. They
can only commence the regulated activities after they have satisfied the competency requirements for that
type of regulated activity under the SFA (refer to Section 2.3.2) and their names have been entered into the
Public Register of Representatives on MAS’ website, where applicable (refer to Section 2.3.5.1).

CMS licence holders should ensure that they do not permit any individuals to conduct any regulated activities
under the SFA if they are not notified as appointed, temporary or provisional representatives under the SFA
or are otherwise exempted56.

SGX-ST Rules also require SGX-ST Members to ensure that their representatives who deal in securities are
registered under the SFA and to register them as Representatives with SGX-ST, unless exempted by SGX-ST57.
Upon registration, a Representative shall always comply with the SGX-ST Rules and continue to satisfy the
registration criteria and any conditions or restrictions imposed by SGX-ST from time to time.

Any person who carries out regulated activities without being registered with MAS will be guilty of an offence
if convicted and may be subject to penalties. The SGX-ST trading member may also be subject to sanction
under the SGX-ST Rules for failure to register its representatives with SGX-ST.

2.3.1 Acting for One Principal

A representative of a CMS licence holder can act for only one principal unless he has the approval of MAS to
act for more than one principal, or if the principals are related corporations58. MAS may require a
representative who is applying to act for more than one principal to furnish relevant information or documents
to support the application.

SGX-ST Rules also stipulate that a Representative must act for only one Trading Member unless exempted by
SGX-ST59.

The objectives of the one-representative-one-principal rule are two-fold:

54 Temporary representatives are appointed to conduct regulated activities on a short-term basis. They are eligible to be appointed for
a total of 6 months within any 24-month period, with each appointment not lasting more than 3 months. In addition to education
and work experience-related admission criteria, they must be an employee of a related entity of the principal and must be currently
licensed, authorised or otherwise regulated for that activity in an overseas jurisdiction with a regulatory regime that is comparable
to that of Singapore. Refer to the Frequently Asked Questions on Licensing and Business Conduct (Other than for Fund
Management Companies) under the SFA.
55 Provisional representatives are given a grace period of three months to complete the requisite examinations applicable to appointed

representatives. During the grace period, they are allowed to conduct regulated activities. In addition to educational and work
experience-related admission criteria, (including 3 years of relevant work experience), provisional representatives must be
currently or previously licensed, authorised or otherwise regulated for a continuous period of at least 12 months (and not more
than 12 months ago) for the relevant activity in an overseas jurisdiction with a regulatory regime that is comparable to that of
Singapore. Refer to the Frequently Asked Questions on Licensing and Business Conduct (Other than for Fund Management
Companies) under the SFA..
56 SFA Section 99B (3) - Acting as Representative.
57 SGX-ST Rule 2.8.1 – Appointment and Registration of Trading Representatives.
58 SFA Section 99J - Representative to Act for Only One Principal.
59 SGX-ST Rule 2.8.7 - Appointment and Registration of Trading Representatives.

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1. To provide clarity to investors on the status of the representatives, the principals they represent, and
more importantly, where responsibility rests for complaints and redress; and
2. To ensure that principals closely monitor and supervise their representatives at all times.

2.3.2 Minimum Entry and Examination Requirements

All appointed representatives who represent CMS licence holders must meet minimum competency
requirements60.

To be eligible for registration as a Representative, an individual must fulfil all the following conditions:
1. Be at least 21 years old;
2. Has a minimum education level equivalent to:
• At least 4 GCE O-Level credit passes; or
• At least 2 GCE O-Level credit passes if he has 3 continuous years of relevant working experience over
the last 5 years (only applicable to individuals who sat for the O Levels in or before 1980);
3. Has satisfied the CMFAS examination requirements for those regulated activities he will deal in61; and
4. Be a fit and proper person62, which includes:
• Possessing qualities of honesty, integrity and sound reputation;
• Competence and capability; and
• Financial soundness, e.g. not an undischarged bankrupt, whether in or out of Singapore.

Please refer to Appendix A of the study guide for an extract of the MAS Guidelines on Fit and Proper Criteria,
which set out guidance on the factors to be considered in assessing fitness and propriety.

2.3.3 Due Diligence Checks

CMS licence holders are expected to conduct rigorous and independent checks on the fitness and propriety of
their representatives as the onus is on them to establish that their representatives are fit and proper persons.
Prior to appointing an individual as its representative, the CMS licence holder is expected to carry out the
following due diligence checks on the proposed representative63:
1. Probity checks on representative’s identity by obtaining a copy of his current identity documentation (e.g.
National Registration Identity Card, Foreign Identification Number or Passport) and verify his identity. If
the proposed representative is a foreigner, the CMS licence holder is expected to verify that he has the
relevant employment pass or has sought approval from the relevant authorities to work in Singapore.
2. Probity checks of representative’s past records which includes conducting reference checks with the
proposed representative’s previous employers to confirm that he has not been dismissed or asked to
resign, and to ask if he has any material adverse record taken by the previous employer. CMS licence

60 MAS Notice on Competency Requirements for Representatives of Holders of Capital Markets Services Licence and Exempt Financial
Institutions (SFA 04-N22).
61 Refer to SFA 04-N22 for list of required CMFAS examinations.
62 Refer to MAS Guidelines on Fit and Proper Criteria (FSG-G01).
63 MAS Circular on Due Diligence Checks and Documentation in Respect of the Appointment of Appointed, Provisional and Temporary

Representatives (CMI 01/2011).

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holders are also expected to check the Public Register of Representatives (refer to Section 2.3.5.1) on
MAS website and conduct probity searches, including but not limited to publicly available registers
provided by enforcement and regulatory agencies, self-regulatory organisations, and professional body
or association, to verify the proposed representative’s past records of employment and regulatory status,
including any past criminal or disciplinary records under any law or rule in any jurisdictions.
3. Probity checks on the representative’s financial status. At a minimum, the CMS licence holder should
obtain the proposed representative’s records from the Ministry of Law’s Insolvency and Public Trustee’s
Office Online Portal to ensure that he is not an undischarged bankrupt. If the proposed representative
was self-employed, the CMS licence holder should obtain the individual’s records from the CPF Board to
verify that he is not in arrears of his contributions to the CPF Board as required under the CPF Act 1953.
The CMS licence holder should also conduct checks with credit agencies, including bankruptcy status in
overseas jurisdictions as well as requesting the proposed representative to provide a search result of his
credit status with the Credit Bureau (Singapore) Pte Ltd.

2.3.4 Revocation and Refusal of Registration of Representative64

MAS has broad powers to decide whether to register or revoke a representative’s registration. The decision
whether to register a representative or to revoke a registration depends on several factors, which may include
but are not limited to the following:
1. The seriousness or severity of circumstances surrounding the person’s failure to meet a specific criterion;
2. The relevance of the unfulfilled criteria in relation to the duties that are, or are to be performed and the
responsibilities that are, or are to be assumed by the person;
3. The amount of time that has lapsed since the person’s failure to meet a specific criterion.

2.3.5 Representative Notification Framework

CMS licence holders can register representatives as appointed65, provisional66 or temporary67 representatives
with MAS through the Representative Notification Framework (RNF). The RNF allows CMS licence holders to
lodge notifications with MAS electronically via the online system for their representatives who intend to
conduct regulated activities. As part of the notification, CMS licence holders are to certify that the
representatives whom they intend to appoint are fit and proper and meet the competency, financial
soundness and integrity standards required. Once a registration has been processed, the name of the
proposed representative would be published on the Public Register of Representatives on MAS website.

2.3.5.1 Public Register of Representatives

Besides the name of the representative, the regulated activities which the representative can conduct, the
principal companies which the representative has worked for within the past 3 years and any formal regulatory
action taken by MAS against the representative, would be displayed on the Public Register of Representatives.

2.3.5.2 Importance of RNF Number

64 SFA Section 99M - Power of Authority to Refuse Entry or Revoke or Suspend Status of Appointed, Provisional or Temporary
Representative.
65 SFA Section 99D - Appointed Representative.
66 SFA Section 99E - Provisional Representative.
67 SFA Section 99F - Temporary Representative.

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All representatives are assigned a unique representative number, which will stay with them even if they
change principals. Members of the public may verify the representatives whom they are dealing with against
the Register of Representatives either with the RNF number or name of the Representative, thereby reducing
their risk of dealing with unregulated individuals. CMS licence holders are encouraged to make the unique
representative numbers of their representatives readily available for consumers to verify the representative’s
regulatory status. It is thus important for representatives to know their own RNF number.

2.3.5.3 Cessation of Status of Representatives

The status of an appointed representative in respect of any regulated activity is valid until it ceases under the
following circumstances:
i. The principal notifies MAS of such cessation;
ii. The appointed representative has ceased to act as a representative for a continuous period of one month,
and his principal has not notified MAS of his cessation as a representative;
iii. MAS has revoked the status of the appointed representative;
iv. The principal ceases to carry on business in that type of regulated activity;
v. The licence of his principal lapses, the licence is revoked by MAS, or a prohibition order is issued by MAS
against his principal prohibiting it from carrying out that type of regulated activity.

The above also apply to provisional and temporary representatives, with necessary modifications and
adaptations. The status of a provisional representative is only valid for a maximum of 3 months from the date
his name is entered into the Public Register of Representatives. For a temporary representative, the principal
can notify MAS of the appointment for a further 3-month period only after the representative has commenced
the first 3-month block.

2.3.6 Registration with SGX-ST68

The process to be appointed as a Representative is not complete until he is also registered with SGX-ST, unless
otherwise exempted.

A Representative may be entered into the Register of Trading Representatives only if his or her Trading
Member has confirmed in writing to SGX-ST that the Representative satisfies the registration criteria
prescribed in SGX-ST Rule 2.8.2. The Trading Member shall maintain records evidencing the Representative’s
satisfaction of the registration criteria and shall provide all information that SGX-ST may require in the
registration process. SGX-ST may in its discretion refuse the registration of a Representative.

Only Representatives who have been registered by SGX-ST and entered into the Register of Trading
Representatives may deal in securities or futures contracts on SGX-ST. A Trading Representative may begin to
do so only upon his Trading Member being notified by SGX-ST that he has been entered into the Register of
Trading Representatives.

2.3.7 De-Registration with SGX-ST

68 SGX-ST Rule 2.8 – Appointment and Registration of Trading Representatives.

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A representative will be deemed to be de-registered and the Trading Member shall immediately notify SGX-
ST, if the representative69:
i. becomes of unsound mind;
ii. is made bankrupt, within or outside Singapore;
iii. is convicted of an offence involving fraud or dishonesty or is found by a court of law to have acted
fraudulently or dishonestly, within or outside Singapore;
iv. has not satisfied a judgement debt or is subject to a compromise or scheme of arrangement with his/her
creditors, within or outside Singapore;
v. ceases to comply with the requirements of a relevant regulatory authority for acting as the Trading
Member’s representative in respect of the relevant regulated activities or is disallowed by the relevant
regulatory authority from so acting; or
vi. ceases to act as a Representative for the Trading Member or gives or is given notice that he will cease to
be a Representative of the Trading Member (whichever is the earlier).

A Trading Representative who is deemed de-registered will have his name deleted from the Register of Trading
Representatives upon the date of deemed de-registration.

2.3.8 Change of Particulars

An appointed, provisional or temporary representative is required to inform his principal company of any
change in his identification or other personal particulars within 7 days after the date of change of the
particulars. The principal company is required to notify MAS of its representative’s change of particulars no
later than 14 days after the date of the change of the particulars in the prescribed form and manner70.

Similarly, a Representative must keep SGX-ST updated of his personal particulars and inform SGX-ST in writing
of any change in his residential or mailing address or contact number within 7 days of the change71.

2.4 Obligations of Representatives

2.4.1 Compliance

A Representative who is registered with SGX-ST must comply with the rules at all times and continue to satisfy
the registration criteria and any conditions or restrictions imposed by SGX-ST72. Representatives must adhere
to the principles of good business practice in the conduct of their business affairs73.

2.4.2 Payment of Fees

69 SGX-ST Rule 2.9 - De-Registration of Trading Representative.

70 SFA Section 99H (5) - Lodgment of Documents; SFR (LCB) , Regulation 5 – Change of Particulars and Additional Regulated Activity of
Representative.
71 SGX-ST Rule 2.13.2 – Business Name/Contact Details.
72 SGX-ST Rule 2.10.3 – Compliance.
73 SGX-ST Rule 4.8.1 - Good Business Practice.

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Trading Members, Chief Executive Officers and Representatives must pay SGX-ST fees, levies and charges
within such time as SGX-ST prescribes. SGX-ST may reduce or waive any fee, levy or charge74.

2.4.3 Register of Interest in Listed Specified Products

CMS licence holders and their representatives dealing in capital markets products that are listed specified
products are required to maintain a register of his interests in such products. They must :
i. enter into the register particulars of interest in specified products within 7 days after the date that it/he
acquires any interest,.
ii. retain that entry in an easily accessible form for at least 5 years after the date on which such entry was
first made; and
iii. ensure that a copy of the register is kept in Singapore.

A relevant person shall keep the register of his interests in listed specified products (in the case of an individual)
at his principal place of business, or (in the case of a corporation) at any of its places of business. MAS may
request that copies or extracts of the register be provided to it.

2.4.4 Other Businesses75

A Trading Member must have in place controls and processes to ensure that its Representatives do not engage
in, acquire or hold any substantial shareholding in, any other business that involves a breach of laws, rules or
regulations or is detriment to the financial integrity, reputation or interests of SGX-ST and its organised
markets or the Trading Member.

For appointment as a non-executive director of an SGX-ST listed company, the Chief Executive Officer or
Representative must inform SGX-ST of the proposed appointment in writing at least 14 days before the
effective appointment date. The Chief Executive Officer or Representative must furnish SGX-ST at least 7 days
before the effective date of appointment with an explanation of how conflict of interests that may arise from
the dual appointments have been addressed, and an undertaking to disclose the directorship to customers
when necessary for the discharge of the Representative’s responsibilities. His Trading Member must also
advise SGX-ST at least 7 days before the effective date of appointment that it is aware of the directorship and
is satisfied that conflicts of interest have been sufficiently addressed.

The Trading Member must also inform SGX-ST in writing at least 14 days before engaging in, or acquiring or
holding any substantial shareholding in, any other business.

2.4.5 Arrangements with Remisiers76

A Trading Member must inform SGX-ST in writing at least 7 days before a dealer converts to a remisier or vice
versa.

When a Trading Member engages a remisier, it must enter into a written agency arrangement setting out the
terms of their relationship. A credit assessment of the remisier must be conducted. Trading or other limits

74 SGX-ST Rule 2.11 – Payment.

75 SGX-ST Rule 2.17.10 - Other Businesses and 2.15 – Directorship of SGX-ST Listed Company.
76 SGX-ST Rule 4.20 – Arrangements with Remisiers.

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should then be assigned to restrict the remisier’s volume of business, considering the credit assessment and
the security deposit required of the remisier.

The Trading Member should require that a remisier place a security deposit in the form of cash, acceptable
collateral or a guarantee from a bank or Singapore financial institution. The amount is to be determined by
the Trading Member based on the credit assessment and trading limit imposed.

2.4.6 Continuing Education

Under the Guidelines on Fit and Proper Criteria (FSG-G01), “Competence and Capability” is one of several
important criteria for considering whether a person is fit and proper. MAS expects appointed, provisional or
temporary representatives to keep abreast of developments in the industry and update skills and knowledge
relevant to the activities they conduct77. In this regard, their principal companies must ensure that
representatives receive adequate training to have the knowledge and skills to conduct the regulated activities
under the SFA. Principal companies should also provide quality, on-going training to their representatives.
These training programmes should be well structured and go beyond satisfying requirements on training
hours. Where the training is conducted by a product provider or any third-party trainer, the principal company
must be satisfied that the training is adequate.

Similarly, representatives registered with SGX-ST are expected to be competent and continually upgrade
themselves through continuing professional development. The onus is on the Trading Member to ensure that
its Representatives meet this requirement.

Training can be in the form of:

• Face to face training;
• E-learning; or
• Seminars and workshops and generally be via formal or documented learning.

The Continuing Professional Development (CPD) activities can be a combination of:

• Relevant ethics and market conduct requirements78;
• Relevant product knowledge;
• Relevant compliance-related matters; or
• Other relevant skills or competencies.

A Trading Member can determine the appropriate combination of CPD training, but it is the Trading Member’s
duty to keep track of its Representatives’ training requirement.

77 MAS Notice on Competency Requirements for Representatives of Holders of CMS Licence and Exempt Financial Institutions under
the SFA (SFA 04-N22).
78
SFA 04-N22 states that an appointed representative must complete minimum of 6 Core CPD Hours in ethics or rules and regulations
or both, which are relevant to the regulated activity which the representative carries out and accredited by IBF. In addition, there is
a 3- hour of supplementary CPD hours in relevant training.
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2.4.7 Obligations of a Former Trading Member, Former Chief Executive Officer and Former
Representative

A former Trading Member, former Chief Executive Officer and former Representative remains liable to SGX-
ST for any liabilities incurred under or in connection with the SGX-ST rules during the period of its membership
or his registration79. He is also subject to disciplinary actions for any breach during that period.

2.5 Regulatory Requirements for Advertising

To prevent the investing community from being misled, SGX-ST80 and the SFA81 have rules and regulations
governing the use of advertisements in relation to securities dealing. CMS licence holders, Trading Members
and Representatives must adhere to these rules when publishing advertisements, market letters or similar
information, collectively called “advertisements”.

2.5.1 SGX-ST Rules

A Trading Member must ensure that any advertisement publicity:

• Is accurate;
• Is not misleading;
• Does not contain claims that are not externally verifiable;
• Does not contain any predictions or projections of investment performance unless accompanied by the
supporting basis; and
• Does not tend to bring SGX or its related corporations, or other Trading Members, into disrepute.

2.5.2 Securities and Futures (Licensing and Conduct of Business) Regulations [SFR(LCB)]

The SFR(LCB)82 stipulate that product advertisements have to meet the following requirements:
1. the product advertisement is not false or misleading;

2. the product advertisement provides a fair and balanced view of the capital markets products to which it
relates;

3. the product advertisement presents information in a clear manner, regardless of whether such
information is in text or otherwise;

4. where the product advertisement appears in any medium of communication in visual form, the product
advertisement is clearly legible;

79 SGX-ST Rules – 2.27 Obligations of a Former Trading Member, Former Chief Executive Officer and Former Trading Representative.
80 SGX-ST Rules – 4.36 Advertising.
81 SFR (LCB) Regulations, Regulation 46 – Product Advertisements; SFR (LCB) Regulations, Regulation 46A - Certain representations

prohibited.
82 SFR (LCB) Regulations, Regulation 46 – Product advertisements.

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5. where the product advertisement appears in any electronic mail or website, the product advertisement
adheres to the font size requirements in Regulation 46(2)(e) of the SFR (LCB);

6. the product advertisement contains the following statement: "This advertisement has not been reviewed
by the Monetary Authority of Singapore."; and

7. the product advertisement has been approved by a person specified in Regulation 46AA of the SFR(LCB)
in the manner set out in that regulation prior to its dissemination or publication. This may include the
senior management, an agent or a committee of the CMS licence holder. In each case, the relevant
person(s) must be satisfied that the advertisement complies with the requirements, records its reasons
for satisfaction, and gives its written approval.

As for non-product advertisements, they must comply with the following requirements83:
1. the non-product advertisement is not false or misleading;

2. the non-product advertisement does not contain any statement to the effect that any report, analysis or
other service will be furnished free or without charge, unless such report, analysis or service is in fact or
will in fact be furnished in its entirety without any condition or obligation; and

3. the non-product advertisement does not contain any exaggerated statement which is calculated to exploit
an individual’s lack of experience and knowledge.
Under SFR (LCB), Regulation 46AD, a non-product advertisement refers to an advertisement, other than a
product advertisement, that is in respect of the provision of any product or service that is regulated by the
SFA.

2.6 Customer Accounts

It is important to know your customers, both from the perspective of being able to offer the correct products
and services to suit their investment needs, as well as to prevent money laundering. A Trading Member has to
ensure that an account has been opened for a customer before transacting on his behalf or selling any
investment product to him. In opening the account, the Trading Member has to obtain the particulars of a
customer and understanding of the customer’s investment objectives. The purpose is to ensure that the
Trading Member abides by the know-your-customer principle.

2.6.1 Separate Accounts and Account Designation84

A Trading Member must maintain separate accounts for each person or each group of joint customers (as the
case may be) whose customer account is carried on the books of the Trading Member. A customer account
must be identified and designated by the full name of the customer(s) and a unique trading account code.

83 SFR (LCB), Regulation 46AD – Advertisement other than product advertisement.

84 SGX-ST Rule 4.17 - Separate Trading Accounts and Account Designation.
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2.6.2 Opening of Customer Accounts85

Before opening a customer account, a Trading Member must satisfy itself that it has:
1. Obtained adequate particulars of each customer;
2. Verified the identity of each customer. In the case of a non-individual customer, it should verify that the
customer is validly constituted and that the person opening the account has the requisite authority to do
so. In the case of an agency customer, it should verify the identity of the principal and the customer’s
authority to trade for its principal;
3. Agreed with the customer procedures for the communication of trading instructions to guard against
unauthorised trading (if applicable); and
4. Understood the customer’s risk appetite and investment objectives (if applicable).
in accordance with applicable know-your-customer laws and regulatory requirements.

2.6.2.1 Verification of Individual Customers’ Identity

The particulars that a Trading Member may obtain include the following:
1. Full name;
2. Copy of identity card or passport;
3. Specimen signature (where applicable);
4. Residential and mailing addresses;
5. Telephone numbers;
6. Occupation;
7. Name of customer’s employer;
8. Address of customer’s employer; and
9. Telephone number of customer’s employer.

A Trading Member may employ one or more of the following means to verify an individual customer’s identity
if the customer does not open the account in person86:
1. Accept account opening forms that are certified by:
i. A Justice of Peace, a commissioner of oath, a notary public, or an advocate and solicitor;
ii. Members of other securities exchanges which have established information-sharing agreements
with SGX-ST; or
iii. Branches of banks in which the customer holds a banking account.

The Trading Member should verify the customer’s identity, for example through direct telephone contact with
person performing the certification by:

85 SGX-ST Rule 4.15 – Opening of Customer Accounts.

86 SGX-ST Practice Note 4.15.2(a) and (b) - Opening of Customer Accounts: Obtaining Adequate Particulars, Verification of Identity, and
Verification of Authority to Trade.

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i. Establishing telephone contact with the customer on an independently verified home or business
number;
ii. With the customer’s consent, contacting the personnel department of the customer’s employer on
a listed business number to confirm his employment; or
iii. Obtaining from the customer statements from a bank, the Central Provident Fund Board, income
tax authority or such equivalent authority.

2.6.2.2 Verification of Corporate/ Non-Individual Customers’ Identity

The particulars that a Trading Member may obtain include the following:
1. Full name;
2. Residential and mailing addresses;
3. Full names of persons authorised to trade on the customer’s behalf;
4. Specimen signatures of persons authorised to trade on the customer’s behalf (where applicable);
5. Certified true copy of the certificate of incorporation of the customer;
6. Either:
i. a copy of the directors’ resolution of the customer approving the opening of a corporate/non-
individual customer account with the Trading Member and empowering specific directors to
trade in capital markets products for the corporate/non-individual customer account and
execute all documentation for trading and settlement in the customer account;
ii. a power of attorney (in English) certified by a notary public authorising identified persons to
open a corporate/non-individual customer account and trade on behalf of the corporate/non-
individual customer; or
iii. noting in writing the basis upon which the Trading Member believes the corporate/non-
individual customer may open the corporate/non-individual customer account and engage in
transactions and that the persons acting for the corporate/non-individual customer have been
duly authorised to trade on the customer’s behalf.

2.6.2.3 Digital Signature

A Trading Member is encouraged to explore the use of digital signatures for online identification and
verification. The identification and verification procedures for acceptance of digital signatures must be at least
as rigorous as those which a Trading Member would normally have employed.

2.6.3 Joint Customer Account87

Trading Members may allow customers to open a joint account if:

1. A joint securities account is opened with CDP;
2. Each joint account holder is at least 18 years old; and

87 SGX-ST Rule 4.15.4 – Joint Customer Account.

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3. No joint account holder is an undischarged bankrupt.

A joint account may be operated by no more than 2 individuals. However, if it is an estate account, it may be
operated by all personal representatives.

A Trading Member must maintain the following information:

i. The names of person authorised to give trading orders and settlement instructions to, and receive scrip
from, the Trading Member;
ii. The names of persons to whom payments by the Trading Member are to be made; and
iii. Details of any customer accounts carried on the books of the Trading Member held in an individual
capacity by a joint account holder.

A Trading Member must require each joint account holder to specify whether the joint account holder is
jointly, severally, or jointly and severally liable for all debts incurred in a joint account.

2.6.4 Additional Safeguards for Trading by Young Investors88

In addition to fulfilling customer due diligence requirements prior to account opening, Trading Members have
to institute additional safeguards for trading by individuals above the age of 18 and below the age of 21 years
(Young Investors) who may be new to the securities market and have limited trading experience. They may
not fully appreciate the risks of securities and other investment products offered to them. As such, the Trading
Members should undertake the following procedures, and give appropriate emphasis to the following:

2.6.4.1 Suitability Assessment

When a Young Investor opens an account carried on the books of the Trading Member, the Trading Member
should assess the Young Investor’s suitability, considering the financial knowledge and risk capacity of the
Young Investors to trade. A specific suitability assessment should also be made before allowing a Young
Investor to trade in more complex instruments or products (such as a derivative contract or product with
embedded derivatives). The decision to allow the Young Investor to trade in such instruments or products
should be approved by a senior executive of the Trading Member.

2.6.4.2 Risk Disclosure

The risks and uncertainties associated with investing or trading in securities and other products to be sold by
the Trading Member should be properly explained to the Young Investor. This is to ensure that the Young
Investor has an appropriate understanding of the key risks and commitments involved.

2.6.4.3 Supervision

Trading Members should ensure that the relevant staff members are adequately trained and familiar with the
safeguards put in place for Young Investors. Similarly, any additional procedures should be communicated to
all Representatives to ensure proper adherence and consistent application. In addition, a senior executive
should be appointed to oversee and take responsibility for managing all issues relating to Young Investors.
This includes monitoring the Trading Member’s dealings with the Young Investors and making appropriate
adjustments to the procedures and processes where necessary.

88 SGX-ST Practice Note 4.15.3 – Additional Safeguards for Trading by Young Investors.
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2.6.4.4 Investor Education

Trading Members should offer basic investment courses to Young Investors, as well as product specific courses
to those who wish to trade in more sophisticated instruments and products. These courses will enable Young
Investors to be more aware of the implications of their trading decisions and to be able to make better
investment choices.

2.6.5 Specified Investment Products Trading Account89

Specified Investment Products (SIPs) are derivatives or products which may contain derivatives. They have
complex features and risks which can expose investors to more factors which can cause a loss. Some SIPs are
listed on an exchange while others are not. Refer to Table 2.6.5 for examples of SIPs.

Table 2.6.5: Examples of SIPs

Examples of SIPs Listed on an Exchange Examples of SIPs Not Listed on an Exchange

• Certain exchange traded funds and notes • Structured notes (e.g. equity-linked structured notes,
• Structured warrants credit linked structured notes)
• Futures • Certain unit trusts
• Certificates • Certain investment-linked life insurance policies

2.6.5.1 Customer Account Review and Customer Knowledge Assessment

Not all customers have the knowledge or experience to assess a SIP’s complex features. As such, CMS licence
holders must conduct the following for any customer who wish to trade in listed or unlisted SIPs:
i. Customer Account Review (CAR) based on criteria set out in Annex 2 of the MAS Notice on Sale of
Investment Products (SFA 04-N12) (before opening a SIP trading account for a customer who is a retail
investor90 to transact in any SIP which is listed for quotation or quoted on an organised market; or

89 MAS Notice on the Sale of Investment Products (SFA 04-N12).

90 SFA Section 4A – Specific Classes of Investors:
(i) Retail Investor refers to an investor who is not an accredited investor, institutional investor or expert investor.
(ii) Accredited Investor includes an individual whose net personal assets exceed in value $2 million, whose financial assets
(including banking deposits, investment products and other assets prescribed by regulation, but net of liabilities) exceed
$1 million, or whose income in the preceding 12 months is not less than $300,000; or a corporation with net assets exceeding
$10 million in value. In determining the value of an individual’s net personal assets, the value of the individual’s primary
residence is net of any outstanding secured credit facility and is capped at $1 million.
(iii) Institutional Investor refers to the Government, a statutory board, an entity wholly and beneficially owned by a central
government of a country and whose principal activity is to manage funds and any entity whose funds are so managed, a
foreign central bank, government or agency, a prescribed multilateral or international agency, a bank, a merchant bank, a
finance company, a company/co-operative society licensed as an insurer in Singapore, a trust company, a CMS licence holder
for securities dealing, approved exchanges and clearing houses, recognised market operators and clearing houses, licensed
trade repositories, an approved holding company, a depository under the SFA, a foreign entity or trust that carries on a
financial or regulatory function similar to the Singapore authorities under relevant statutes, a pension fund or collective
investment scheme, a person carrying on the business of dealing in bonds with accredited/expert investors, a trustee of a
prescribed trust, or any other such person as prescribed by the MAS.
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ii. Customer Knowledge Assessment (CKA) based on the criteria set out in Annex 3 of SFA 04-N12 before
opening a SIP trading account for a customer who is a retail investor to transact in any SIP which is neither
listed for quotation nor quoted on an organised market.

The criterion for the assessment of CAR and CKA can also be found in Appendices B and C of this study guide.

For joint trading accounts, the requirement to conduct the CAR or CKA will apply to each of the customers
intending to open the joint SIP trading account.

For the purpose of the CAR and CKA, a CMS licence holder must take into consideration information on a
customer’s educational qualifications, investment experience and work experience. If a customer does not
provide such information, he shall be deemed as not possessing knowledge or experience in listed SIPs (for
CAR) or in unlisted SIPs (for CKA).

When conducting a CAR or CKA for a new customer, or a customer whose previous CAR or CKA is no longer
valid, a CMS licence holder will assess a customer’s investment experience according to the:
a) Classification of the capital markets products previously transacted by the customer; and
b) Listing status of such capital markets products.

at the time that the customer had transacted in such capital markets products.

A CMS licence holder shall highlight to the customer in writing that any inaccurate or incomplete information
provided by the customer may affect the outcome of the CAR or CKA.

2.6.5.2 Approval to Open SIP Trading Accounts

A CMS licence holder must not open a listed SIP trading account for a customer unless its senior management
(or designated personnel) who is not involved in that account’s opening process and is not a connected person
of that customer is satisfied, on the basis of the outcome of the CAR, that the customer has knowledge or
experience in derivatives, and has approved the opening of the customer’s listed SIP trading account. If the
customer is assessed not to have knowledge or experience in derivatives but nonetheless seeks to open a
trading account, a CMS licence holder’s senior management (or designated personnel) would need to be
satisfied that the customer is aware of the implications and risks. Regardless of the outcome of the CAR, a CMS
licence holder shall include a statement in its account opening form that a customer can, at any time, request
for advice concerning a SIP. Upon such request, the CMS licence holder shall provide advice to the customer
provided the CMS licence holder is also an exempt financial adviser.

A CMS licence holder must not allow a customer to transact in an unlisted SIP unless it is satisfied, based on
the CKA, that the customer has knowledge or experience in the unlisted SIP.

Notwithstanding a positive outcome of the CKA, CMS licence holders should offer to provide advice concerning
the unlisted SIP to the customer. If the customer does not wish to receive advice, CMS licence holders must
document the customer’s decision in writing and highlight to the customer that it is the customer’s
responsibility to ensure the suitability of the product selected. CMS licence holders should also warn the
customer in writing that the customer had chosen not to receive advice and to confirm in writing if the
customer wishes to proceed without advice.

(iv) Expert Investor refers to a person whose business involves the acquisition and disposal, or holding of capital markets
products, whether as principal or agent, the trustee of a trust prescribed by the MAS or such other person as may be
prescribed by the MAS.
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2.6.5.3 Requirements where Customers are Assessed Not to Possess Knowledge or Experience in
Derivatives or Unlisted SIPs

The CMS licence holder shall inform the customer of the outcome of the CAR if they are assessed not to possess
knowledge or experience in derivatives following the CAR. If the customer intends to proceed to open a listed
SIP trading account, the CMS licence holder shall:
i. Inform the customer in writing of the outcome of the CAR;
ii. Obtain the customer’s written confirmation that he still intends to proceed with the opening of the SIP
trading account despite not being in possession of knowledge or experience in derivatives;
iii. Explain to the customer the general features and risks associated with investing in derivatives and provide
the customer a written statement of the explanation given; and
iv. Inform the customer in writing that it is the customer’s responsibility to ensure that he understands any
capital markets products that he intends to transact using the SIP trading account.

The CMS licence holder shall inform the customer of the outcome of the CKA if they are assessed not to possess
knowledge or experience in unlisted SIPs following the CKA. If the customer intends to proceed to transact in
an unlisted SIP, the CMS licence holder shall:
a) Inform the customer in writing of the outcome of the CKA and that it is unable to proceed to transact in
the unlisted SIP on behalf of the customer unless it is also an exempt financial adviser; and
b) where the CMS licence holder is also an exempt financial adviser, it shall provide financial advisory services
to the customer in accordance with the standards set out in the MAS Notice on Recommendations on
Investment Products issued under the Financial Advisers Act91.

2.6.5.4 Validity of the Outcome of CAR92

The CMS licence holder must not allow a customer to transact in a listed SIP through the listed SIP trading
account after 3 years has expired from the date of the conduct of the CAR for the customer concerned, until
and unless:
i. The CMS licence holder has checked and is satisfied that the customer has transacted in a listed SIP
through the account
a) More than once during the preceding 3-year period; and
b) More than once during each subsequent 3-year period; or
ii. The CMS licence holder has conducted a new CAR for the customer or has relied on a new CAR conducted
by a third party for the customer.

2.6.5.5 Validity of the Outcome of CKA93

If a customer is assessed to have knowledge or experience to transact in an unlisted SIP, the CMS licence
holder may allow the customer to transact the unlisted SIP for a period of one year from the date of the
assessment. After a year has elapsed, the CMS licence holder shall conduct a new CKA on the customer or rely

91 MAS Notice on Recommendations on Investment Products (FAA-N16).

92 Notice on the Sale of Investment Products (SFA 04-N12) – Paragraph 16 Validity of the Outcome of CAR.
93 Notice on the Sale of Investment Products (SFA 04-N12) – Paragraph 26 Validity of the Outcome of CKA.

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on a new CKA conducted by a third party for the customer, before it transacts on behalf of the customer in
any unlisted SIP.
2.6.5.6 Documentation and Record Keeping94

A CMS licence holder shall obtain information on a customer’s profile and update the customer profile at least
annually. Every CAR and CKA conducted for each customer shall be documented. The documentation must
include:
i. Information collected from a customer on his educational qualification, work experience and investment
experience;
ii. An assessment of the customer’s knowledge and experience in derivatives or unlisted SIPs, as the case
may be;
iii. The outcome of the CAR or the CKA, as the case may be; and
iv. The approval of its senior management or designated personnel to open the customer’s listed SIP trading
account, where applicable.

Where a CMS licence holder transacts in any listed SIP on behalf of a customer, the CMS licence holder must
maintain records of all communication between them and the customer in respect of the relevant trade,
including a record in the form of a file note or a tape recording of the telephone conversation.

2.6.5.7 Requirements on CMS Licence Holders Dealing in Overseas-Listed Investment Products95

Overseas-listed investment products carry a different set of risks and levels of protection for investors. As
such, CMS licence holders are required to warn retail customers of the possible risks prior to the customer’s
first purchase of an overseas-listed investment product. They have to provide the risk warning statement96 as
set out in Appendix D of this study guide and obtain the customer’s acknowledgement of the risk warning
statement, in written form or otherwise, before allowing the customer to transact97 in any overseas-listed
investment product for the first time.

Risk Warning Statement - The risk warning statement highlights the key risks that customers should be aware
of when trading overseas-listed investment products, such as the:
• level of investor protection and safeguards afforded in the relevant foreign jurisdiction;
• differences between the legal systems in foreign jurisdiction and Singapore;
• tax implications, currency risks, and additional transaction costs that may be incurred;
• exposure to counterparty and correspondent broker risks; and
• political, economic and social developments that may influence overseas markets.

These and other risks may affect the value of the investment and customer need to understand them before
they trade in foreign-listed investment products.

94 Notice on the Sale of Investment Products (SFA 04-N12) – Paragraphs 27-29 Documentation and Record Keeping.
95 Notice on the Sale of Investment Products (SFA 04-N12) – Paragraphs 29D-29K Requirements on Licensed Persons and Exempt
Financial Institutions Dealing in Overseas-Listed Investment Products
96 Notice on the Sale of Investment Products (SFA 04-N12) – Annex 4 Risk Warning Statement for Overseas-Listed Investment Products.
97 According to the MAS Notice on Sale of Investment Products (SFA 04-N12, Paragraph 29F), “transact” means (a) the purchase of any

overseas-listed investment product other than in connection with the creation of short positions; or (b) the sale of any overseas-
listed investment product in connection with the creation of short positions.
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The CMS licence holder must maintain records of the Customer’s acknowledgement for a period of not less
than 5 years as per the SFA 102(3) Keeping of Book and Furnishing of Returns.

Where a CMS licensed holder offers an overseas-listed investment product to its customers, the CMS licence
holder may implement a system to identify and determine that the overseas-listed investment product is to
be classified as an Excluded Investment Product (EIP) (refer to Appendix E of this study guide for list of EIPs).

Where a CMS licensed holder does not implement a system to identify and determine that an overseas-listed
investment product is to be classified as an EIP, the overseas-listed investment product shall be classified as a
SIP, and the requirements to conduct the CAR shall apply to a CMS licence holder dealing in the overseas-listed
investment product for a customer.

Where a CMS licence holder has classified an overseas-listed investment product as an EIP, it shall ensure the
classification of the overseas-listed investment product concerned always remains accurate and current.

A CMS licence holder may outsource the identification and classification of an overseas-listed investment
product as an EIP to another party. Where the identification and classification of an overseas-listed investment
product has been outsourced, the CMS licence holder shall be responsible for the implementation of the
classification system, including but not limited to, the accuracy of the classification.

2.6.6 Approval of Customer Accounts98

The opening of a customer account must be approved by at least 1 senior management or delegate staff
(whether of the Trading Member, an affiliate or otherwise) who is independent of the Trading Member’s sales
or dealing.

The approval must:

1. Be given before the execution of the first trade for the customer;
2. Be in writing which includes secured electronic record; and
3. Form part of the permanent records of the Trading Member.

2.6.7 Risk Disclosure99

A Trading Member that is a CMS licence holder must ensure that the customer is aware of and must obtain a
written acknowledgement from the customer that the customer is aware of and understands the risks
associated with holding and trading securities and futures contracts, and it informs its customer whether
Trading Member is acting as a principal or an agent for the customer in accordance with the SFA.

98 SGX-ST Rule 4.15.5 – Approval of Customer Accounts and Practice Note 4.15.5 - Approval of Customer Accounts.
99 SGX-ST Rule 4.16.1 - Risk Disclosure.
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2.7 Privacy of Customer Information

CMS licence holders and their representatives must protect and keep customers’ information confidential. All
intermediaries are required under common law and the Personal Data Protection Act 2012 (PDPA) to
safeguard the confidentiality of their customer information.

2.7.1 Confidentiality Obligations

2.7.1.1 Banking Privacy

Under Section 47 of the Banking Act, a bank in Singapore or any of its officers cannot disclose customer
information to any third party except as permitted under the Banking Act. Please refer to the Third Schedule
of the Banking Act for a full list of circumstances. Some examples of permitted circumstances include:
1. Where the bank has the prior written consent of the customer, and the disclosure is in accordance with
the terms of the consent;
2. The disclosure is necessary for risk management of the bank and for the purpose of audit by internal and
external auditors, lawyers, or consultants approved or engaged by the bank; and
3. The disclosure is required under any law or rules for investigating or prosecuting an offence alleged or
suspected to have been committed under any written law (which is in turn defined in the Banking Act).

When a request is received to disclose customer information, it is good practice to refer the request to the
bank’s legal or compliance department to be professionally assessed whether the disclosure is permitted by
law or contractual agreement between the bank and the customer concerned.

In the event that a disclosure is made, a bank still has the duty to inform and remind the person to whom the
information is released to, that they also have an obligation to safeguard confidentiality or bear the
consequence of a breach. Any person who discloses information in contravention of Section 47 of the Banking
Act, the PDPA and the applicable requirements on customer information confidentiality under the SFA may
face penalties and litigation risks.

2.7.1.2 Securities and Futures (Licensing and Conduct of Business) Regulations100

CMS licence holders should not divulge information relating to a customer’s order, unless the disclosure is:
1. Necessary for the effective execution of the order;
2. Permitted under the rules of the relevant approved exchange, recognised market operator approved or
recognised clearing house, as the case may be; or
3. Required by MAS.

100 SFR(LCB) Regulation 47(2) - Trading Standards.

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2.7.1.3 SGX-ST Rules101

A Trading Member and its Representative must comply with SGX-ST rules on confidentiality of customer’s
information. They must maintain confidentiality of a customer’s information, except where disclosure is
required or permitted under applicable law or rules, or with prior consent of the customer for such disclosure.

A Trading Member must ensure that a person to whom it discloses a customer’s information maintains
confidentiality of such information.

2.7.2 Personal Data Protection Act

The PDPA governs the protection of personal data. Data protection is an aspect of privacy protection which
deals with control over the collection, storage, accuracy, use and disclosure of personal information. The
purpose of data protection is to ensure that personal data is not collected, used or disclosed without the
knowledge or consent of the individual concerned. The PDPA is also aimed at preventing the processing of
incorrect or inaccurate personal data about a specific individual.

Impact on Business Operations

CMS licence holders should establish clear policies and procedures to comply with the provisions of the PDPA
and other confidentiality obligations which include requiring representatives to:
1. Check with the “Do Not Call” registry before making marketing calls to a Singapore telephone number;
and
2. Seek clear and unambiguous consent through written forms and such as other means as may satisfy the
PDPA.
Violation of “Do Not Call” provisions of the PDPA may lead to civil and/or criminal liabilities.

2.8 Management of Customers’ Trading Accounts

Only after the account has been opened with the requisite legal documents obtained, suitability assessment
completed, and risk profile established, should the customer then be allowed to trade within his investment
profile.

2.8.1 Communication with Customers102

A Trading Member must communicate directly with its customers in respect of statements, contract notes, or
all other information, whether in writing or electronically, unless the customer has authorised otherwise in
writing. It must not allow any person other than the customer to collect any cash, share certificates, contract
notes, credit or debit notes, cheques or statements, unless the customer has authorised that person in writing.

101 SGX-ST Rule 4.14- Confidentiality of Customer’s Information.

102 SGX-ST Rule 4.27 - Communication with Customers.
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2.8.2 Brokerages and Charges103

Unless SGX-ST decides otherwise, the commission rate chargeable for the purchase or sale of securities or
futures contracts may be determined by the Trading Member in its discretion. All charges and expenses,
including any fees imposed by CDP and/or SGX-ST, stamp duty and Goods and Services Tax, to be borne by the
customer must be accurately disclosed to the customer and agreed between the customer and the Trading
Member.

2.8.3 Customer Education104

Except for Accredited Investors,105 Institutional Investors106 and Expert Investors107, a Trading Member must
provide its Internet Trading customers with adequate information, guidance and training on:
1. Prohibited trading practices;
2. Potential limitations and risks of Internet Trading;
3. System functionalities and order management procedures; and
4. Market conventions such as minimum bid sizes and board lot sizes.

With respect to Accredited Investors, Institutional Investors and Expert Investors, a Trading Member's
obligation relates solely to the provision of adequate information in relation to prohibited trading practices.

2.8.4 Contract Notes108

Under the SFR (LCB) and SGX-ST rules, a CMS licence holder must send its customer a contract note for the
purchase or sale of capital markets products by the next business day following a transaction109. In cases where
any detail about the transaction which needs to be included in the contract note only becomes available later,
the CMS licence holder should issue the contract note by the next business day after the detail becomes
available.

The contract note must state that the contract is subject to the rules of SGX-ST if the trade is transacted on or
through the SGX-ST Trading System or reported to SGX-ST. It must also contain information specified in the
SFA. Such details include:
1. The name under which the CMS licence holder carries on its business of dealing in capital markets
products, and the address of the principal place of business;
2. A statement informing the customer that the CMS licence holder is dealing in capital markets products as
a principal (other than for futures contracts) or is dealing against its customers (for futures contracts), if
the CMS licence holder is doing so;
3. The name and address of the recipient of the contract note;

103 SGX-ST Rule 4.23 - Brokerage and Charges.

104 SGX-ST Rule 4.18 Customer Education; SGX-ST Practice Note 4.18 “Education for Internet Trading Customers”.
105 For definition of Accredited Investor, please refer to footnote 92.
106 For definition of Institutional Investors, please refer to footnote 92.
107 For definition of Expert Investors, please refer to footnote 92.
108 SGX-ST Rule 4.24 - Contract Notes.
109 SFR(LCB) Regulation 42(2) - Contract Notes.

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4. The date on which the transaction is entered into;

5. The quantity and type of the securities, units in a collective investment scheme, derivatives contracts or
transactions in connection with spot foreign exchange contracts for the purposes of leveraged foreign
exchange trading, that was transacted;
6. The price per unit of the transaction;
7. The amount of consideration for the transaction;
8. Any amount that is added or deducted from the settlement transaction for the transaction;
9. The rate and amount of commission (if any) charged for the transaction by the CMS licence holder; and
10. The amount of all stamp duties or other duties or taxes payable in connection with the transaction.

SGX-ST rules also specify that a contract note must show separately brokerage charged, stamp duty, goods
and service tax and any other fees charged. The contract note must clearly distinguish between charges levied
by the Trading Member from those levied by SGX-ST or CDP.

A record, with the details mentioned above from (1) to (10), in the form of a contract note is to be sent to the
customer for him to check and verify his transaction is in order and to report any discrepancy. There must be
dedicated resources and communication channels for a customer to make enquiries and report discrepancies
or make complaints. In addition to the above record of transaction, customer statements must be prepared
and sent to him monthly on the movement in the account and the position at each reporting period.

In the case of transactions done on an overseas as exchange, the contents of the contract note can follow the
requirements of the overseas exchange.

Trading Members should have appropriate internal controls in place to ensure that no contract note is omitted
or suppressed. Basic controls would include proper and robust controls to maintain accuracy of customer
contact information and generation and dissemination of contract notes, proper segregation between
personnel responsible for trade execution and those responsible for contract notes and ensuring appropriate
channels are available for customer enquiries.110

Under SGX-ST rules111, before issuing contract notes in electronic form, a Trading Member must obtain the
customer’s prior revocable and informed consent for receipt of contract notes in electronic form. The Trading
Member must retain evidence of the customer’s consent. To constitute “informed consent” a customer must
be told of the manner of delivery and retrieval of the electronic record and any costs that may be incurred. If
asked by SGX-ST, a Trading Member must produce a copy or record of the contract notes in substantially the
same form and containing the same trading information as were given to customers.

2.8.5 Provision of Statements to Customers

2.8.5.1 Monthly Statements112

Under SFR (LCB) and SGX-ST rules, a CMS licence holder shall send monthly statements of account to
customers.

110 SGX-ST Regulatory Notice 4.24.1 – Contract Notes.

111 SGX-ST Rules 4.24.3(c) and 4.24.5 - Contract Notes.
112 SFR(LCB), Regulations 40(1) and (2) - Provision of Statement of Account to Customers; SGX-ST Rule 4.25 - Statements of Account to

Customers.
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The statement must contain the following information:

i. The customer’s transactions in securities or units in a collective investment scheme and the prices at
which the transactions are entered into;
ii. The customer’s outstanding positions in derivatives contracts and spot foreign exchange contracts and
the prices at which the positions are acquired and the net unrealised profits or losses in all marked-to-
market positions;
iii. The status of every asset of the customer that the CMS licence holder is holding in custody, including any
asset deposited with a third party that is used for specified products lending or held as collateral;
iv. The date, amount and reason for movement of the assets of the customer;
v. The movement and balance of moneys in the customer account; and
vi. A detailed account of all financial charges and credits to the customer's account during the statement
period, unless these have been included in any contract note or tax invoice issued by the CMS licence
holder to the customer.

The Trading Member does not need to send a monthly statement to a customer if:113
a) The information that is to be contained in the statement has already been sent to the customer by CDP,
as clearing house or depository, which the Member is a member of;
b) Periodic reconciliation is performed between capital markets products transactions and positions held by
the Trading Member and its customers;
c) There has been no change to the customer’s account in the month; or
d) The customer is an accredited investor, expert investor, institutional investor or a corporation related to
the Trading Member, and:
A. Real-time electronic statements have been made available to the customer, and the customer has
agreed to using these electronic statements; or
B. The customer has requested, in writing, not to receive such monthly statements.

2.8.5.2 Quarterly Statements

If a monthly statement has not been sent for the last month of a calendar quarter (i.e. March, June, September
and December), the CMS licence holder shall send a quarterly statement to the customer, containing the same
information that is required on a monthly statement of account114.

2.8.6 Amendment of Contract115

Under SGX-ST rules, if a Trading Member seeks to amend a contract (including changes to price, quantity or
account number), approval of senior management (or delegate staff) independent of the Trading Member’s
sales or dealing function must be obtained prior to any such amendment. Such senior management (or
delegate staff) should consider whether there is a valid reason for the amendment.

113 SFR(LCB), Regulations 40(1A), (4), (5) and (6).

114 SFR(LCB) Regulation 40(3) - Provision of Statement of Account to Customers.
115 SGX-ST Rule 4.26.1 - Amendment of Contract.

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2.8.7 Payment to Customers116

SGX-ST rules require that all cheques to customers must be crossed, unless:
i. The payee customer requests otherwise in writing; and
ii. A senior management staff (or his delegate) of the Trading Member who is independent of sales or
dealing, or a senior management staff (or his delegate) of a related corporation with the authority to
approve payments gives written approval to the customer’s request.

A Trading Member must not accept a house cheque, i.e. a crossed cheque issued by the Trading Member in
favour of a customer, from a customer unless:
a) The customer is the payee of the cheque; and
b) The cheque is used to settle an amount owing by the customer to the Trading Member or is deposited
into a trust account as directed by the customer.

2.8.8 Remisiers Working in Teams117

A Trading Member may allow remisiers that it appoints as Representatives to work in teams, where remisiers
in the same team may enter orders for one another’s customers. The following should be observed:

If a customer’s order is passed along a chain of remisiers, each remisier must record from and to whom he
receives and transmits the order, and the time of such receipt and transmission. Trading Members must keep
customers informed of the team arrangements and give them the option not to be serviced by remisiers
working in teams. Trading Members should also keep their customers informed of any changes to team
compositions.

A Trading Member must:

i. maintain a list of remisiers working in teams, according to the teams they work in;
ii. establish in writing the terms and conditions of each team arrangement with its remisiers. The terms and
conditions must include:
(a) how possible disputes amongst remisiers working in teams are to be resolved; and
(b) that remisiers working in a team shall be jointly and severally liable for losses incurred by customers
serviced by the team where such losses are not recovered;
iii. ensure that remisiers working in teams will not compromise their compliance with all relevant legislation
and regulations; and

iv. monitor team operations to ensure there is no overtrading, and that irregularities do not occur.

2.8.9 Reporting of Delinquent Accounts118

116 SGX-ST Rule 4.28 - Payment to Customers.

117 SGX-ST Rule 4.21 - Remisiers Working in Teams.
118 SGX-ST Rule 4.32 - Reporting of Delinquent Accounts.

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A Trading Member must inform SGX-ST (or any designated third party) of the particulars of any customer
account carried on the books of the Trading Member that it considers to be delinquent. SGX-ST (or the
designated third party) may disseminate the information to all other Trading Members that hold a CMS licence.

2.8.10 Stock Account119

All purchases and sales of securities or futures contracts by a Trading Member for its proprietary account must
be made under a separate stock account of the Trading Member.

A stock account must be operated by a person who is licensed to trade, as designated by senior management,
pursuant to a delegation of authority by a member of senior management who is independent of the
proprietary desk. The Trading Member shall procure that senior management oversee the operation of the
stock account by the designate.

2.8.11 Soft Dollar Commissions120

A Trading Member and its Representatives may receive goods and services from a broker for directing business
to the broker if:
1. The goods and services can reasonably be expected to assist in the provision of services to the customer;
2. Records of the goods and services received are maintained; and
3. There are appropriate internal controls and procedures for such arrangements. The following goods and
services do not qualify as acceptable soft dollar receipts or payments:
• Travel, accommodation and entertainment expenses.
• General administrative goods and services including office equipment and premises expenses.
• Membership fees.
• Employees' salaries.
• Direct money payment. This does not include payment of referral fees under a referral agreement.

A Trading Member or its Representatives should not receive goods and services from a broker, if the act of it
compromises the interest of the customer or may result in the breach of the Rules or other regulatory
requirements by the Trading Member or its Representatives.

2.9 Keeping of Books and Audit

2.9.1 Keeping of Books and Furnishing of Returns

Under the SFA121, CMS licence holders are required to keep books of account and records of transactions which
should sufficiently explain the transactions and financial position of the CMS licence holder’s business and
enable true and fair profit and loss accounts and balance sheets to be prepared from time to time.

119 SGX-ST Rule 4.33 – Stock Account.

120 SGX-ST Rule 4.38 – Soft Dollar Commissions; SGX-ST Practice Note 4.38 – Soft Dollar Receipts or Payments.
121 SFA Section 102 - Keeping of Books and Providing of Returns.

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The books should be kept for a period of at least 5 years, and in a manner, which would enable them to be
conveniently and properly audited.

The CMS licence holder must be able to furnish returns and records when notified by MAS in writing, and
provide information relating to its business as MAS may require.

SFR (LCB) Regulation 39 stipulates that CMS licence holders must keep books and records in English containing
the following:

2.9.1.1 Customer Details

• Particulars of every customer, and their guarantors;
• Particulars of authorized traders;
• Particulars of each customer asset, including:
o The amount, description of each asset deposited with and held in trust for the customer, and the
date of deposit;
o The person for whom the asset is held;
o Whether the asset is held for safe custody, mortgaged, charged, or pledged;
o The date and quantity of each movement of assets into or out of the trust account or custody account
arising from any asset borrowing or lending activity;
o The date, amount and purpose of each withdrawal from the trust account or custody account;
o The date and amount of, and the reason for, each disposal of collateral from the trust account or
custody account;
o Whether the customer shares the same trust or custody account with other customers; and
o The name of custodians with whom the CMS licence holder deposits customer monies and assets.

2.9.1.2 Customer Correspondence

• Every power of attorney or other document authorising the operation of the customer account on a
discretionary basis;
• Every written agreement entered by the holder with its customer;
• Every disclosure made to a customer under SFR(LCB) Regulations 18A or 27A;
• Every acknowledgment of a customer received under SFR(LCB) Regulation 47DA(1)(b);
• Every document relating to the opening of a customer trading account for the purpose of entering into
OTC derivatives contract transactions;
• Every acknowledgment of a customer received under SFR(LCB) Regulation 47E(1)(b), which shall be in
Form 13;
• Every acknowledgment of a customer received under SFR(LCB) Regulation 47E (2), which shall be in
Form 14;
• Every statement acknowledging receipt of assets from a customer indicating the person in whose name
the assets are registered;
• Every order prepared or received in the course of the business of the holder;

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• Every report, letter, circular, memorandum, publication, advertisement and other literature or advice
distributed by the holder to any existing or prospective customer, indicating the date of publication;
• Every report, statement, submission, letter, journal, ledger, invoice, and other record, data or
memoranda, which has been prepared or received in the course of business of the holder;
• Written confirmation of every transaction to purchase or sell any capital markets products and every
purchase and sale contract note and statement of account in respect of such transaction, being a
transaction to which any of the following is a party: (i) the holder; (ii) except where the holder is one
referred to in sub-paragraph (iii), an executive director of the holder, if the transaction is a personal
transaction of such executive director; and (iii) where the holder is a branch or subsidiary of a foreign
company with its head office located outside Singapore, an executive director of the holder who is
directly involved in its operations and business, if the transaction is a personal transaction of such
executive director;
• Written confirmation of every transaction carried out on behalf of customers prepared by the holder,
and every purchase and sale contract note and statement of account in respect of such transaction
prepared by the holder, or received from any other party; and
In respect of every underwriting and placement transaction entered into by the holder, documentation stating
the basis of allotment to each subscriber or placee.
2.9.1.3 Particulars of every proprietary transaction of the CMS licence holder, including:
• The description and quantity of the assets;
• The price and fee arising from the transaction;
• The transaction date and settlement or delivery date;
• The name of the counterparty to the transaction; and
• The realised or unrealised gain or loss.

2.9.1.4 Particulars of all income and expenses of the CMS licence holder, including:
• Particulars of all liabilities (including contingent liabilities) of the CMS licence holder;
• Particulars of all assets of the CMS licence holder, where they are held, and whether or not they have
been pledged as security against loans or advances; and
• Particulars of every over-the-counter derivatives transaction carried out on behalf of or with customers.

The list of records cited above are not exhaustive.

Similarly, SGX-ST requires a Trading Member and its Representatives to122:

i. Maintain proper, complete and accurate records and audit trails, including a complete audit trail of
transactions, from the receipt of an order to its settlement, to evidence compliance with the requirements
in the SFA, SFR (LCB) Regulations123 and the SGX-ST Rules;
ii. Not make, or cause to be made, any false or misleading entries in any books, records, slips, documents, or
statements relating to the business, affairs, transactions, conditions, assets or accounts, whether in
hardcopy or electronic form (referred to as the “Documents”), of the Trading Member;

122 SGX-ST Rule 4.13.1 – Records for Compliance.

123 SFR (LCB) Regulation 39 - Books of Holder of Capital Market Services Licence.
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iii. Make or cause to be made all relevant entries in each of the Documents; and
iv. Not alter, conceal or destroy or cause to be altered, concealed or destroyed any of the Documents without
a valid reason.

A Trading Member must ensure the integrity, security and confidentiality in the transmission and storage of
all records124. This includes keeping data and records easily retrievable by authorised personnel and storing
them securely such that no tampering occurs. Backups of records must be kept in a separate location from the
originals. A Trading Member must check data and records for quality and accuracy on an on-going basis and
correct any defects detected. They must also make records available to SGX-ST at such time as SGX-ST
prescribes or requires125. The Trading Member must obtain the necessary customer consent prior to
disclosure.

2.9.2 Audit

CMS licence holders must appoint an auditor to audit its accounts126 and prepare a true and fair profit and loss
account and a balance sheet for each financial year127. The account and balance sheet must be lodged with
MAS within 5 months after the end of the financial year, together with the auditor’s report on the account
and balance sheet.

The CMS licence holder may apply to MAS for an extension of the 5-month period for lodgement of account
and balance sheet. If MAS is satisfied that there is a special reason for requiring an extension, it will extend
the period by not more than 4 months, subject to conditions or restrictions which MAS may think fit to impose.

MAS may direct a CMS licence holder to remove and replace its auditor if it is not satisfied with the
performance of duties by the auditor.

124 SGX-ST Rule 4.13.2 – Records for Compliance.

125 SGX-ST Rule 4.13.3 - Records for Compliance.
126 SFA Section 106 - Appointment of Auditors
127 SFA Section 107 - Lodgement of Annual Accounts, etc.

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2.9.3 Reports by Auditor

The auditor should immediately send a report in writing to MAS if it discovers any of the following matters or
irregularity whilst performing its duties as an auditor:
i. Any matter which adversely affects or may adversely affect the financial position of the CMS licence holder
to a material extent;
ii. Any matter which constitutes or may constitute a contravention of any provision of the SFA or an offence
involving fraud or dishonesty; or
iii. Any irregularity that has or may have a material effect upon the accounts, including any irregularity that
may affect or jeopardise the moneys or assets of any customer of the CMS licence holder.

A copy of the report should be sent to the approved exchange if the CMS licence holder concerned is a member
of an approved exchange.

Where the CMS licence holder fails to lodge an auditor’s report as required under Section 107 of the SFA or
where MAS receives a report by the auditor of any matter or irregularity found during an audit of the CMS
licence holder, MAS has the power to appoint an auditor to carry out an examination and audit of the CMS
licence holder’s books.

2.9.4 Offence to Destroy, Conceal, Alter Books128

Any person who destroys, conceals or alters any book relating to the business of the CMS licence holder with
the intent to prevent, delay or obstruct the performance of an examination or audit will be guilty of an offence
and be liable on conviction to a fine and/or to imprisonment. The same penalty applies to any person who
sends or conspires with another person to send out of Singapore any book or asset belonging to the CMS
licence holder.

2.9.5 Safeguarding of Books

Section 112 of the SFA requires a CMS licence holder to take reasonable precautions to prevent falsification
of books required to be kept under the SFA and to facilitate the discovery of any falsification of books129. Any
CMS licence holder who contravenes this section shall be guilty of an offence under the SFA.

2.10 Customers’ Moneys and Assets

2.10.1 Definitions130

For the purpose of this section on customer’s moneys and assets, “customer” in relation to the CMS licence
holder, does not include:
1. The CMS licence holder in carrying out any regulated activity for its own account;

128 SFA Section 111 - Offence to destroy, Conceal, Alter, etc., Books.
129 SFA Section 112 - Safeguarding of Books.
130 SFR(LCB) Regulation 15 - Definitions of this Part.

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2. An officer, an employee or a representative of the CMS licence holder; or

3. A related corporation of the CMS licence holder with respect to an account belonging to and maintained
wholly for the benefit of that related corporation.

A reference to “moneys received on account of a customer” of the CMS licence holder includes:
i. Moneys received from, or on account of, the customer in respect of a sale or purchase of any capital
markets products;
ii. Moneys received from, or on account of, the customer for the purchase of or holding of any capital
markets products, or the maintenance of a trading account for any capital markets products by the
customer;
iii. Moneys received from, or on account of, the customer, where the CMS licence holder provides product
financing to the customer;
iv. Moneys received from, or on account of, the customer for the purpose of managing the customer’s funds;
and
v. Moneys received from, or on account of, the customer in the course of the business of the CMS licence
holder,

but does not include:

a) Moneys which are to be used to reduce the amount owed by the customer to the CMS licence holder;
b) Moneys which are to be paid to the customer or in accordance with the customer’s written direction;
c) Moneys which are to be used to defray the CMS licence holder’s brokerage and other proper charges;
d) Moneys which are to be paid to any other person entitled to the moneys; and
e) Moneys received from or on account of a customer who is an institutional investor in connection with any
OTC derivatives contract entered into by the CMS licence holder with the customer, which is not cleared
or settled by a clearing facility and is booked in Singapore.

“Customer’s assets”, in relation to the CMS licence holder means securities and assets , including Government
securities and certificates of deposits, that are beneficially owned by a customer of the CMS licence holder,
but does not include moneys, and securities and assets received from or on account of a customer who is an
institutional investor in connection with any OTC derivatives contract entered into by the holder with the
customer, is not cleared or settled by a clearing facility and is booked in Singapore.

2.10.2 Customers’ Moneys

2.10.2.1 Moneys Received on Account of Customer131

The CMS licence holder must treat and deal with all moneys received on account of its customer as belonging
to that customer.

Where its customer is a retail customer, it shall deposit all moneys received on account of that customer (1)
for OTC derivatives contracts, in a trust account and (2) in any other case, in a trust account maintained in
accordance with SFR (LCB) Regulation 17 or any other account directed by the customer, to which the

131 SFR (LCB) Regulation 16 - Money Received on Account of Customer.

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customer has legal and beneficial title and which is maintained with a financial institution specified under the
SFR (LCB) (refer to Section 2.10.2.2).

Where its customer is not a retail customer, the moneys must be deposited in a trust account or in any other
account directed by the customer.

Moneys received from customers must be deposited no later than the next business day132 after receipt. The
customer’s moneys must not be commingled with other funds, or used as margin or guarantee for, or to secure
any transaction of, or to extend the credit of, any person other than the customer.

Other than for OTC derivatives contracts, the CMS licence holder may commingle monies from different
customers into the same trust account. Where the CMS licence holder offers the customer an option of having
a segregated account from other customers for moneys deposited or paid for in relation to OTC derivatives
contracts, it shall disclose to the customer the additional costs and differences in protection that such
arrangement attracts.

2.10.2.2 Maintenance of Trust Account with Specified Financial Institutions133

The CMS licence holder must maintain a trust account in which it deposits moneys received on account of its
customers with:
i. A bank licenced under the Banking Act;
ii. A merchant bank licensed under the Banking Act; or
iii. A finance company licenced under the Finance Companies Act.

Other than moneys received from a retail customer in respect of OTC derivatives contracts, the CMS licence
holder may deposit customer’s moneys which are denominated in a foreign currency in a trust account or
customer’s segregated account with a custodian outside Singapore which is licensed, registered or authorised
to conduct banking business in the country or territory where the account is maintained, subject to the
customer’s prior written consent.

The CMS licence holder must, before depositing retail customer’s moneys in the trust account, disclose to the
retail customer134:
i. That the moneys are held by a specified financial institution on behalf of the holder;
ii. That the holder may withdraw the retail customer’s moneys from the trust account and deposit the
moneys with an approved or recognised clearing facility or a member of a clearing facility or organised
market;
iii. Whether the moneys are deposited in the same trust account, and commingled with the moneys, of other
customers;
iv. Where the moneys are deposited in the same trust account, and commingled with the moneys, of other
customers, the risk of such commingling;

132 “Business day” means the business day of the CMS licence holder, or if the custodian with whom the trust account is maintained is
closed for business on that day and the CMS licence holder is unable to deposit the money in the account, the next business of the
custodian.
133 SFR (LCB) Regulation 17 - Maintenance of Trust Account with Specified Financial Institutions.
134 SFR (LCB) Regulation 18A – Disclosure to Customers in relation to Moneys Received on Account of Customers.

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v. The consequences for the retail customer’s moneys if the approved or recognised clearing facility or
member of the clearing facility or organised market becomes insolvent, if applicable; and
vi. Where the moneys are placed with a custodian outside Singapore, if applicable, that the laws and practices
of the jurisdiction under which the custodian is based may be different from those in Singapore and that
such differences may affect the ability of the customer to recover the deposited funds.
2.10.2.3 Suitability of Specified Financial Institutions135

The CMS licence holder shall before opening a trust account, conduct initial and periodic due diligence on the
suitability of the specified financial institution for its customers. It must document the procedures for the
conduct of such due diligence, including the frequency of periodic reviews and the approval of its senior
management for such procedures136. Records of the grounds on which it has satisfied itself of the financial
institution’s suitability must also be maintained.

2.10.2.4 Notification and Acknowledgement from Specified Financial Institutions137

Before depositing moneys received on account of its customers, the CMS licence holder must give written
notice to the financial institution and obtain acknowledgement from it that all moneys deposited in the trust
account are held on trust by the CMS licence holder for its customer and the financial institution cannot
exercise any right of set-off against the moneys for any debt owed by the CMS licence holder to the financial
institution; and the account is designated as a trust account, or a customer’s or customers’ account which shall
be distinguished and maintained separately from any other account in which the CMS licence holder deposits
its own moneys.

If a trust account or segregated account is opened with a custodian outside of Singapore, the CMS licence
holder shall, before depositing customer moneys in such account, give written notice to the custodian and
obtain a similar acknowledgement as described above.

2.10.2.5 Customer’s Moneys Held with a Clearing House, etc.138

The holder of a CMS licence to deal in capital markets products may deposit moneys received on account of
its customer, other than moneys received on account of a retail customer for OTC derivatives contracts, with
(1) an approved or recognised clearing house; or (2) a member of an approved or overseas exchange,
recognised market operator or of an approved or recognised clearing house, for the purpose of facilitating
positions and transactions in capital markets products traded, entered, settled or cleared on such entities or
for any other purpose specified under the business rules and practices of the clearing house or exchange, as
the case may be.

2.10.2.6 Investment of Moneys Received on Account of Customers139

A CMS licence holder may hold moneys received on account of its customer on trust for the customer,
including moneys which the CMS licence holder may from time-to-time advance to the customer’s trust
account in any of the following forms of investment:

135 SFR (LCB) Regulations 17(4) and (5) – Maintenance of Trust Account with Specified Financial Institutions.
136 MAS’ Response to Feedback received on Proposed Enhancement to Regulatory Requirements on Protection of Customer’s Moneys
and Assets, paragraph 2.8 (May 2017).
137 SFR (LCB) Regulation 18 - Notification and Acknowledgement from Specified Financial Institutions.
138 SFR (LCB) Regulation 19 - Customer’s Moneys Deposited with Approved Clearing House, etc.
139 SFR (LCB) Regulation 20 - Investment of Moneys Received on Account of Customers.

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i. Any Government securities;

ii. Any debt instrument of the government of the country of an organised market on which the CMS licence
holder normally transacts its business; or
iii. Any other securities or instrument as MAS may determine.

The CMS licence holder shall keep a record of all transactions relating to such moneys including:
a) The date on which the transaction was made;
b) Where applicable, the name of the person through whom the transaction was made;
c) The amount of money invested in the transaction;
d) A description of the transaction;
e) The place, if any, where the moneys and assets are kept;
f) Where applicable, the date on which the subject-matter of the transaction was realised or otherwise
disposed of and the amount of money received from the realisation or disposal; and
g) Where applicable, the name of the person to whom or through whom the subject-matter of the
transaction was disposed of.

2.10.2.7 Moneys Received from Retail Customers140

CMS licence holders shall not enter into any arrangement for the transfer of right, interest benefit or title
relating to retail customer moneys, unless the arrangement is in connection with the lending of the customer’s
specified products and it is in compliance with Regulation 45 of the SFR(LCB).

2.10.2.8 Withdrawal of Moneys from Trust Account141

CMS licence holders must not withdraw any moneys from a customer’s trust account except for the purpose
of:
i. Making a payment to another person entitled thereto;
ii. Making a payment to meet obligation of a customer whose moneys are deposited in that account; being
an obligation that arises from any dealing in capital markets products by the CMS licence holder for the
customer;
iii. Defraying brokerage and other proper charges;
iv. Making a payment to another person or account with written instruction of the customer (except that a
withdrawal must not be made from a retail customer’s trust account to meet any obligation of the CMS
licence holder in relation to any transaction for the benefit of the holder);
v. reimbursing the CMS licence holder any moneys that it had advanced to the account and any interest and
returns that it is entitled to by virtue of SFR(LCB) Regulation 23142, as long as the withdrawal does not
result in the account becoming under-margined or under-funded;

140 SFR (LCB) Regulation 20A – Moneys Received from Retail Customer.
141 SFR (LCB) Regulation 21 - Withdrawal of Money from Trust Account.
142 SFR(LCB) Regulation 23 - Placement of Licensee’s Own Money in Trust Account.

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vi. Making a deposit on account of its customer with a clearing house or a member of a clearing house or
exchange or for an investment in accordance with SFR(LCB) Regulation 20143;
vii. Making a payment or withdrawal that is authorised by law.

2.10.2.9 Interest Arising from Trust Account144

Interest earned from the maintenance of the moneys received on account of the customer in a trust account
and all returns from the investment of moneys in accordance with SFR (LCB) Regulation 20, shall accrue to the
customer. The CMS licence holder has to ensure that the interest or returns accrued to the customer are paid
to or held for the benefit of the customer.

2.10.2.10 Placement of CMS Licence Holder’s Own Moneys in Trust Account145

A CMS licence holder may advance sufficient moneys to a customer’s trust account from its own funds under
the following circumstances:
i. To prevent the customer’s trust account from being under-margined or under-funded; or
ii. To ensure the continued maintenance of that account where it is maintained with a specified financial
institution or custodian.

The CMS licence holder may retain any interest earned and return arising on the moneys which it has advanced
to the account. Subject to SFR (LCB) Regulation 21(1)(e), any moneys belonging to the CMS licence holder that
is deposited into a customer’s trust account may be used for the purpose of payment to the customer.

2.10.2.11 No Effect on Lawful Claims or Liens146

Nothing in SFR (LCB) Division 2147 shall be construed as avoiding or affecting any lawful claim or lien which any
person has in respect of any money held in a trust account in accordance with the Division or any money
belonging to a customer before the money is paid into a trust account.

2.10.2.12 Customer’s and Remisier’s Moneys

In addition, SGX-ST has rules governing the segregation of customers’ and remisiers’ moneys and requires
Trading Members to also comply with SFR (LCB) rules on customers’ moneys.148 Although the SFR (LCB) does
not strictly apply to remisiers’ moneys, the SGX-ST Rules require that the same standards be applied with
certain exceptions149.

Trading Member must:

143 SFR(LCB) Regulation 20 - Investment of moneys received on Account of Customers.

144 SFR (LCB) Regulation 22 - Interest arising from Trust Account, etc.
145 SFR (LCB) Regulation 23 - Placement of Licensee’s Own Money in Trust Account.
146 SFR(LCB) Regulation 24 - No Effect on Lawful Claims or Liens.
147 SFR(LCB) Division 2 – Customer’s Moneys.
148 SGX-ST Rule 4.30 – Segregation of Customer’s and Remisier’s Monies and Assets – Monies; SFR(LCB) Part III, Division 2 – Customer’s

Moneys and Assets and Division 4 - Miscellaneous.

149 For instance, SFR (LCB) Regulation 16(1)(b) is not applicable for remisiers. A Trading Member must deposit all monies received on

account of a remisier in a trust account.

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i. Designate the accounts maintained with specified financial institutions for a customer or a remisier as a
trust account, or a customer or remisier account150;
ii. Deposit moneys received on account of customers in a separate trust account from remisiers151;
iii. Not commingle moneys received on account of its customers or its remisiers with its own funds152.
However, a Trading Member may deposit its own funds into a trust account under the following
circumstances as specified in SFR (LCB) Regulation 23(1) (refer to section 2.10.2.10).
iv. Not withdraw a remisier’s moneys from a trust account except to153:
a) Pay the remisier;
b) Meet any amount due and payable by the remisier to the Trading Member;
c) Reimburse the Trading Member for moneys advanced to the trust account, and any interest and
returns that the Trading Member is entitled to, provided the withdrawal does not result in the
trust account becoming under-margined or under-funded; or
d) Make a payment or withdrawal that is authorised by law.
v. A Trading Member must notify the remisier of any withdrawal made by the next market day154.

2.10.3 Customer’s Assets

CMS licence holders are required to comply with the SFR (LCB) in relation to customer’s assets received and
held on account of the customer or as collateral for any amount owed by the customer to the CMS licence
holder155.

2.10.3.1 Duties of CMS Licence Holders upon Receipt of Customers’ Assets156

The CMS licence holder must deposit a customer’s assets in a custody account held on trust for the customer
and ensure that the customer’s assets are not commingled with any other assets. They should make
arrangements for a custodian to maintain the custody account.

The CMS licence holder shall deposit the customer’s assets in the custody account no later than the business
day immediately following the day on which they receive the assets or is notified of the receipt of such assets,
whichever is the later, unless the assets have in the meantime been returned to the customer or deposited in
an account directed by the customer. In the case where the customer is a retail investor, the CMS licence
holder shall deposit the customer’s assets in an account directed by the customer only if the customer has
legal and beneficial title to the account and it is maintained with a specified custodian (refer to Section
2.10.3.2).

The objective of requiring the segregation of assets is to ensure that the customers’ interest is protected and
returned to customers by liquidators in the event of a liquidation.

150 SGX-ST Rule 4.30.3 – Segregation of Customer’s and Remisier’s Monies and Assets – Monies; SFR(LCB) Regulation 17 – Maintenance
of Trust Account with Specified Financial Institutions.
151 SGX-ST Rule 4.30.4 – Segregation of Customer’s and Remisier’s Monies and Assets – Monies.
152 SGX-ST Rule 4.30.5 – Segregation of Customer’s and Remisier’s Monies and Assets – Monies.
153 SGX-ST Rule 4.30.6 – Segregation of Customer’s and Remisier’s Monies and Assets – Monies.
154 SGX-ST Rule 4.30.7 – Segregation of Customer’s and Remisier’s Monies and Assets – Monies
155 SFR(LCB) Regulation 25 - Application of this Division i.e. Division 3 – Customer’s Assets.
156 SFR(LCB) Regulation 26 - Duties of Holder on Receipt of Customer’s Assets.

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A customer’s assets may be commingled with the assets of another customer and deposited in the same
custody account.

2.10.3.2 Maintenance of Custody Account with Specified Custodians157

The CMS licence holder must maintain a custody account in which it deposits a customer’s assets with:
i. A bank licensed under the Banking Act;
ii. A merchant bank licensed under the Banking Act;
iii. A finance company licensed under the Finance Companies Act;
iv. A depository agent within the meaning of section 81SF of the SFA for the custody of securities listed for
quotation or quoted on SGX-ST or deposited with CDP;
v. An approved trustee for a collective investment scheme within the meaning of section 289 of the SFA; or
vi. Any person licensed under the SFA to provide custodial services.

The CMS licence holder may maintain the custody account itself where it is licensed under the SFA to provide
custodial services.

Subject to the customer’s prior written consent, CMS licence holders may, for the purpose of the safe custody
of the customer’s assets denominated in a foreign currency, maintain the custody account with a custodian
outside Singapore which is licensed, registered or authorised to act as a custodian in the country or territory
where the account is maintained.

The CMS licence holder must, before depositing retail customer assets in the custody account, disclose to the
customer158:
i. That the moneys are held on behalf of the customer in accordance with SFR (LCB) Regulation 27;
ii. That the holder may withdraw the retail customer’s assets from the custody account and deposit the
assets with an approved or recognised clearing house, or member of a clearing facility or organised
market;
iii. Whether the assets are deposited in the same custody account, and commingled with the assets, of other
customers and the risks of such commingling;
iv. The consequences for the retail customer’s assets if the custodian with which the custody account is
maintained becomes insolvent;
v. Where the assets are placed with a custodian outside Singapore, if applicable, that the laws and practices
of the jurisdiction under which the custodian is based may be different from those in Singapore and that
such differences may affect the ability of the customer to recover assets deposited in the custody account.

2.10.3.3 Notification and Acknowledgment from Specified Custodian159

Before depositing a customer’s assets in the account, the CMS licence holder must give written notice to the
custodian, and obtain an acknowledgment from the custodian that:

157 SFR(LCB) Regulation 27 - Maintenance of Custody Account with Specified Custodians.

158 SFR (LCB) Regulation 27A – Disclosure to Customers in relation to Assets Received on Account of Customers.
159 SFR(LCB) Regulation 28 - Notification and Acknowledgment from Specified Custodians.

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i. All assets deposited in the custody account are held on trust by the holder for its customer; and
ii. The account is designated as a trust account, or a customer’s or customers’ account, which shall be
distinguished and maintained separately from any other account in which the holder deposits its own
assets.
If a custody account is opened with a custodian outside of Singapore, the CMS licence holder shall, before
depositing customer assets in such account, give written notice to the custodian and obtain a similar
acknowledgement as described above.

2.10.3.4 Suitability of Custodian160

The CMS licence holder which maintains its customer’s assets in a custody account must:
i. Before opening the custody account, conduct initial and periodic due diligence as to the custodian’s
suitability for the holder’s customers or class of customers; and
ii. Maintain records of the grounds on which it has satisfied itself of the suitability of the custodian.

2.10.3.5 Customer’s Assets Held with Clearing House, etc.161

The holder of a CMS licence to deal in capital markets products may deposit customer assets with (1) an
approved, recognised or overseas clearing house or (2) a member of an approved or overseas exchange,
recognised market operator or of an approved, recognised or overseas clearing house, for the purpose of
facilitating positions and transactions in capital markets products traded, entered, settled or cleared on such
entities or for any other purpose specified under the business rules and practices of the clearing house or
exchange, as the case may be.

2.10.3.6 Customer Agreement162

A CMS licence holder providing custodial services for its customer’s assets must notify the customer of the
terms and conditions that would apply to the safe custody of the customer’s assets. These shall include:
i. The arrangements for the giving and receiving of instructions by or on behalf of the customer in respect
of the services to be provided including, where applicable, the arrangements for the giving of authority by
the customer to another person and the extent of that authority and any limitation thereto;
ii. Any lien over or security interest in the assets by the holder or a third party;
iii. The circumstances under which the holder may realise the assets held as collateral to meet the customer’s
liabilities to the holder;
iv. Where the customer’s assets are to be held with a custodian other than the holder, the liability of the
holder in the event of default by the custodian;
v. Where the holder intends to commingle the customer’s assets with those of other customers and maintain
such assets with a custodian other than itself, a statement that the customer’s interest in the assets may
not be identifiable by separate certificates, or other physical documents or equivalent electronic records,
and a condition that the holder shall maintain records of the customer’s interest in the assets that have
been commingled;

160 SFR(LCB) Regulation 29 - Suitability of Custodian.

161 SFR (LCB) Regulation 30 - Customer’s Assets Held with Approved Clearing House, etc.
162 SFR(LCB) Regulation 31 - Customer Agreement.

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vi. The person in whose name the assets are registered;

vii. The arrangements in relation to claiming and receiving dividends, interest payments and other
entitlements accruing to the customer, and the exercise of any right and power arising from ownership of
the assets;
viii. The arrangements for the provision of information relating to the custody of the asset to the customer;
and
ix. All applicable fees and costs for the custody of the assets.

2.10.3.7 Custody Agreement163

Before placing its customer’s assets in a custody account with a custodian, the CMS licence holder must agree
with the custodian, in writing, to the following:
i. That the account shall be designated as that of the customer or customers;
ii. That the custodian shall hold and record the assets in accordance with the holder’s instructions; and the
records shall identify the assets as belonging to the holder’s customer and the assets shall be kept separate
from any asset belonging to the holder or to the custodian;
iii. That the custodian shall not claim any lien, right of retention or sale over any asset standing to the credit
of the custody account, except:
a) Where the holder has obtained the customer’s written consent and notified the custodian in writing
of the written consent; or
b) In respect of any charges as agreed upon in the terms and conditions relating to the administration or
custody of the assets;
iv. That the custodian shall provide sufficient information to the holder in order that the holder may comply
with its record-keeping obligations under the SFA, SFR(LCB) or under any other law;
v. The person in whose name the assets are registered;
vi. That the custodian shall not permit any withdrawal of the assets from the custody account, except for
delivery of the assets to the holder or on the holder’s written instructions;
vii. The arrangements for dealing with any entitlement arising from the assets in the custody account, such as
coupon or interest payment;
viii. The extent of the custodian’s liability in the event of any loss of the assets maintained in the custody
account caused by fraud or negligence on the part of the custodian or any of the custodian’s agents; and
ix. The applicable fees and costs for the custody of the assets.

Unless the CMS licence holder is licensed to provide custodial services for customer’s assets, it must disclose
to the customer the terms and conditions agreed with the custodian before depositing its customer’s assets
in a custody account.

2.10.3.8 Lending of Customer’s Specified Products164

A CMS licence holder may lend or arrange for a custodian to lend its customer’s assets which are specified
products if the following conditions are met:

163 SFR(LCB) Regulation 32 - Custody Agreement.

164 SFR(LCB) Regulation 33 - Lending of Customer’s Specified Products.
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i. The CMS licence holder has explained the risks involved to the customer; and
ii. Obtained the customer’s written consent to do so.

Paragraph (i) above does not apply to a CMS licence holder who lends or arranges for a custodian to lend the
specified products of a customer who is an accredited investor, expert investor or institutional investor.

Before the commencement of such lending, the CMS licence holder must enter into an agreement with that
customer setting out the terms and conditions for such lending with the customer whose specified products
are to be lent. If the CMS licence holder arranges for a custodian to lend a customer’s specified products, it
must also enter into an agreement with the custodian setting out the terms and conditions for the lending and
disclose these terms and conditions to the customer.

2.10.3.9 Mortgage of Customer’s Assets165

Where the customer owes moneys to the Trading Member, the Member may mortgage, charge, pledge or
hypothecate its customer's assets for a sum not exceeding the amount the customer owes the Member.

This, however, does not apply if there is an excess arising on any day through the reduction of the amount
owed by the customer on that day, but only if the Member pays or transfers to the mortgagee, charge or
pledgee concerned any moneys or assets of an amount sufficient to reduce such excess as quickly as possible
after the excess occurs and, in any event, no later than the next business day.

A CMS licence holder may mortgage, charge, pledge or hypothecate its customer’s assets under the following
circumstances:
i. Subject to an agreement between the CMS licence holder and its customer, where the CMS licence holder
is owed moneys by the customer, the CMS licence holder may mortgage, charge, pledge or hypothecate
the customer’s assets but only for a sum not exceeding the amount owed by the customer to it.
ii. The CMS licence holder must, before mortgaging, charging, pledging or hypothecating a retail customer’s
assets, inform the retail customer that it would do so only for a sum not exceeding the amount owed by
the customer to the holder, explain the risks involved to the retail customer and obtain the retail
customer’s written consent.
iii. The CMS licence holder does not contravene the regulation by reason only of an excess arising on any day
through the reduction of the amount owed by the customer to the holder on that day, but only if the
holder pays or transfers to the mortgagee, chargee or pledgee concerned moneys or assets of an amount
sufficient to reduce such excess as promptly as practicable after the excess occurs and, in any event, no
later than the next business day.

CMS licence holders may mortgage, charge, pledge or hypothecate the customers’ assets together if and only
if:
a) The sum of the claims to which such customers’ assets are subject as a result of such mortgage, charge,
pledge or hypothecation does not exceed the aggregate amounts owed by the customers to the holder;
and
b) The claim to which each customer’s assets are subject as a result of such mortgage, charge, pledge or
hypothecation does not exceed the amount owed by the customer to the holder.

165 SFR(LCB) Regulation 34 - Mortgage of Customer’s Assets.

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2.10.3.10 Assets Received from Retail Customer166

CMS licence holders shall not enter into any arrangement for the transfer of any right, interest, benefit or title
relating to a retail customer’s assets, unless the arrangement is in connection with the borrowing or lending
of the customer’s specified products and complies with the relevant regulations.

2.10.3.11 Withdrawal of Customer’s Assets167

The CMS licence holder must not withdraw any of its customer’s assets from a custody account except for the
purpose of:
i. Transferring the asset to any person entitled thereto;
ii. Meeting the customer’s obligation arising from any dealing in capital markets products by the holder for
the customer;
iii. Transferring the asset to any person or account in accordance with the customer’s written directions
(except that a transfer must not be made to meet any obligation of the CMS licence holder in relation to
any transaction for the benefit of the holder);
iv. Specified products lending;
v. Mortgaging, charging, pledging or hypothecating the assets in accordance with SFR(LCB) Regulation 34;
vi. Making a deposit in accordance with SFR(LCB) Regulation 30; or
vii. Making a transfer that is authorised by law.

2.10.3.12 No Effect on Lawful Claims or Liens

Nothing in SFR (LCB) Division 3168 shall be construed as avoiding or affecting any lawful claim or lien which any
person has in respect of any moneys held in a custody account in accordance with the Division or any moneys
belonging to a customer before the moneys are paid into a custody account.

2.10.3.13 Customer’s and Remisier’s Assets

In addition, SGX-ST has rules governing segregation of customers’ and remisiers’ assets and requires Trading
Members to comply with the SFR (LCB) in this regard169.

Although the SFR (LCB) does not strictly apply to remisiers’ assets, the SGX-ST Rules require that the same
standards be applied, save for the disapplication of the following SFR (LCB) regulations for remisier’s assets170:
• SFR(LCB) Regulation 30 on depositing customer’s assets with an approved clearing house, a recognised
clearing house, a member of an organised market or a member of a clearing facility for certain
purposes (refer to Section 2.10.3.5);
• SFR(LCB) Regulation 33 on lending of customer’s specified products (refer to Section 2.10.3.8); and
• SFR(LCB) Regulation 34 on mortgage of customer’s assets (refer to Section 2.10.3.9).

166 SFR (LCB) Regulation 34A – Assets Received from Retail Customer.
167 SFR(LCB) Regulation 35 - Withdrawal of Customer’s Assets.
168 SFR(LCB) Division 3 – Customer’s Assets.
169 SFR(LCB) Division 3 – Customer’s Assets; SGX-ST Rule 4.31 - Segregation of Customer’s and Remisier’s Monies and Assets – Assets.
170 SGX-ST Rule 4.31.2 – Segregation of Customer’s and Remisier’s Monies and Assets – Assets

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SGX-ST rules also stipulate that a Trading Member must:

i. Designate the accounts maintained with a specified financial institution under SFR (LCB) Regulation 27171
for a customer or a remisier as a trust account, or a customer or remisier account, as the case may be172;
ii. Deposit assets of its customers in a separate custody account from remisiers;
iii. Not commingle the assets of a customer or remisier with its own assets;
iv. Not withdraw a remisier’s assets from a custody account except to:
a) Return the assets to the remisier;
b) Use the assets to meet any amount due and payable by the remisier to the Trading Member; or
c) Make a transfer or withdrawal that is authorised by law.
v. Notify the remisier of any withdrawal made by the next market day.

171 SFR(LCB) Regulation 27 - Maintenance of Custody Account with Specified Custodians.

172 SGX-ST Rule 4.31.3 – Segregation of Customer’s and Remisier’s Monies and Assets – Assets.
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Chapter 3:
The Trading System and
Infrastructure
Learning Objectives

The candidate should be able to:

Securities Trading Infrastructure

✓ Understand the trading infrastructure that SGX-ST provides to its member companies.

✓ Know the responsibilities of the member companies with respect to automated order processing.

✓ Know the principal means for member companies to ensure that orders submitted to SGX-ST can
comply with the regulatory requirements.

✓ Understand the Trading System for the automatic matching of orders designated and approved
by SGX-ST for the transactions on SGX-ST.

✓ Know the securities products traded on SGX-ST.

Trading Mechanics
✓ Know the trading hours on SGX-ST and its different market phases.

✓ Know the minimum bid sizes for shares of various prices.

✓ Be able to differentiate “cum” basis from “ex” basis of securities.

✓ Know how contracts can be cancelled and how error occurs.

✓ Know the factors SGX-ST may consider when deciding whether to cancel an error trade.

✓ Know the conditions under which a Trading Member may execute Direct Business.

✓ Know the circumstances for suspension on restriction of trading and trading halts.

Settlement
✓ Know the mode of delivery and settlement for trades in eligible securities.

✓ Be familiar with the timetable for settlement of trades.

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3.1 Introduction

Securities or futures contracts which are listed or quoted on SGX-ST must be traded and matched through the
SGX Trading System173. A Trading Member must ensure that its system and connections to the Trading System
operate properly and have adequate redundancy and scalable capacity to accommodate current and
anticipated trading volume levels and comply with any other relevant requirements imposed by SGX-ST174.

This chapter covers rules on:

• Market access and connectivity.
• Risk management and order processing.
• Settlement procedures.

3.1.1 Market Access and Connectivity

SGX provides a sound and efficient trading infrastructure that enables Trading Members easy and reliable
access into its securities market. Market participants and investors may choose a variety of ways to access the
market. The trading infrastructure of SGX-ST allows member firms to choose from a variety of front-end order
management system (OMS) to execute orders and receive market data. These OMSs are provided by Trading
Members, brokers and independent software vendors.

3.1.2 Connectivity Options to SGX-ST Trading System

3.1.2.1 Direct Market Access (DMA)

Trading Members may link their OMS directly to the SGX-ST Trading System by interfacing the Member’s OMS
system to the SGX-ST Trading System, which is owned and supported by SGX-ST. The SGX-ST Trading System
connectivity provides market information and routing of orders.

The OMS system allows a Trading Member to configure credit control limits, risk management features, trade
prevention and alerts requirements according to their own internal policies and procedures whilst allowing
the interface for direct access to flow orders and market information to and from the SGX-ST Trading System
connectivity. Before such interfaces are done, SGX-ST requires the Trading Member’s OMS system to undergo
a conformance and assessment test for compatibility, stability and security to ensure adequacy of systems and
connections to the SGX-ST Trading System.

A Trading Member may authorise DMA (including Sponsored Access – refer to Section 3.1.2.2) for its
customers in respect of organised markets established by or operated by SGX-ST or such markets as SGX-ST
specifies175, subject to such conditions and requirements as prescribed by SGX-ST. Refer to Figure 3.1.2(1).

173 SGX-ST Rule 8.1 – Trading.

174 SGX-ST Rule 4.1 – Member Systems.
175 SGX-ST Rule 4.2.1 - Direct Market Access and Sponsored Access.

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Figure 3.1.2 (1) - DMA

Trading Member SGX-ST Trading

Customer
System
Order Order
Flow Flow

3.1.2.2 Sponsored Access

A Trading Member may permit its customers and any other persons to use its member ID to transmit orders
for execution directly into SGX-ST without using the Trading Member’s infrastructure. This is known as
Sponsored Access and is usually offered by a Trading Member to customers who are market makers and high
frequency traders who need very quick access to the SGX-ST Trading System.

All orders will be routed to SGX-ST Trading System for matching of trades. Refer to Figure 3.1.2 (2).

Figure 3.1.2 (2) - Sponsored Access

Trading Member

SGX-ST Trading
Customer System
Order Flow

3.1.2.3 Conditions for DMA and Sponsored Access

For every customer that a Trading Member authorises DMA (including Sponsored Access), a legally binding
agreement setting out the DMA terms and conditions should be entered into between the Trading Member
and the customer, and the Trading Member must have measures in place for176:
1. The customer to meet minimum standards including standards on financial standing, credit history and
criminal records, adverse records or pending court proceedings relating to prohibited market conduct;
2. The customer to have appropriate procedures in place to assure that all relevant persons:
a) Are familiar with and comply with SGX-ST rules;
b) Have knowledge and proficiency in the use of the order management system;
3. The customer to be provided information concerning its access to the Trading System and applicable laws;
4. The customer to have security arrangements in place to ensure that unauthorised persons are denied
such DMA;
5. The customer to promptly assist SGX-ST in any investigation into potential violations of these Rules and
applicable laws, including the provision of information to SGX-ST relating to the identity and address of
any person who may be responsible for the execution of an order or trade;

176 SGX-ST Rule 4.2.3 – Direct Market Access and Sponsored Access.

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6. The customer to comply with SGX-ST Rules 4.1 and 4.13 (in a case where the customer is given Sponsored
Access);
7. The customer to be permitted to delegate, and any other person to be permitted to delegate, Sponsored
Access only if the delegating person is:
(a) Regulated by a recognised regulatory authority in respect of any regulated activity177; or
(b) A SGX-ST Trading Member, in which event it may only delegate Sponsored Access to its related
corporations;
8. The customer to ensure, and any other person delegating Sponsored Access to ensure, that all persons
given Sponsored Access are included in a register recording the identity and address of all relevant
persons; and
9. The customer to ensure, and any other person delegating DMA to ensure, that all persons given DMA are
subject to these requirements.

SGX-ST may require a Trading Member to provide to it with a report by an independent reviewer on the
Member's compliance with the above requirements.

Further, a Trading Member that authorises Sponsored Access for its customers must maintain a register
recording the identity and address of all customers with Sponsored Access and produce such register to SGX-
ST at its request. 178

3.1.3 Suspension and Termination of DMA179

SGX-ST may without prior notice suspend or terminate, or direct a Trading Member to immediately suspend
or terminate a person’s DMA if:
• The person fails to assist SGX-ST with any investigation into potential violations of SGX-ST Rules governing
DMA and applicable laws;
• If it is in the interest of a fair, orderly and transparent market; or
• The person or Trading Member has breached the SGX-ST Rules or any applicable laws.

A Trading Member must have the ability to immediately suspend or terminate a customer’s DMA when
necessary for the fulfilment of its duties under the SGX-ST Rules180 or any other reason.

3.2 SGX-ST Products

SGX-ST’s securities and securities-based derivatives products are traded on an electronic screen-based system,
and include the following:

177 "Recognised regulatory authority" refers to a signatory to the International Organization of Securities Commissions' Multilateral
Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information, and “regulated activity”
has the same meaning as in the SFA.
178 SGX-ST Rule 4.2.2 – Direct Market Access and Sponsored Access.
179 SGX-ST Rule 4.3 - Suspension and Termination of Direct Market Access.
180 SGX-ST Rule 4.3.2 - Suspension and Termination of Direct Market Access.

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• Bonds, Debentures and Loan Stocks;

• Business Trusts;

• Equities;

• Exchange Traded Funds (ETFs);

• Leveraged and Inverse Products (L and I Products);

• American Depositary Receipts (ADRs);

• Global Depositary Receipts (GDRs;)

• Real Estate Investment Trusts (REITs)

• Daily Leverage Certificates (DLCs);

• Structured Warrants.

Under the SFA181:

• “Securities” generally refer to shares, debentures, units in a business trust or any instrument conferring or
representing an ownership interest in a corporation, partnership or limited liability partnership.

• Units in ETFs and REITs are units in a collective investment scheme.

• L and I Products, DLCs and structured warrants are securities-based derivatives contracts. These are
generally derivatives that are based on an underlying thing that is a security or a securities index.

3.3 Risk Management and Order Processing

A Trading Member must establish and maintain procedures and systems to prevent any breach of the SGX-ST
Rules by its directors, officers, Trading Representatives, employees and agents182. It should also ensure that
any person carrying out or enforcing its procedures and systems reasonably discharges his or her duties and
obligations.

A Trading Member must also have written policies and procedures on risk management controls and
demonstrate compliance in the following areas183:
1. Monitoring the credit risks arising from the acceptance of all orders on at least a daily basis;
2. Ensuring that:
a) Adequate pre-execution risk management control checks are conducted on all orders, including
automated credit control checks on all orders and trading limits for each Trading Representative; and
b) There are appropriate internal controls for the setting and modification of any parameters of such
pre-execution risk management control checks;

181 SFA Section 2(1) – Interpretation.

182 SGX-ST Rule 4.6.3 – Training and Supervision.
183 SGX-ST Rule 4.10 - Risk Management and Financial Controls.

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3. Having error-prevention alerts to bring attention to possible erroneous entries of price, order size and
other data fields; and
4. Defining and managing the Trading Member’s sources of liquidity to ensure that there are sufficient
liquidity facilities to meet settlement obligations.

A Trading Member must have automated processes and procedures in place to monitor at the firm level if the
Trading Member is at risk of breaching capital and financial requirements and prudential limits on exposures
to a single customer and a single security, so as to restrict trading activity, inject additional capital or take such
steps as are necessary to prevent such breach.

3.3.1 Pre-Execution Checks

In order to manage risk in the Trading System, all orders must be subject to adequate pre-execution checks184,
including automated credit control checks on every order and trading limits for each Representative. These
checks must be appropriately set to effectively limit the firm’s risk exposure from every order (including
proprietary orders) to prevent the taking on of excessive risk. The parameters of pre-execution checks and
filters may include but are not limited to:
i. Dollar limit to control the gross buy and sell value and/or net buy/sell value. This limit may be applied to
an individual customer, a Representative, a group of related accounts or a proprietary account;

ii. Security limit to control the dollar/quantity exposure to each security. This limit may be used to control
concentration risk for each customer and for the Trading Member’s accounts as a whole on a per-security
basis;

iii. Dollar/quantity limit and price limit for each order. This allows for the detection of errors in inputting
orders. For example, if a customer or Representative were to enter an unusually large sized order or an
order at a price that is far from the prevailing price, they could be alerted for confirmation of the order
before it is accepted by the system;

iv. Controls to restrict customers to selected markets, order types and securities.

Pre-execution risk management control functions may include the following:

i. The ability to adjust credit or quantity limits in real time during a trading session;

ii. The ability to set permission levels (e.g. access to selected products/instruments) and revoke the access
of a Representative or customer on a real time basis; and

iii. The ability to intercept orders that exceed credit or trading limits on a real-time basis and trigger error-
prevention alerts.

Trading Members who authorise Sponsored Access will be able to meet the requirements of SGX-ST Rule on
Pre-Execution Checks by being able to directly set and control pre-determined automated limits in the
Sponsored Access customer’s system, having automated alerts whenever such limits are altered, and by
conducting regular post-execution reviews of trades. Trading Members should assess and continue to ensure
that the pre-execution risk management control checks are robust on an ongoing basis.

184 SGX-ST Practice Note 4.10.1(B) – Pre-Execution Checks.

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3.3.2 Error Prevention

Trading Members must have error-prevention alerts to bring attention to possible erroneous trade entries.185

The types of error-prevention alerts to be made available may include but are not limited to price or order size
alerts to alert Representatives and customers of possible erroneous entries in relation to price or quantity. 186

Price alerts should trigger when the order price is far away from the prevailing market price in that it deviates
by:
i. A certain percentage; or
ii. A certain number of ticks, as compared to the prevailing market price. The prevailing market price may be
the last traded price, the previous settlement price, the closing price or the opening price, as appropriate.

Errors can be destabilising to the market and can cause financial losses if they are not intercepted early.

Example:
In 2007, a trader at a CMS licence holder (which is also a Trading Member of SGX) mistakenly sent an order
to sell 300,000 shares at a price of 1 JPY, when he had intended to sell 1 share at a price of 300,000 JPY.
With no alerts in place, the order was sent to the exchange, triggering a wave of selling and stop-loss orders,
adding to the selling pressure in the market.

The incident caused confusion in the markets and resulted in financial losses incurred by multiple parties as
a result of panic selling. The case reinforces the need for system adequacy and robust internal control
measures to be implemented by Trading Members when DMA is granted to provide flexibility and
convenience to customers.

3.3.3 Algorithmic Trading

Where a Trading Member employs algorithms to place orders that follow a pre-defined set of instructions in
the market, controls ought to be in place to ensure that the algorithms execute as intended, and do not
malfunction causing disorderliness or disruption to the market.

A Trading Member and Representative can refer to the Algorithmic Trading Regulatory Guide published by
SGX RegCo on SGX website to obtain an overview of the common types of algorithms observed in the SGX
market, as well as the oversight, pre-trade controls and post-trade checks expected to be in place to ensure
algorithms do not cause negative market impact.

185 SGX-ST Rule 4.10.1(c) – Risk Management and Financial Controls.

186 SGX-ST Practice Note 4.10.1(C) - Error Prevention Alerts.
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3.4 Trading Mechanics

3.4.1 Trading187

A security or futures contract listed or quoted on SGX-ST must be traded and matched through the Trading
System or as otherwise allowed under SGX-ST Rules.

3.4.2 Trading Hours and Market Phases188

The trading hours, market phases, application of the market phases, and principles and rules for trade
matching are published by SGX-ST. SGX-ST reserves the right to vary them. The trading hours and market
phases are set out in Table 3.4.2:

Table 3.4.2 Trading Hours and Market Phases

Normal Day Trading

Market Phase Start End

Pre-Open 8.30 am 8.58 - 8.59 am

Non-Cancel 8.58 - 8.59 am 9.00 am

Trading 9.00 am 12.00 pm

Mid-Day Break 12.00pm 1.00pm

Pre-Open 12.00pm 12.58 – 59pm

Non-Cancel 12.58 – 59pm 1.00pm

Trading 1.00pm 5.00pm

Pre-Close 5.00 pm 5.04 - 5.05 pm

Non-Cancel 5.04 - 5.05 pm 5.06 pm

Trade at Close 5.06 pm 5.16 pm

Half-Day Trading

Market Phase Start End

Pre-Open 8.30 am 8.58 - 8.59 am

187 SGX-ST Rule 8.1.1 – Trading.

188
SGX-ST Rule 8.2.1 – Trading Hours, Market Phases and Rules for Trade Matching; SGX-ST Regulatory Notice 8.2.1 – Trading Hours,
Market Phases, Application of Market Phases and Principles and Rules for Trade Matching.

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Market Phase Start End

Non-Cancel 8.58 - 8.59 am 9.00 am

Trading 9.00 am 12.00 pm

Pre-Close 12.00 pm 12.04 - 12.05 pm

Non-Cancel 12.04 – 12.05 pm 12.06 pm

Trade at Close 12.06 pm 12.16 pm

• Pre-Open/Pre-Close - This phase allows for order entry, order modification and withdrawal of orders but
no matching of orders.

• Non-cancel – As the name implies, no order entry and amendments are allowed in this phase. All existing
orders are matched at a single price according to the algorithm set by SGX-ST. All unmatched orders,
except at the close of trading are carried out in the next phase.
• Trading – This phase allows for order entry, order modification and withdrawal of orders. All orders are
matched in accordance with price priority, subject to SGX-ST Rule 8.14 – Circuit Breakers and Cooling Off
Periods (refer to Section 3.4.10), followed by time priority.
• Closing – The closing routine is a 6-minute session after trading stops at 5.00 pm (for normal day trading)
and 12.00 pm (for half-day trading). It comprises the Pre-Close Phase and the Non-Cancel Phase. All
unmatched orders are carried forward to the Closing Routine. This routine is designed to reduce the risk
of manipulating closing prices with a single transaction at an unusually high or low price, just before the
trading session ends.
• Adjust –This phase allows order entry, order modification and withdrawal of orders. At the end of this
phase, orders will be matched at a single price based on the algorithm set by SGX-ST. All unmatched orders
will be carried over to the next phase.

• Trade at Close – The Trade at Close Phase is a 10-minute session that begins after the Closing Routine
ends at 5.06 pm (for normal day trading) and 12.06 pm (for half-day trading). Unmatched orders (with
the exception of long-dated orders) at the end of Trade at Close Phase will lapse.

3.4.3 Principles and Rules for Trade Matching189

The methodology for computing the single price at which orders are matched at the end of the Opening
Routine, Mid-Day Break, Closing Routine and Adjust Phase (Equilibrium Price) is as follows:
• The Equilibrium Price is the price that has the largest tradable volume and the lowest imbalance.
“Imbalance” refers to the net difference between the cumulative bid volume and cumulative ask volume.
• If the highest tradable volume occurs at more than one price, the Equilibrium Price is the price with the
lowest imbalance.

189 SGX ST Regulatory Notice 8.2.1 – Trading Hours, Market Phases, Application of Market Phases and Principles and Rules for Trade
Matching

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• If market orders are present and the market order volume on one side exceeds the cumulative order
volume on the opposite side, there would be a Market Order Surplus. This means that the lowest imbalance
occurs at “Market Price”. In this situation, one tick will be added on the side with the Market Order Surplus
and that would be the Equilibrium.
• If the highest tradable volume and the lowest imbalance occurs at more than one price (“the price
overlaps”), the Equilibrium Price is determined by market pressure:
a) with only buy pressure within the price overlap, the Equilibrium Price is the highest price within the
price overlap; or
b) with only sell pressure within the price overlap, the Equilibrium Price is the lowest price within the
price overlap.
• If the highest tradable volume and lowest imbalance occur at more than one price and there is both buy
and sell pressure or nil pressure within the price overlap, the Equilibrium Price is:
a) the price within the price overlap that is closest to the last traded price; or
b) where there is no last traded price, the lowest price within the price overlap.

3.4.4 Order Types and Order Validities

3.4.4.1 Order Types

Order types available in the SGX-ST Trading System include:

• Limit Orders;

• Market Orders;

• Market-to-Limit Orders;

• Session State Orders; and

• Price Triggered Orders – Stop Orders and If-Touched Orders.

3.4.4.2 Order Validities

There are 2 main execution orders for orders executed on the SGX-ST Trading System. They are “Fill or Kill”
(FOK), where the order is matched in entire quantity or completely cancelled. There is no partial fill, and the
order is not stored in the order book. The other is “Fill and Kill” (FAK), where the order is matched with as
much quantity as possible and the unmatched quantity is cancelled. The order is not stored in the order book.

The Trading System offers the following time-in-force validities:

• Day order – The order is valid only on the day the order is entered into the order book. If it is not matched,
it will be removed from the order book at the end of the trading day.

• Long dated order – The order is valid in the order book for a specific period of time. It stays in the order
book until it is fully filled, specifically cancelled, or the instrument is de-listed or expired. Long dated orders
on SGX are valid for up to maximum of 30 days.

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Long dated orders include Good-Till-Date (GTD) and Good-Till-Maximum (’GTM). GTD order will come with a
date the order will expire, subject to a date that is within 30 days from the day the order is placed. GTM orders
will sit in the order book for 30 days.

Investors who intend to use long dated orders should note that as the order is left on the order book for a
period of time, market conditions could change, and the order may become unfavourable. The order may
incur more transaction cost if the order is partially filled each day and commissions are charged on each day
that an execution occurs. In addition, long dated orders will be purged when there are corporate actions in
the stock/units or when the validity of the order expires.

3.4.4.3 Limit Orders

A limit order is an order which is entered into the order book with both the price, maximum buy price or
minimum sell price, and quantity that a buyer or seller is willing to trade at. The behaviour of the limit order
is dependent on the time validity selected.

Investors who wish to minimise slippage can choose limit orders as such orders are used to buy at or below
the prevailing market price or to sell at or above the prevailing market price. However, investors using limit
orders have no guarantee that the order will be filled.

3.4.4.4 Market Orders

A market order is an order which is entered into the order book with a specified quantity but without a price.
It is purely volume-based and has no target price. It is an instruction to trade at the best price currently
available in the market.

A market order prioritises execution over all other factors. It will trade through the order book to match the
specified quantity. That is, one market order can match with opposite orders of different price levels of the
order book until the entire market order volume is filled.

The main advantage of a market order is that the transaction is completed immediately. If an investor sees a
good price, the best way to secure a trade is to place a market order as it has priority over the limit orders.
This allows investors to take advantage of price swings as they happen.

Investors who intend to use market orders must note the following:
• There is no guarantee that an order will be filled at a target price. That is, a buy order could be filled at a
much higher price than intended, or a sell order can be filled at a much lower price than intended.
• Using market orders during a volatile market is not recommended as there is a higher probability that the
prices will change quickly. Hence, the incidence of ‘slippage’ is higher in fast-moving markets or for illiquid
securities with thin order book and wide bid-ask spread.
• The order may be split across multiple investors on the other side of the transaction, resulting in different
prices for the order.

3.4.4.5 Market-to-Limit Orders

A market-to-limit order is an order which is entered into the order book with a quantity but without a price,
just like a market order. However, it will only match at the current best bid or ask price and not trade through
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the order book. If the order is only partially filled after matching at the current best price, the remainder is
submitted as a limit order at the same price that the earlier match occurred.

Investors can consider market-to-limit orders instead of market orders as such orders benefit them by
ensuring execution for at least a portion of the order at one price while avoiding the risk of the rest of the
order getting filled at too high a price.

3.4.4.6 Session State Orders

A session state order (SSO) is an instruction to place an order into an order book at a specific session state of
a trading day. An SSO is not visible to the rest of the market before it is being triggered. SSOs that are not
activated by the end of the trading day will be automatically deleted from the system.

SSOs allow investors to prepare their orders in advance of session state changes. Investors can specify the
session in which to trigger their orders. SSOs improve order management as investors are able to prepare their
orders at Pre-Open to set it to trigger at Open. This will ensure that their orders are entered on time for Market
Open. In addition, placing a SSO at any time during continuous trading to be triggered at the closing routine
allows investors to ensure that their orders will be inserted into the closing auction.

3.4.4.7 Price Triggered Orders

Price Triggered Orders (PTOs) allow market participants to buy or sell an instrument when the trigger price
condition is reached. The Trading System offers 2 types of PTOs, namely, Stop Orders and If-Touched Orders.

A Stop Order is an instruction containing a target price and volume that will be converted into an actual order
in the order book once the target price is met. A stop order can either be a stop limit order or a stop market
order, which will determine the nature of the actual order created once the trigger condition is met. Once
activated, the stop market order will be treated the same as a regular market order and the stop limit order
will be treated as a regular limit order.

Stop orders are used when an investor wants to execute an order at a specific price, but the market is not
currently trading at that price. They are useful for breakout trades where an investor wants his order executed
only if the market trades past a particular price. Stop orders can be used to:
i. Minimise a loss or protect a profit on an existing long or short position
Stop orders are generally used as protection against runaway prices. For instance, in a falling market, an
investor who is long a particular counter may want to enter a stop sell order which will likely limit the
losses faced as a result of such decline. Similarly, in a rising market, an investor who is short a particular
counter may enter a stop buy order to limit the losses faced in covering the short position.
ii. Initiate a new long or short position
Stop orders benefit investors by allowing them to trade without having to constantly monitor market
movements. It is particularly of use in fast-moving markets, where investors may not be able to react
quickly enough to limit losses arising from trading positions.

Investors intending to use stop orders must note the following:

• The stop price may be activated by a short-term fluctuation in a stock's price.

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• For stop market orders, once the stop price is reached, the stop order becomes a market order and the
transacted price may be quite different from the stop price, especially in a fast-moving market or in a
cascading price scenario where stock prices can change rapidly.
• It is possible to avoid the risk of a stop market order not guaranteeing a specific price by placing a stop-
limit order.

An if-touched order is largely similar to a stop order. It is also an instruction containing a target price and
volume that will be converted into an actual order in the order book once the target price is met. An if-touched
order can either be a limit-if-touched order or a market-if-touched order, which will determine the nature of
the actual order created once the trigger condition is met.

Market-if-touched order benefits investors by providing the flexibility to buy and sell at specific price levels
without investors having to constantly monitor market movements. It is particularly of use in fast-moving
markets, when investors may not be able to react in time to take advantage of buying or selling opportunities.

The difference between a stop order and an if-touched order is that a stop order is typically used as a loss-
limiting mechanism in respect of open positions, while an if-touched order is used to create new positions in
anticipation of a particular reversing trend. In a falling market, an investor may want to enter the market at a
favourable price should the market rebound. Similarly, in a rising market, an investor may want to enter into
a short position should the price begin to fall.

Investors intending to use if-touched orders must note the following:

• The trigger price may be activated by a short-term fluctuation in a stock's price.
• For if-touched market orders, once the trigger price is reached, the order becomes a market order and the
transacted price may be quite different from the intended price, especially in a fast-moving market or in a
cascading price scenario where stock prices can change rapidly.
• It is possible to avoid the risk of an if-touched market order not guaranteeing a specific price by placing an
if-touched limit order. However, with limit order the rest of the unfilled order may not be executed if the
price moves beyond the limit price.

Investors must take note that once the market-if-touched order is triggered, the order will be injected into the
order book as a market order which comes with the associated risk of a market order. The use of a limit-if-
touched order may reduce the risk of being filled at a too unfavourable price when the order is triggered.

3.4.5 Orders190

The minimum order size is 1 board lot on SGX-ST save for the unit share and buying-in market. The number of
shares or units in a board lot is as determined by SGX-ST. Orders may be in multiples of a board lot or as
otherwise determined by SGX-ST.

As prescribed by SGX-ST, the minimum bid size and force order range of the following products are set out in

190 SGX-ST Rule 8.5 — Orders; SGX-ST Regulatory Notice 8.5.2 – Minimum Bid Size and SGX-ST Regulatory Notice 11.4.2(G) – Application

of the Force Key.

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Table 3.4.5: Minimum Bid Size and Force Order Range of Products

Forced Order
Product Price Range ($) Minimum Bid Size
Range
Stock (excluding preference shares), Real Below 0.20 0.001
Estate Investment Trusts (REITs), 0.20 to below 0.995 0.005
business trusts, company warrants, and +/- 30 bids
any other class of securities or futures 1.00 and above 0.01
contracts not specified in this table
Below 0.20 0.001
Structured warrants 0.20 - 1.995 0.005 +/- 30 bids
2.00 and above 0.01
0.01 or 0.001 as
Exchange traded funds and exchange
All determined by +/- 30 bids
traded notes
SGX-ST
Debentures, bonds, loan stocks and
preference shares quoted in the $1 price All 0.001 +/- 30 bids
convention
Debentures, bonds, loan stocks and
preference shares quoted in the $100 All 0.001 +/- 1,000 bids
price convention

The minimum bid sizes as shown in the table apply to securities and futures contracts denominated in all
currencies, with the exception of the Hong Kong Dollar (HKD), Renminbi (RMB) or Japanese Yen (JPY). For
securities and futures contracts traded in HKD, RMB and JPY, the minimum bid sizes shall as far as practicable
be aligned to the minimum bid sizes applicable in Hong Kong and Japan respectively.

SGX-ST provides a pre-execution error trade prevention mechanism, known as the “Force Key” function to
minimise the occurrence of error trades arising from the erroneous entry of order prices. The Force Key is
intended to complement, and not replace, Trading Members' responsibility to adopt adequate and
appropriate measures and practices to safeguard against the execution of error trades. Orders entered at
prices outside the price range specified by SGX-ST (‘’Forced Order Range’’) must be confirmed by the use of
the Force Key function before those orders can be submitted.191

Save as otherwise prescribed by SGX-ST, each order entered into the Trading System must specify the unique
Position Account code, the Trading Account code and the price (where relevant) and quantity of the security
or futures contract. The Trading Member shall ensure that each order entered into the Trading System is
capable of being identified and traced to the relevant customer.192

3.4.6 Trading Basis193

Unless otherwise stated, trading of securities is on a “cum” basis.

191 SGX ST Regulatory Notice 11.4.2(G) – Application of the Force Key.

192 SGX-ST Rule 8.5.3 – Orders.
193 SGX-ST Rule 8.6 – Trading Basis of Securities.

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“Cum” means that the security is quoted with entitlements such as dividends, rights, etc. which are reflected
in the price. “Ex” basis, on the other hand, means that the security is quoted without the said entitlements
being imputed into the price.

All securities designated by CDP as eligible for clearing will be traded on an “ex” basis for 2 market days before
and up to the books closure date for an entitlement.

A buyer or seller of securities on an “ex” or “cum” basis, respectively, has no right to the entitlement to the
security. The buyer of a securities on a “cum” basis has the rights to the entitlement and if not received may
claim that entitlement from the seller. And similarly, a seller who had sold on an ex-basis may claim the
entitlement from the buyer.

3.4.7 Cancellation of Contracts194

A contract made on SGX-ST can only be cancelled under certain restricted scenarios. A contract will not be
cancelled merely because of the occurrence of one or more of the following circumstances:
a) A failed delivery;

b) Payment is not made on delivery; or

c) The share registrar refused to register a transfer.

SGX-ST may, at its discretion, cancel a contract in any of the following circumstances:
• If the contract arises from an error trade (refer to Section 3.4.8) and (i) the Trading Members to the
contract agree to the cancellation or (ii) SGX-ST is satisfied that the contract should be cancelled;
• If there appears to be evidence of fraud or wilful misrepresentation in relation to the contract; or
• In SGX-ST’s opinion, it is desirable to cancel the contract to protect the financial integrity, reputation or
interests of the markets established or operated by SGX-ST.
In cancelling a contract, SGX-ST may impose conditions, or reprimand or fine a Representative and/ or Trading
Member who caused the cancellation.

3.4.8 Error Trades195

Errors may occur from time to time during trading hours, but it is the duty of the Trading Member and its
Representatives to exercise caution when executing a trade into the Trading System to avoid unnecessary
disruption in the trading process.

Investors who intend to use Price Triggered Orders (PTOs) must also note the interaction between error trade
policy and PTOs. For instance, investors must note that if they are using PTOs such as stop orders to cut losses,
they may end up cutting losses at an inopportune time if their orders are triggered wrongly by an error trade.

In the event that a PTO is triggered due to an error trade and it resulted in a trade, this trade may be considered
as an error trade too. The prevailing procedures for reviewing and cancelling these error trades will apply, i.e.

194 SGX-ST Rule 11.1 – Cancellation of Contracts.

195 SGX-ST Rule 11.2 – Error Trades; SGX-ST Rule 11.3 – Procedures for Cancellation.

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if parties cannot agree to mutual cancellation, either party to the triggered trade may refer it to SGX-ST for
review within the stipulated timelines. SGX-ST will only review error trades referred to it for review and only
error trades outside of No-Cancellation Range. In its review, SGX-ST will consider the factors set out in its error
trade policy in determining if the triggered trade should be cancelled.

An error trade refers to a transaction that is executed on the Trading System and that results from an
erroneous entry in relation to:
• The price and/or volume of an order; or

• The name of a securities or futures contract.

When an error trade occurs, the Trading Member that caused the error trade must:
i. Inform SGX-ST of the error trade by phone within 30 minutes from the time that the error trade took place;
and
ii. Contact its counterparty Trading Member without delay and seek its agreement to cancel the trade.
Both Trading Members must take all necessary action to minimise any likely market impact caused by the
error trade.
In the event that the Trading Members mutually agree to cancel an Error Trade:
i. The Trading Member that caused the Error Trade must inform SGX-ST of the agreement without delay;
and
ii. Both Trading Members must submit the necessary trade cancellation request forms to SGX-ST.

If the Trading Members cannot agree to cancel an error trade, the Trading Member that caused the error trade
may request that SGX-ST reviews the error trade. SGX-ST will only review the error trade if the following
procedures are complied with:
1. The matter must be referred to SGX-ST within 60 minutes from the time the error trade occurred or before
18.00 hours on that trading day, whichever is earlier; and
2. The Trading Member that caused the error trade must inform the counterparty Trading Member that it
has referred the matter to SGX-ST.

SGX-ST may in its discretion allow an extension of the timelines above, taking into account:
• The number of error trades referred to SGX-ST;

• The complexity of the circumstances surrounding the error trade; and

• Any other relevant factors.

Notwithstanding the procedures and timelines above, SGX-ST may also review an error trade if it deems it
necessary for the proper maintenance of a fair and orderly market.

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3.4.8.1 No-Cancellation Range

Subject to its general right to review an error trade if necessary, for a fair and orderly market196, SGX-ST will
not review an error trade if the error in question falls at or within the upper and lower limits of the applicable
no-cancellation range197.

A no-cancellation range will be applied to all securities or futures contracts, excluding bonds198. SGX-ST retains
the discretion to apply or remove any no-cancellation range199.

For all securities or futures contracts, excluding bonds, the no-cancellation range will be determined as the
wider of the following200:
(a) A lower limit of 20 minimum bid sizes less than the Reference Price, and an upper limit of 20 minimum
bid sizes higher than the Reference Price; or
(b) A lower limit of 95% of the Reference price and an upper limit of 105% of the Reference Price.
The Reference Price of the no-cancellation range will be the price of the last good trade. SGX-ST may use an
alternative price as the Reference Price if:
(a) The price of the last good trade is not available; or
(b) SGX-ST deems the price of the last good trade to be unreliable or inappropriate as a Reference Price.
Where SGX-ST is of the view that no appropriate or reliable Reference Price is available, it will not establish a
no-cancellation range for any error trade.

3.4.8.2 Fees

The Trading Member that requests for a review of error trade must pay a fee of S$1,000 for each referral
regardless of the outcome of the review201.

3.4.8.3 Review of Error Trades by SGX-ST

SGX-ST may review the validity of any transaction and may agree to a cancellation if it deems that the
cancellation of the error trade is necessary for the proper maintenance of a fair and orderly market. In
reviewing the error trade, SGX-ST may consider any relevant information, including but not limited to the
following factors202:
i. The difference between the price at which the error trade was done and the preceding traded price of
the security;
ii. The market liquidity in the security or futures contracts at the time the trade occurred;
iii. Where the trade involves a futures contract, the trading behaviour of the underlying security;

196 SGX-ST Rule 11.4.1 – Error Trade Cancellations.

197 SGX-ST Rule 11.5.2 – No-Cancellation Range.
198 SGX-ST Rule 11.5.1 – No-Cancellation Range.
199 SGX-ST Rule 11.5.3 – No-Cancellation Range.
200 SGX-ST Rule 11.5.5 – No-cancellation Range – All Other Securities or Futures Contracts excluding Bonds.
201 SGX-ST Rule 11.3.5 – Procedures for Cancellation.
202 SGX-ST Rule 11.4.2 Error Trade Cancellations.

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iv. The monetary loss involved if the trade is or is not cancelled203;

v. The difference between the time the erroneous order was entered and the time it was matched;
vi. The number of counterparty customers involved;
vii. Whether the Force Key was used, or any other error prevention alert was triggered when the erroneous
order was entered into the Trading System;
viii. The impact on the settlement process;
ix. In the case of bonds, the rating, interest rate, coupon rate, maturity date and yield curve; and
x. The reason(s) given for the error.

3.4.8.4 Notification by SGX-ST204

If SGX-ST is satisfied that an error trade has occurred, the following procedures will apply:
i. SGX-ST will inform the market of the error trade;

ii. SGX-ST will inform the market of the outcome of SGX-ST’s review (i.e. whether the error trade remains
valid or has been cancelled); and

iii. SGX-ST will notify both Trading Members of the outcome in writing.

3.4.9 Direct Business205

Direct Business refers to business that is not done through the Trading System but dealt directly between:
• 2 Trading Members;

• 2 customers of a Trading Member;

• A Trading Member and its customer.

There are rules however for such Direct Business (also known as married trades) which are allowed only under
the following conditions:
i. The contract must be for at least:
(a) 50,000 units of securities or futures contracts, in the case of marginable futures contract, 50,000 units
of the underlying; or
(b) S$150,000 in contract value;
ii. A book-out trade from an error account to remedy an error; or
iii. To complete a customer’s order that was partially filled in the market, provided the original order met
the minimum size and value in condition (i).

This does not mean that such Direct Business goes unrecorded. Trading Members must report the price,
quantity, counterparty and other details as required under SGX-ST Rule 8.7.1 through the married trade

203 SGX-ST Regulatory Notice 11.4.2(d) – Computation of Monetary Loss.

204 SGX-ST Rule 11.4.3 Error Trade Cancellations.
205
SGX-ST Rule 8.10 - Direct Business.
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reporting system (which is part of the Trading System) within 10 minutes of execution or, if the Direct Business
is executed after market close, in the first 20 minutes of the Opening Routine on the following market day.

For avoidance of doubt, the requirement to mark sell orders as set out in Rule 8.7 (Marking of Sell Orders)
applies to Direct Business reported through the married trade reporting system.

3.4.10 Circuit Breakers and Cooling-Off Periods206

Circuit Breakers are designed to temporarily restrict trading in certain securities or futures contracts. Similarly,
it may prescribe Cooling-Off periods on certain securities or futures contract if an incoming order seeks to be
matched, either partially or fully, with an existing order in the Trading System at a price outside the Circuit
Breaker.

The Cooling-Off Period can guard against disorderly situations in the face of rapid and unchecked market
movements, by allowing the market and regulators a pause to take stock of the situation. It is not intended to
halt price movement. Where large price movements are justified, what the circuit breaker facilitates is a more
measured market movement enabled by the imposition of pauses which allow the market to analyse market
conditions and all available information before resuming. By moderating the pace of big price movements, the
circuit breaker prevents alarm to the market and averts contagion risk to other markets207.

Where Cooling-Off Period is activated the following rules will apply:

i. The incoming order will not be matched with the existing order in the Trading System at a price outside
the Circuit Breaker; and
ii. The quantity of the incoming order which is not filled at the commencement of the Cooling-Off period
will be rejected by the Trading System.

It should be noted that customers intending to use Price-Triggered Orders (PTOs) should be aware of the
interaction between such orders and circuit breakers. For instance, PTOs with trigger prices outside of the
circuit price band will be accepted into the order book. Resting PTOs with trigger prices outside of the circuit
breaker price band will not be affected as long as the trigger price condition of the PTO is not reached during
the cooling-off period. If the trigger price condition of the PTO is reached and the order is activated, it will be
rejected or deleted. It is possible for incoming PTOs to trigger circuit breakers if the price trigger condition is
met and the order is activated. In addition, PTOs which are triggered and entered into the order book as
market orders may be partially filled if the order is rejected due to the circuit breakers.

Other Trading Rules which may be imposed to bring order to the market by SGX-ST may include:
i. Declaring a listed security to be a Designated Security;

ii. Declaring a corner on listed security or suspending a security;

iii. Suspend trading; and

iv. Imposing a trading halt.

206 SGX-ST Rule 8.14 - Circuit Breakers and Cooling-Off Periods.

207 SGX-ST Regulatory Notice 8.14.1 – Circuit Breaker.
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As these rules are intended to bring order to the market and ensure the operation of a fair market without
unnecessarily disadvantaging any participant, items (i) to( iii) above are further expanded in Chapter 4, Section
4.13 of this Study Guide.

3.4.11 Other Circumstances in Approving Off-Market Trades and Trading Controls

3.4.11.1 Trading Halts208

A trading halt is when SGX-ST calls for trading to be ceased on a particular security or securities or futures
contracts. A trading halt operates in the same way as an Adjust Phase described in this Chapter.

Securities or futures contracts which are subject to a trading halt cease to be traded on the Trading System.
A Trading Member must not execute any transactions in a security or futures contract which is a subject of a
trading halt unless approved by SGX-ST.

A trading halt may be:

• Imposed by SGX-ST at the request of an Issuer;
• Lifted by SGX-ST at any time;
• Changed to a suspension by SGX-ST at any time; or
• Imposed for a minimum duration of 30 minutes or such period SGX-ST prescribes, and up to 3 market days
or such other extension as SGX-ST deems fit.

SGX-ST Practice Note 8.13 and 8.15 lists the characteristics of a suspension and trading halt and this is
summarised in Table 3.4.11.1 :

Table 3.4.11.1: Characteristics of Suspension and Trading Halt

ITEM CHARACTERISTIC SUSPENSION TRADING HALT

1 Initiating party A suspension can be imposed by SGX-ST A trading halt can be imposed
under certain circumstances209. An Issuer by SGX-ST at the request of an
may also request a suspension if its request Issuer or where a security or
for extension of a trading halt under Item 3 futures contract is subject to a
is not approved by SGX-ST. cooling-off period.
2 Status of Unmatched orders in the Trading System During a trading halt, all
unmatched orders may lapse, as determined by SGX-ST. SGX-ST existing orders in the Trading
will notify Trading Members of the status of System remain valid. Orders
unmatched orders before lifting a market can still be entered, reduced in
suspension. quantity or withdrawn but will
not matched.
During a suspension of a single security or
futures contract, all unmatched orders will
lapse.

208 SGX-ST Rule 8.15 –Trading Halts.

209 SGX-ST Rule 8.13.1 – Suspension and Restriction of Trading.
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ITEM CHARACTERISTIC SUSPENSION TRADING HALT

3 Duration of A suspension may persist for a prolonged A trading halt is usually intra-
suspension or period. day, with a minimum duration
trading halt of 30 minutes. SGX-ST may
extend the duration of a
trading halt beyond 3 Market
Days upon the Issuers' request.
4 Upon lifting of Upon lifting of a suspension, the suspended Upon lifting of a trading halt,
suspension or security or futures contract will enter into orders that can be matched will
trading halt an Adjust Phase for at least 15 minutes. at a single price computed
During this Adjust Phase, orders can be based on the algorithm set by
entered, reduced in quantity or withdrawn SGX-ST. Unmatched orders will
for the ready and unit share markets. At the be carried forward into the
end of this Adjust Phase, orders that can be market phase that the market
matched will be matched at a single price is in when the trading halt is
computed based on the algorithm set by lifted.
SGX-ST. Unmatched orders are carried
forward into the respective phase the
market is in when the Adjust Phase ends.

3.4.11.2 Other Circumstances for Off-Market Trades210

The objective of a suspension and trading halt is usually to facilitate proper dissemination of material
information to the marketplace to ensure the operation of a fair market. However, SGX-ST recognises that
there may be circumstances under which off-market trading of the security or futures contract is appropriate.

Off-market trades for securities or futures contracts subject to a suspension or trading halt, may be approved
by SGX-ST on a case-by-case basis when SGX-ST is satisfied that the reason behind the trade is more than just
a buy/sell transaction.

Such circumstances include the following:

i. A seller being in financial difficulty, needs to sell a security or liquidate a futures contract in relation to a
security that has been suspended for an indefinite period.

ii. A seller who short-sold a security or futures contract that is subsequently subject to a suspension or
trading halt, and the clearing house requires the seller to cover the short position within a prescribed
period.

iii. A security or futures contract is suspended prior to delisting on SGX-ST. The minority shareholders may
wish to sell the security or futures contract to the majority shareholders.

iv. The trustees of the estate of a deceased investor needs to liquidate a security or futures contract that
may be suspended for an indefinite period in order to carry out its duty under the trust.

210 SGX-ST Practice Note 8.13.4 and 8.15.7 – Approval of Off-Market Trades in a Security or Futures Contract Subject to Suspension or
Trading Halt.
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3.4.12 Suspension or Restriction of Trading Member or Representative211

SGX-ST may, at its discretion, suspend or otherwise impose restrictions or conditions on the activities of a
Trading Member or Representative if:
i. The Trading Member or Representative has been charged with or is the subject of an investigation for
any offence under the SFA; involving fraud or dishonesty, whether in or out of Singapore; or under any
relevant laws or regulation that governs that person’s other business activities;
ii. The Trading Member or Representative fails to continue to satisfy any admission or registration criteria,
approval condition or any other requirement necessary for membership;
iii. The Trading Member is in SGX-ST’s opinion, in financial or operating difficulty;

iv. The Trading Member defaults on any transaction on SGX-ST or breaches any term or condition imposed
by SGX-ST;

v. The Trading Member is, in SGX-ST’s opinion, engaging in conduct that is inconsistent with just and
equitable principles of trading;

vi. The Trading Member is, in SGX-ST’s opinion, conducting its activities in a manner detrimental to the
financial integrity, reputation or interests of SGX-ST or its organised markets;

vii. In SGX-ST’s opinion, a review should be carried out in respect of the Trading Member's management
policies or business conduct; or

viii. It is necessary or desirable in the interests of maintaining a fair and orderly market or for ensuring a safe
and efficient clearing facility, or for ensuring the integrity of the market or for proper management of
systemic risk, or for investor protection, or it is directed by any authority.

The suspension or restriction shall be for such duration as SGX-ST determines, save that in the case of a
suspension or restriction by reason of an investigation, the suspension or restriction shall end when the
relevant party is acquitted, the charge is not proceeded with, or no further action is taken in respect of the
investigation.

3.5 Settlement Procedures

3.5.1 Mode of Settlement212

All trades for securities and futures contracts designated by CDP as eligible for clearing must be delivered or
settled by book entry at CDP, unless otherwise decided by SGX-ST. Delivery of physical certificates213 is not
allowed for trade settlement if the securities or deliverable futures contracts that are designated by CDP as
eligible for clearing.

211
SGX-ST Rule 2.22.1 – Suspension and Restriction of Activities.
212 SGX-ST Rule 9.1 – Mode of Settlement for Trades Cleared by CDP.
213 SGX-ST Rule 9.1.2 – Mode of Settlement for Trades Cleared by CDP.

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3.5.2 Maintenance of CDP Account214

Customers, and Trading Members who trade on their own account, who transact in securities or deliverable
futures contracts which are designated as eligible for clearing by CDP must maintain a CDP securities account.
The securities account can be maintained directly with CDP or through a depository agent.

3.5.3 Currency of Settlement215

Trades are settled in the currency of quotation at the exchange rate determined by Trading Member, unless
prior agreement was entered into between a customer and a Trading Member.

3.5.4 Relationship between Customer and Trading Member 216

A selling customer must look only to its Trading Member, which executes the trade for all the obligations in
connection with that trade including payment of sale proceeds.

A buying customer must look only to its Trading Member which executes that trade for all the obligations in
connection to that trade including the delivery of securities or deliverable futures contract, and the relevant
underlying. A buying customer must pay its Trading Member which executes the trade.

If a selling customer fails to deliver, buying-in will be performed in accordance to the CDP Clearing Rules.

The buying-in bid price, as determined by CDP, will be 2 minimum bids above the highest of the following:
i. the closing price of the previous day;
ii. the reference transacted price, or
iii. the reference bid price.

The reference transacted price and the reference bid price will be any of the last transacted prices and bid
prices within the 1 hour preceding the commencement of buying-in, as determined by CDP.

In the case of a failed delivery of a contract that was made in the buy-in market on the previous Market Day,
the reference price will be the transacted price of that contract.

Where necessary, CDP shall have the discretion to adjust any of the prices described above to cater for
corporate actions on the particular security.

If the securities are not obtained at the start of the buy-in process, CDP will raise the buying-in bid by 2
minimum ticks, from the following, in order to obtain the securities:
i. the prevailing buying-in bid price;
ii. the transacted price in the ready market; or
iii. the bid price in the ready market.

CDP will continue to raise the buy-in bid periodically, until the securities are obtained. As a result, the buy-in
process is likely to result in an unfavourable price for the customer, compared to the market price. The
customer will be required to pay for the bought-in securities, and any associated costs.

214 SGX-ST Rule 9.1.3 – Mode of Settlement for Trades Cleared by CDP.
215 SGX-ST Rule 9.1.4 – Mode of Settlement for Trades Cleared by CDP.
216 SGX-ST Rule 9.4 – Relationship Between Trading Member and Selling Customer.

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3.5.5 Relationship between Trading Member and Clearing Member 217

A selling Trading Member must look only to the Clearing Member who qualifies it in relation to all obligations
in connection with trades that the selling Trading Member executes, including payment of sale proceeds.

A buying Trading Member must look only to the Clearing Member who qualifies it in relation to all obligations
in connection with trades that the buying Trading Member executes, including delivery of securities or in the
case of a deliverable futures contract, the relevant underlying.

3.5.6 Settlement Dates218

Unless otherwise stated by SGX-ST and subject to SGX-ST Rule 9.2.1, the intended settlement day and eligibility
for clearing of a trade that is executed on the Trading System or reported to SGX-ST is in Table 3.5.6:

Table 3.5.6: Settlement Dates

Ready market (for securities other than wholesale corporate bonds) T+2 Eligible for clearing by CDP
Market for Marginable Futures Contracts LTD+2 Eligible for clearing by CDP
Not eligible for clearing by
Market for wholesale corporate bonds T+2
CDP
Unit share market (for securities other than wholesale corporate
T+2 Eligible for clearing by CDP
bonds)
Buying-in market T+1 Eligible for clearing by CDP

Where T is the date on which the trade is executed and LTD is the Last Trading Day.

217 SGX-ST Rule 9.5 – Relationship Between Trading Member and Clearing Member.
218 SGX-ST Rule 9.2.1 – Settlement Basis and Eligibility for Clearing by CDP.
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Chapter 4:
Market Conduct
Learning Objectives
The candidate will understand:
✓ What constitutes market conduct and prohibited conduct.

✓ Different types of market misconduct under SFA and SGX-ST Trading Rules.

✓ Different types of market misconduct penalties under SFA and SGX-ST Trading Rules.

✓ SGX-ST regulatory tools to uphold a fair, orderly and transparent market.

✓ Trading-related rules and regulations.

4.1 Introduction

A sound and progressive financial services sector is the aim of MAS as the regulator of financial institutions in
Singapore and it seeks to achieve this objective through both financial supervision and development
initiatives.

Public confidence in a fair and orderly capital market, that reflects genuine forces of supply and demand,
enhances the liquidity, efficiency and stability of the market.

Rules regulating trading activity under the Securities and Futures Act (SFA) and SGX-ST rules, effective
surveillance and robust investigations are part and parcel of the overall enforcement strategy against capital
market misconduct.

All capital market participants play a part to ensure a fair, efficient and transparent market environment and
any market misconduct will be dealt with stringently by MAS and/or SGX.

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4.2 Market Misconduct 219

A high standard of ethical conduct is expected from all participants of the capital markets. This is covered in
the market conduct rules under the SFA and SFR and further reinforced in the SGX-ST rules220.

The rules apply to acts occurring in Singapore with respect to any capital markets products, whether listed or
quoted in or outside Singapore221. Similarly, the rules apply to acts occurring outside Singapore with respect
to capital markets products listed or quoted on an organised market in Singapore. That is, the rules have
extraterritorial reach.

Example
If a person sitting in Japan carries out transactions intending to manipulate prices of a counter listed or
quoted on SGX-ST, then that act of price manipulation will be regarded as having taken place in Singapore
for purposed of market misconduct offences. Any persons found guilty will face the penalties of a fine
and/or to imprisonment.

Practices that give an unfair advantage to certain customers over the general public are strictly prohibited as
they go against the grain of fair competition. Therefore, all customers, intermediaries and their
representatives and those seeking to raise funds through the capital markets must abide by the regulations
that guide market conduct.

The severity of the fines and imprisonment terms reflects how serious MAS and SGX-ST are in deterring market
misconduct and ensuring personal liability for any persons breaching the laws on market conduct.

The SFA and SGX-ST Rules spell out the prohibited market conduct as:
• False Trading and Market Rigging Transactions;

• Securities Market Manipulation;

• False or Misleading Statements and Information;

• Fraudulently Inducing Persons to deal in Capital Markets Products;

• Employment of Manipulative and Deceptive Devices;

• Dissemination of Information about Illegal Transactions; and

• Insider Trading.

219 MAS-SGX Trade Surveillance Practice Guide. https://www.mas.gov.sg/-/media/MAS/News-and-Publications/Monographs-and-

Information-Papers/MAS-SGX-Trade-Surveillance-Practice-Guide.pdf. Further information could also be found
from:(i) https://api2.sgx.com/sites/default/files/2018-05/Trade%20Surveillance%20Hand%20Book.pdf; and
(ii) https://api2.sgx.com/sites/default/files/2018-05/20180523%20SGX_Trade%20Surveilance%20Handbook_S2.pdf
220 SGX-ST Rule 5.12– Prohibited Trading Conduct and Practice Note 5.12 “False Trading and Market Rigging”.
221 SFA Section 196 – Application of this Division, Part 12 -Market Conduct, Division 1 – Prohibited Conduct – Capital Markets

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4.3 False Trading and Market Rigging Transactions 222

False trading and market rigging can be described as the use of artificial means or methods to influence the
price of any securities, or to cause volatility without real basis in the market instead of letting natural market
forces take place. Such conduct is prohibited and any CMS licence holder or representative who commits such
offences will face stringent penalties, reputational repercussions and possibly a suspension or revocation of
licence.

False Trading includes:

• Creating or having the intention to create a false or misleading appearance of active trading in any capital
markets product;
• Buying and selling any capital markets product without a change in beneficial ownership in order to
maintain, change or cause fluctuations in the market price of the capital markets product in the market;
• Doing anything that creates or is likely to create a false or misleading appearance of active trading or with
respect to the market for or the price of capital markets products if the person is reckless as to whether
doing that act would so create or be so likely to create such a false or misleading appearance; or
• Creating transactions that are intended to give a false and misleading appearance with respect to the
market for, or the price of, any capital markets products.

SGX-ST Rule 5.12.1 states that a Trading Member or Representative must not engage in any course of conduct
that is likely to create a false or misleading appearance of active trading, the market in, or price of any security
or futures contract. The rule is concerned with the effect or likely effect of an order or a transaction and
involves an objective assessment of whether a false or misleading appearance of false market, has been
created. Whether an activity is “false or misleading” will depend on the circumstances in each case.

SGX-ST Rule 5.12.3 prohibits a Trading Member or Representative from dealing in security or futures contract
which does not involve a change of in the beneficial ownership in the security or futures contract. However, it
is a defence if it can be shown that the purpose of the transaction was not to create a false or misleading
appearance with respect to the market for, or the price of, the security or futures contract.

For example, orders under the following circumstances will be permitted223:

1. Orders from a fund manager whose instructions are intended to switch the security or futures contract
from one sub-account to another for legitimate commercial reasons;
2. Orders from an affiliate overseas, acting on behalf of different beneficial owners, and the trades will be
booked out eventually to these beneficial owners.

Many devices have been used to rig trades and create a false market, but the more common devices are:
1. Buying and selling without a change in beneficial ownership or more commonly known as “wash sale” or
“wash trade”; and;
2. Matching orders which are specifically spelt out to in Section 197(3)(a) to (c) of the SFA as prohibited.

222 SFA Section 197 – False Trading and Market Rigging Transactions, SGX-ST Rule 5.12 – Prohibited Trading Conduct.
223 SGX-ST Practice Note 5.12.3 Transaction with No Change in Beneficial Ownership.
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Example – (1) No Change in Beneficial Ownership

Person A may transfer his title of shares to Person B with a side arrangement for Person B to hold them in
trust for him, unknown to the brokerage. Then when Person B sells the shares, the proceeds of that sale
actually goes to Person A as the shares still belong to Person A under the side arrangement. In this example,
there is no change in the beneficial ownership as in fact, Person A owns the shares all the time. Therefore,
Person A had not in effect sold the shares but continued to have ownership throughout, creating a false
impression that ownership had changed hands thus misleading the investing public.

A wash sale is a transaction effected through the market which involves no change in the beneficial ownership
of any capital markets product. SFA Section 197(5)224 provides that there is no change in the beneficial
ownership if a person who had an interest in the capital markets product (or any person associated with such
person) before the purchase or sale continues to have an interest in the capital markets product after the
purchase or sale.
The SGX-ST Rules225 also prohibit a Trading Member or a Representative from being directly or indirectly
involved in any transaction to purchase or sell a security or futures contract, where it does not involve a change
of beneficial ownership as defined under SFA Section 197(5). It is a defence if the Trading Member or
Representative can show that the purpose of the purchase or sale was not, or did not include, the purposes
to create a false or misleading appearance with respect to the market for, or price of, the security or futures
contract.

Example – (2) Wash Sale

A wash sale occurs when a person places 5 orders to buy a certain number of shares of Company D through
a broker. He then places another number of orders to sell the same number of shares of Company D through
another broker. Effectively the same number of shares of a company is bought and sold through different
brokers but by the same person with no change of ownership. The intended effect is to give an appearance
of active trading in Company D’s shares.

Matching orders are similar to having a side arrangement in Example (1) above. This involves the entering of
an order for the purchase of securities through a broker with the knowledge that a sales order for the same
amount or price has been entered or will be entered into at about the same time by another party known to
him through a different broker. The purpose of which is to create a false or misleading impression of active
trading in the capital markets product or the market for, or the price of the capital markets product.

Example – (3) Matching Order

Person X and Person Y wish to dispose of their shares in Company Z at a substantial profit. At the time, these
shares are quoted at $1 on the Exchange. Person X enters a sale order for shares in Company Z at a price
slightly higher than the current price, i.e. $1.10. Person Y then enters a buy order for the same shares and
for the same number and price. They then repeat their trades, reversing their roles and for a slightly higher
price. This process is repeated as often as is necessary. This has the effect of nudging up the share price and
attracting other investors to trade in Company Z. When the price of the shares in Company Z is sufficiently
high. Person X and Person Y can close out and unload their own shares at the artificially inflated price.

224 SFA Section 197 - False Trading and Market Rigging Transactions.
225 SGX-ST Rule 5.12.3 – Prohibited Trading Conduct.
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4.4 Securities Market Manipulation 226

Market manipulation involves the intentional interference with the free forces of supply and demand to
deceive or defraud investors, or to achieve some other ulterior purpose.

To prevent market manipulation, there are provisions in the SFA227 and SGX-ST Rules228 which disallow any
person from directly or indirectly effecting two or more transactions in securities or securities-based
derivatives contracts of a corporation if the transactions have the effect of raising, lowering, maintaining or
stabilising the price of such capital markets products on an organised market, with the intent to induce other
persons to deal in such capital markets products.

The SGX-ST rules do not prevent Trading Members and Trading Representatives from carrying out legitimate
trading strategies which reflect the forces of genuine supply and demand. However, Trading Members and
Trading Representatives must do so bearing in mind their obligations to the market, and with an appropriate
degree of care. Although Trading Members and Trading Representatives must carry out their customers’
instructions, a Trading Member and Representative should not accept a customer’s instructions blindly but
should exercise judgment in each case. (Refer to Section 4.12 on Vigilant Practices against Market Misconduct)

Example - Securities Market Manipulation

Market manipulation happens when a person (Person X) executes trades using his account and the accounts
of several of his customers to trade at prices above the previous traded price. This has the effect of artificially
maintaining or increasing the price of the security.

It was found that through the execution of manipulative or fictitious buy orders, a false market was created
by Person X. Person X will not only face disciplinary action but will be liable, on conviction, to penalties for
market misconduct.

4.5 False or Misleading Statements and Information 229

The dissemination of information or statements that are false or misleading in a material particular that is
likely to:
• Induce the subscription of any securities, securities-based derivative contracts, or units in a collective
investment scheme by other persons,

• Induce the sale or purchase of securities, securities-based derivative contracts, or unit in a collective
investment scheme by other persons; or

226 SFA Section 198 –Market Manipulation in Relation to Securities and Securities-based Derivatives Contracts; SGX-ST Rule 5.12 –
Prohibited Trading Conduct.
227 SFA Section 198(1) – Market Manipulation in relation to Securities and Securities-based Derivatives Contracts.
228 SGX-ST Rule 5.12.5. However, this rule does not apply to stabilising action carried out in accordance with Regulation 3A or 3B of the

Securities and Futures (Market Conduct) (Exemption) Regulations 2006.

229 SFA Section 199 – False or Misleading Statements; SGX-ST Rule 5.12.6 Prohibited Trading Conduct.

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• Raise, lower, maintain or stabilise the market price of securities, securities-based derivative contracts, or
unit in a collective investment scheme ,

is strictly prohibited, if the person disseminating the information or statement does not care whether the
information or statements is true or false, or he knew or ought reasonably to have known that the information
or statements are false or misleading in a material particular. Such prohibition is spelt out in Section 199 of
the SFA. Such dissemination can be in the form of:
• newsletters;

• research papers;

• electronic means;

• the media; or

• word of mouth.

CMS licence holders or their representatives should not knowingly with intent make or publish any statement,
forecast or promise that is false or misleading in order to induce others to deal in securities, securities-based
derivative contracts, or units in a collective investment scheme If a CMS licence holder or its representative
recklessly does so through wilfully concealing material facts which are recklessly published, stored or
recorded, they will be contravening the SFA and the relevant sections of the SGX-ST rules.

4.6 Fraudulently Inducing Persons to Deal in Capital Markets Products 230

Under SFA Section 200(1), it is an offence to induce or attempt to induce another person to deal in capital
markets products by:
1. Making or publishing any statement, promise or forecast that he knows or ought reasonably to have
known to be misleading, false or deceptive;
2. Any dishonest concealment of material facts;
3. Reckless making or publishing of any statement, promise or forecast that is misleading, false or deceptive;
or
4. Recording or storing in, or by means of, any mechanical, electronic or other device information that the
person knows is false or misleading in a material particular.

4.7 Employment of Manipulative and Deceptive Devices 231

Under SFA Section 201, it is an offence for any person to directly or indirectly, in connection with the
subscription, sale or purchase of any capital markets products to:
1. Employ any device, scheme or artifice to defraud;

230 SFA Section 200(1) – Fraudulently Inducing Persons to Deal in Capital Markets Products.
231 SFA Section 201 – Employment of Manipulative and Deceptive Devices; SGX-ST Rule 5.12.6 and 5.12.7 Prohibited Trading Conduct.
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2. Engage in any act, practice or course of business which operates or is likely to operate as a fraud or
deception, upon any person;
3. Make any statement he knows to be false in a material particular; or
4. Omit to state a material fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading.

Example: Employment of Manipulative and Deceptive Devices

Person Y entered 5 buy orders for a certain counter during the Pre-Open phase at a price between $3.38
and $3.48 totalling 1.1 million shares representing 62.7% of all buy quantities queuing at the material time.
At the same time, he also placed a sell order for 100,000 shares of the same counter at $3.35. He then
deleted the buy orders at 8.59 am just before the opening price was determined.

By deleting the buy orders, Person Y showed that he had no intention of fulfilling his order. His real intention
is to cause the market opening price at 9 am to be at a favourable level for him to fulfil his sell order at
$3.35, which will result in a profit for himself.

In this example, Person Y had used deceptive device to influence the share price and deceived the market.

The pre-open and the pre-close phases of the market were introduced to increase efficiency and to ensure
market integrity and transparency and that orders are genuine. Any device or action used to misuse the
phases are deemed as manipulative and deceptive which is an offence under the SFA.

4.8 Dissemination of Information about Illegal Transactions 232

Just as the use of manipulative devices are prohibited as they create artificial market conditions, the
dissemination of information about illegal transactions is also prohibited. This is to prevent those “in the
know” from taking advantage of and benefitting from the resultant market movements. This is really a
“blackout rule” to prevent undesirable practices.

Section 202 of the SFA makes it an offence to circulate, disseminate, or authorise, or be concerned in the
circulation or dissemination of any statement or information to the effect that the price of any securities or
securities-based derivatives contracts of a company or a business trust will, or is likely, to rise or fall or be
maintained as a result of an illegal transaction.

An illegal transaction refers to a transaction that is/to be entered into or done in contravention of the market
misconduct provisions prohibiting against false trading, market rigging, securities market manipulation,
disseminating false or misleading statements or information, fraudulently inducing persons to deal in capital
markets products or employing manipulative and deceptive devices.

That person is guilty of an offence if he, or a person associated with him:

1. has entered into or purports to enter into the illegal transaction; or

232 SFA Section 202 – Dissemination of Information about Illegal Transactions.

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2. has received, or expects to receive, directly or indirectly, any consideration or benefit for circulating or
disseminating the information or authorising or being concerned in the circulation or dissemination of
such information.

Example: Dissemination of Information about Illegal Transactions

Person Z directed Person A to use deceptive methods to influence the price of securities in a corporation.
Person Z knew that the actions would cause the price of the securities to move in a certain direction. Person
Z then inform others about the possible outcome in order for them to benefit from it.

Person Z expects to receive a cut of the profits made from these other persons as a result of the price
movements.

It is an offence to be involved, whether directly or indirectly, in the circulation and/or dissemination of any
information about illegal transactions if such transactions have an impact on the price of such securities and
such person either effected the transaction or expected to derive a benefit from disseminating such
information.

4.9 Insider Trading 233

4.9.1 What is Inside Information?

Inside or “insider” information is information that is not generally available, and if known would or would be
likely to have a material effect on the price or value of securities, securities-based derivatives contracts or
units in a collective investment scheme. A reasonable person would be taken to expect information to have a
material effect if the information is likely to influence persons or a class of persons who commonly invest in
such capital markets products in deciding whether or not to buy, subscribe for or sell such capital markets
products234.

Information is considered to be “generally available” if235:

i. It consists of readily observable matter;

ii. Without limiting the generality of (i),

a) it has been made known in a manner that would, or would be likely to, bring it to the attention of
persons who commonly invest in securities, securities-based derivative contracts or units in a
collective investment scheme of a kind whose price or value might be affected by the information;
and

b) since it was made known, a reasonable period for it to be disseminated among such persons has
elapsed; or

233 SFA Section 218 and 219 – Prohibited Conduct by Connected and Other Persons in Possession of Inside Information; SGX-ST Rule
5.12.7 Prohibited Trading Conduct.
234 SFA Section 216 – Material Effect on Price or Value of Securities, Securities-based Derivatives Contracts or CIS units.
235 SFA Section 215 – Information Generally Available.

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iii. It consists of deductions, conclusions or inferences made or drawn from either or both of (i) and (ii)(a)
above.

“Persons who commonly invest”, in relation to investment in any kind of securities, securities-based
derivatives contracts or units in a collective investment scheme, means a section of the public that is
accustomed, or would be likely, to deal in capital markets products of that kind. The MAS has issued guidelines
on the interpretation of this concept236.

4.9.2 Definition of Insider Trading

Insider trading therefore is to trade on such material non-public information. Trading on such inside
information therefore serves to provide an advantage over other investors resulting in an unfair market.

Persons with inside information on a corporation or its securities, securities-based derivatives contracts or
units in a collective investment scheme must not enter into transactions in such capital markets products. It is
irrelevant that the person did not have an intention to use the inside information. They must also not
communicate the information to other parties.

4.9.3 An Insider

The provisions in the SFA places a greater onus on persons connected to a corporation to keep price sensitive
information safe and to not act on it for self-interest. Certain presumptions apply in relation to a connected
person if an insider trading offence is alleged. That said, non-connected persons are also prohibited from
acting from material non-public information that they obtain.

It is not necessary for the prosecution or plaintiff to prove that a person did not have an intention to use the
inside information, in order to successfully make out a case of insider trading under the SFA.237

4.9.3.1 A Connected Person238

If insider proceedings are brought against a connected person, it need only be proven that the connected
person was at the material time in possession of information concerning the relevant corporation and that the
information was not generally available. It would then be presumed until proven otherwise that the connected
person knew that the information was not generally available and if the information was generally available,
it might have a material effect on the price or value of the securities or securities-based derivatives contracts
of that corporation.

A person is connected to a corporation if he:

i. Is an officer of the corporation or of a related corporation;

ii. Is a substantial shareholder in that corporation or in a related corporation;

236 Guidelines on the Interpretation of “Persons Who Commonly Invest” in Division 3 of Part XII of the SFA [SFA 12-G01].
237 SFA Section 220 – Not Necessary to Prove Intention of Use.
238 SFA Section 218(5) and (6) – Prohibited Conduct by Connected Person in Possession of Inside Information.

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iii. Occupies a position that may reasonably be expected to give them access to price sensitive information
by virtue of:

a) any professional or business relationship existing between them (or their employer or a corporation
of which they are an officer) and that corporation or a related corporation; or

b) them being an officer of a substantial shareholder in that corporation or in a related corporation.

A person is an officer of a corporation if he is:

i. A director, secretary or employee of the corporation;

ii. A receiver, or receiver and manager, of property of the corporation;

iii. A judicial manager of the corporation;

iv. A liquidator of the corporation; or

v. A trustee or other person administering a compromise or arrangement made between the corporation
and another person.

It should be noted that the issuer's lawyers, accountants, bankers, investment bankers, public relations
consultants, advertising agencies, consultants, valuers and other third parties are also regarded as insiders.
Where an issuer is involved in the negotiation of an acquisition or transaction, the other parties to the
negotiation may also be regarded as insiders239.

4.9.3.2 Non-connected persons 240

Persons who are not connected to the relevant corporation also have to ensure that they do not act on
material non-public information. It is irrelevant where the information came from. A non-connected person is
not permitted to subscribe for or trade in securities, securities-based derivatives contracts or units in a
collective investment scheme or procure another person to do so and must not cause the information to be
communicated to any other person if it is likely to result in a third person dealing in such capital markets
products.

A non-connected person would be found to have committed an insider trading offence if it is proven that the
person knew that the information in his possession was not generally available, and that if it was generally
available, it might be price sensitive and a reasonable person would expect it to have material effect on the
price or value of the securities, securities-based derivatives contracts or units in a collective investment
scheme.

It is not necessary to prove that the non-connected person did not have an intention to use the inside
information in contravention of the relevant SFA provisions241.

239Appendix 7.1, Part X Policy on Insider Trading, Paragraphs 27 and 28 of the SGX-ST Mainboard Listing Rules; Appendix 7A, Part X
Policy on Insider Trading, Paragraphs 29 and 30 of the SGX-ST Catalist Listing Rules.
240 SFA Section 219 – Prohibited Conduct by Other Persons in Possession of Inside Information.
241
SFA Section 220 – Not necessary to prove intention of use.
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4.9.4 Exceptions and Defences242

There are excepted categories of individuals and situations found within the SFA. These are:
i. The redemption by trustees or managers in respect of units in collective investment scheme, subject to
certain conditions (SFA Section 222);
ii. Persons acting as underwriters and pursuant to the performance of their roles (SFA Section 223);
iii. The purchase or sale of securities, securities-based derivative contracts or units in a collective investment
scheme pursuant to legal requirements such as requirements imposed by written law or a court order
(SFA Section 224);
iv. Price-sensitive information communicated pursuant to legal requirements such as requirements imposed
by written law or a court order (SFA Section 225);
v. Knowledge within corporation– knowledge of an officer is typically regarded as knowledge of the
corporation, unless Chinese walls apply (SFA Section 226);
vi. Knowledge within partnership and limited liability partnerships – knowledge of a partners is typically
regarded as knowledge of the partnership or limited liability partnership, unless Chinese walls apply (SFA
Section 227);
vii. Knowledge by virtue of a natural person’s own transactions (SFA Section 228); and
viii. Knowledge of a corporation’s own transactions (SFA Section 229).

Besides the above exceptions and defences, SFA Section 231 also deals in exceptions based on the ‘Parity of
Information’, i.e. if both parties have the same information, the parties would be on equal footing and can
enter into the transaction with one another.

SFA Section 231 states that as long as the court is satisfied that the information comes into the defendant’s
knowledge solely as a result of information having been made known to any persons who commonly invest in
securities, securities-based derivatives contracts or units in a collective investment scheme, or ought
reasonably to have known of the information, before entering into the transaction or before the information
was communicated, is considered as good defence.

Section 230 provides for an exemption for broker-dealers. A CMS licence holder for dealing in capital markets
products can trade such products if it or its representatives entered into the transaction on behalf of a
principal, where the instruction of the principal was not solicited by the CMS licence holder or its
representatives, the principal was not advised by the CMS licence holder or its representatives in relation to
the transaction, and the principal and the CMS licence holder or its representatives are not “associates”.

Example - Insider Trading

Person A has information of a potential takeover of Company B by Company C when working for Company
B. He used this information to buy up a large number of shares in Company B using the account of a third
party D. After the announcement of the takeover, the price of Company B went up 12.8% higher than
the previous traded price.

242 SFA Sections 222 to 229 – Exceptions and Attribution of Knowledge.

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However, the takeover did not take place and knowing that it will not take place, Person A then sold an
even larger number of shares in Company B using the same account of third party D, avoiding a
substantial loss from his earlier trades because after the announcement of the withdrawal of takeover,
the price fell by 70% of the previous traded price.

By using third party D’s account with the brokerage firm, Person A had also deceived the brokerage firm.
Person A thus had breached regulations on Insider Trading Section 218 (2) (a) and (b) in addition to
Section 201(b) on sale and purchase of securities under the SFA.

A civil penalty of $2.9 million was imposed on Person A after MAS commenced civil proceedings against
him in the courts.

4.10 Securities Hawking 243

Securities hawking refers to making an offer of securities, securities-based derivatives contracts or units in a
collective investment scheme in an unsolicited meeting. The securities hawking prohibition aims to prevent
pressure selling of financial products to retail clients (e.g. “boiler room” practices, badgering).

Representatives are not allowed to offer or invite any subscription or purchase of such capital markets
products, during any unsolicited meetings with clients or other investors. This requirement does not apply to
offers made to units in a collective investment scheme, securities or securities-based derivatives contracts
that do not need a prospectus, such as those to institutional investors or accredited investors244.

Example: Securities Hawking

A customer visits a bank to enquire about obtaining a credit card. When he is waiting for his credit card
application to be processed, a bank employee approaches him to sell a capital markets product to him. The
bank employee is engaging in securities hawking if he has not obtained the customer’s consent or has not
enquired if the customer is interested in listening to the sales pitch before approaching the customer.

4.11 Other Market Conduct Rules and Guidelines

Apart from the market conduct offences stipulated above, there are other trading related regulations and
rules – both under the SFA and SGX-ST Rules – that CMS Licence Holders or their Representatives have to
comply with. The regulations and rules under SFA/SFR (LCB) which relate to business conduct, such as giving
priority to customer’s orders, maintaining a register of securities, withholding orders and disclosing orders
etc., are covered in Chapter 2. There are also occasions when SGX-ST may review all the Trading Member’s
trades if there are reasons to believe that a Trading Member has breached these rules.

243 SFA Section 309 – Securities Hawking Prohibited.

244 SFA Section 304 - Offer made to Institutional Investors; SFA Section 305 - Offer made to Accredited Investors and Certain Other
Persons.
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4.11.1 Excessive Trading / Churning245

Churning is intentional trading for the purpose of enriching a broker at his customer’s expense. Churning
creates large aggregate commissions with little, if any, commensurate benefit for the customer. This is done
by entering into many trades, often small, which generate little or no profit for the customer. However, each
trade still earns the broker a commission. Churning is prohibited under SGX-ST Rule 5.11.1 which stipulates
that a Trading Member or Representative must not encourage transactions with the primary object of
generating commission.

4.11.2 Unauthorised Trading246

Unauthorised trading occurs when a Representative executes trades in a customer’s account without the
customer’s knowledge or approval. Sometimes, the customer may not even be aware of such trades because
the Representative had directed the contract notes (which depict the trade executed under the customer’s
account) to another address. Dormant accounts are particularly at risk to such activities.

Accordingly, SGX-ST Rule 5.10 prohibits unauthorised trading by stating that the Representative must not:
a) Execute his personal trades in the account of a customer;
b) Execute a customer’s trades in his personal account; and
c) Use a customer’s account for the trades of any third party without the customer’s prior written
authorisation.

4.11.3 Errors and Breakdowns247

A Trading Member and a Representative must not knowingly take advantage of a situation arising from:
1. A breakdown or malfunction in any of SGX-ST’s procedures or systems; or

2. Errors made by SGX-ST or CDP.

There are other market conduct guidelines which CMS licence holders and representatives are expected to
comply with. These include:
• Short Selling Guidelines;

• Marking Sell Orders; and

• Specified Products Borrowing and Lending.

246 SGX-ST Rule 5.11 – Excessive Trading.

246 SGX-ST Rule 5.10 – Unauthorised Trading.
247 SGX-ST Rule 5.17 – Miscellaneous.

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4.11.4 Short Selling248

Both the SFA and the SGX-ST Rules set out requirements on short selling disclosures. Short selling is defined
as the sale of specified capital markets products249 that the seller does not own at the time of the sale, and it
may be ‘covered’ or ‘uncovered’ (also known as ‘naked’ short selling).

In ‘covered’ short selling, at the time of the sale, the seller has borrowed the capital markets products or has
otherwise made arrangements to fulfil his obligation to deliver the products. In ‘uncovered’ short selling, at
the time of the sale, the seller is not in possession of products or has not otherwise made arrangements to
meet his delivery obligation.

The motivation for short selling is that the person believes that a product’s price will decline, so he sells the
products first, hoping that he can buy the products back at a lower price later after the price has fallen to make
a profit from the transaction.

There are advantages to allow some form of short selling as it provides for a more efficient price formation,
increases market liquidity and facilitates risk management and the development of hedging activities.

Conversely it could also result in increased market volatility, potentially leading to disorderly markets under
conditions of significant market uncertainty. Short selling may also be used as a tool in market abuse, where
false rumours are passed with the objective of causing others to sell thus bringing prices down in a panic.
‘Uncovered’ short selling may also result in disruptions of the settlement process.

In view of the negative impact of short selling, and to mitigate the potentially disruptive impact on the
settlement process, The Central Depository (Pte) Limited (CDP) purchases securities on behalf of sellers who
do not possess securities for delivery on settlement day (the term ‘buying in” is used to describe this activity).
When the CDP carries out the buying-in, the cost of purchase and an additional penalty is charged to the seller
who failed to deliver the securities. Such buying-in procedures are determined at the discretion of the CDP250.
SGX-ST will also conduct investigations to detect any market abuse.

The combined actions of the CDP and SGX-ST help mitigate some of the potential negative effects of short
selling and ensure that markets continue to function in an orderly and efficient manner.

Like most major jurisdictions, both the SFA and SGX-ST Rules require the reporting of short selling. This is
because information on short selling activities is relevant to the trading decisions of market participants. For
example, information that certain securities are under sustained heavy short selling may indicate strong
negative price pressure on those securities. Information on short sale transactions also helps to deter market
abuse by alerting authorities to activities that may potentially disrupt the orderly functioning of markets,
therefore aiding investigation and enforcement.

Although it is good to gather information on short selling to interpret the information, market participants are
cautioned to exercise care when interpreting such information. For instance, information on short sale volume
may not reflect the outstanding short position in those securities. Volume of short sales may include trades
which have been offset by the buy-in trades.

248 Part VIIA of the SFA; SGX-ST Rule 8.7 – Marking of Sell Orders.
249 Any capital markets products listed on an approved exchange that are prescribed by regulations under SFA Section 137ZM.
Regulation 5 of the Securities and Futures (Short Selling) Regulations prescribe any share of a corporation listed on an approved
exchange, any unit in a business trust listed on an approved exchange, and any unit in a real estate investment trust to be specified
capital markets products.
250 CDP Clearing Rule 6.7.4 – Buying-In Procedures.

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4.11.5 Marking Sell Orders251

In order to ensure that short sell information is captured comprehensively, both the SFA and SGX-ST Rules set
out disclosure requirements for short sales. MAS requires investors to report their short positions and short
sell orders in securities listed on the Singapore Exchange. MAS Guidelines on the Regulation of Short Selling
explain how MAS administers the legislative provision and exemptions relating to the disclosure of short sell
orders and short positions.

A person who makes a short sell order on SGX-ST must, before or at the time of the short sell order, disclose
to SGX-ST or his broker (who must in turn disclose to SGX-ST) that it intends to make (or is making) a short sell
order and the quantity, volume or value of the specified capital markets product that this relates to.

The SGX-ST Rules provide that a Trading Member or its Representatives shall not enter a sell order in the
Trading System if a customer has not indicated whether the sell order is a Short Sell Order or a normal sell
order, or has not provided the relevant information relating to quantity, volume or value of the specified
capital markets product in which the customer intends to make or is making a short sell order.

Market participants are expected to split sell orders, if they do not own the full quantity of securities to be
sold. They are required to split the order into two with the short sale order marked accordingly.

SGX-ST will publish aggregated short selling information, such as short sales volume and value, on the SGX
website by the start of each trading day, based on short sale order data collected on the previous trading day.

As information on short selling may be considered by other market participants when making trading
decisions, all market participants are expected to accurately disclose the nature of their sell orders for SGX-ST
Trading Members’ compliance with the disclosure requirements on short selling. SGX-ST will provide its
Trading Members with a facility to correct erroneously marked sell orders.

4.11.6 Reporting of Short Position252

The SFA requires that where a person’s (A) net short position in relation to any specified capital markets
products crosses a threshold prescribed by the MAS253, the person shall report to the MAS directly or through
another person (B):
1. Information on the identity and business activities of A and B s(if applicable);

2. Information on A’s short position in relation to the products; and

3. Any change to the information above.

251 SFA Section 137ZJ – Disclosure of Short Sell Orders; Securities and Futures (Short Selling) Regulations; MAS Guidelines on the
Regulation of Short Selling (SFA 07A-G01); SGX-ST Rule 8.7.1 to 8.7.3- Marking of Sell Orders.
252 SFA Section 137ZK – Reporting of Short Position.
253 Securities and Futures (Short Selling) Regulations, The Schedule – Short Position Threshold.

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4.11.7 Specified Products Borrowing and Lending254

Just as short selling is allowed subject to conditions including having pre-arrangements for ‘covered’ short
selling, specified products borrowing and lending is allowed as a market practice subject to conditions as
outlined in Regulation 45 of the SFR (LCB).

When a CMS licence holder borrows from an owner of specified products (who is not an accredited investor,
expert investor or institutional investor), the CMS licence holder must ensure that it provides collateral of up
to 100% of the market value of the products borrowed. Similarly, if the CMS licence holder lends products,
including those belonging to its customers, it must obtain collateral from the borrower of at least 100% of the
market value of the products borrowed. Under the SGX-ST rules, the collateral required to be obtained by the
Trading Member from a borrower is at least 105% of the market value of the products.255

The value of the collateral throughout the borrowing and lending arrangement must be 100% of the market
value of the specified products. Such borrowing and lending must be clearly documented in writing and must
comply with the following:
1. State the capacities in which the arrangement was entered into, as agent or principal;
2. Provide for the transfer of title to and the interest in the specified products to the CMS licence holder from
the borrower or from the CMS licence holder to the lender, as the case may b;
3. Provide for the transfer of title to and interest in whole or in part of the collateral provided or obtained by
the CMS licence holder which is at least 100% of the market value of the specified products borrowed by
the CMS licence holder from the lender or lent by the CMS licence holder to the borrower, as the case
may be;
4. Provide the rights to document the borrowing and lending arrangement including the treatment of
dividend payments, voting and other rights and arrangement for dealing in any corporate action;
5. Provide for the daily mark to market valuation of the collateral to determine the procedure for calculating
margin and treatment of shortfalls, if any;
6. Provide the procedures for the return of specified products lent and borrowed;
7. Provide for the termination of agreement, setoff of claims, default conditions, calculation of lending or
borrowing fees, as the case may be;
8. Provide for the governing law and jurisdiction subjected to.

Before any borrowing arrangements can be entered into, the CMS licence holder must explain the risk in such
arrangements to the customer and obtain his understanding in writing.

The collateral arrangements above do not apply if the CMS licence holder borrows from an accredited investor,
expert investor or institutional investor. However, such arrangements and conditions must be documented in
a written agreement in accordance with the requirements of SFR (LCB) Regulation 45(7).

254 SFR (LCB) Regulation 45 – Specified Products Borrowing and Lending; SGX-ST Rule 3.11 –Borrowing and Lending of Specified
Products.
255 SGX-ST Rule 3.11.3 – Collateral.

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4.12 Vigilant Practices Against Market Misconduct 256

The SGX-ST rules mirror the market misconduct provisions under the SFA and provides further guidance in
reminding Trading Members and their Representatives to be mindful and vigilant against market misconduct.
It requires Trading Members and their Representatives not to accept instructions from customers at face value
but to ask relevant questions to satisfy themselves when an unusual order is received from a customer that it
is not to create false trading or an attempt to manipulate the price of a security.

Only if the Trading Member or Representative is satisfied that the suspicion is a false alarm and that the
transaction is a genuine commercial transaction, then only should the deal be put through. Failing which, if in
an investigation, the deal is found to be manipulative, and that no due diligence was further carried out to
ensure the genuineness of the transaction, the Trading Member and Representative may face disciplinary
actions brought against them by SGX-ST or MAS.

To prevent such manipulation and the creation of a false market, the SGX-ST rules have suggested the
following vigilant practices:

4.12.1 Inconsistency with Recent Activity (SGX-ST Rule 5.12.2(a))

A Trading Member and its Representative should consider whether the proposed transaction is inconsistent
with the recent trading activity in the security or futures contract. This is because Trading Member or
Representative would generally be familiar with the patterns of trading in each security or futures contract.
They are therefore expected to exercise judgement, based on their experience and knowledge of trading in
the security or futures contract, in assessing the likely impact of a proposed transaction on the market for a
security or futures contract.

Note that this Rule does not prevent a Trading Member or Representative from executing an order simply
because it will have an impact on the market for, or price of security or futures contract.

4.12.2 Collaboration (SGX-ST Rule 5.12.2(b))

A Trading Member and its Representative should consider whether the execution of the proposed transaction
is likely to cause or contribute to a material change in the price of, or the market for, the security or futures
contract, and whether the person involved or another person with whom the first person is collaborating may
directly or indirectly benefit from alterations in the market or price.

In the absence of a good reason to buy or sell quickly, customers generally want to obtain the best price.
Trading Members or Representatives who receive an order that would materially alter the market for, or price
of, the security or futures contract should consider whether such orders are genuine or manipulative.

In order to be able to do this, Trading Members and Representatives must know their customers. Orders
placed by a customer or a related party of that customer, who may have an interest in creating a material
change in the market for, or price of, a particular security or futures contract, should be closely examined. For
example, a large holder of a particular security may have an interest in inflating the value of the holding (e.g.
window dressing for investment performance purposes) or decreasing the price of the security (e.g. as a

256SGX-ST Rule 5.12.1 Prohibited Trading Conduct and SGX-ST Practice Note 5.12 – False Trading and Market Rigging.

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precursor to a takeover bid or for purposes which include lowering a conversion price) and may place orders
accordingly.

4.12.3 Multiple or Large Order (SGX-ST Rule 5.12.2(c))

Where the proposed transaction involves the placing of multiple buy and sell orders at various prices higher
or lower than the market price, or the placing of buy and sell orders to give the appearance of increased
volume, it may be indicative of an attempt to create a false and misleading appearance.

For their own part, Trading Members and Representatives should not make large entries above or below the
prevailing spread to facilitate filling an order on the other side of the market. The placing of buy (sell) orders
at various price steps below (above) the market may create a false or misleading appearance that the entries
are on behalf of genuine buyers (sellers). The layering of orders also translates into a change in the depth
screen and may mislead market participants with respect to interest in the counter.

4.12.4 Transaction to Influence Prices (SGX-ST Rule 5.12.2(d))

A Trading Member and Representative should consider carefully any orders placed with instruction to execute
them at or near the close of trading, particularly if a price target is set. A Trading Member or Representative
should be alert to orders placed near the close on the last trading day of the month, quarter or year, or on
option and warrant expiry dates, which will move the price when executed.

A customer who, to the knowledge of the Trading Member or Representative, declines the opportunity to
obtain a better price during the day and prefers to pay a higher (lower) price near the close should be queried
as to the strategy. This is important if the order is to buy or sell a small volume of the security, which is likely
to move the price and possibly fix the closing price. Further, if the Trading Member or Representative received
a series of similar orders over a number of days, each of which generates a price movement near the close of
trading, the Trading Member or Representative should be satisfied that the client is not attempting to create
a false or misleading appearance with respect to the price of the security. For example, a fund manager’s
quarterly performance will improve if the valuation of his portfolio at the end of the quarter in question is
higher. By placing a large order to buy relatively illiquid shares, which are also components of his portfolio, to
be executed at or just before the close, his purpose might be to distort the price in his favour.

Accordingly, a Trading Member or Representative should consider whether a proposed transaction will
coincide with or is likely to influence the calculation of reference prices, settlement prices and valuations.

4.12.5 Connected Parties (SGX-ST Rule 5.12.2(e))

Where the parties involved in the proposed transaction are connected or associated, there is a concern that
there may effectively be no change in beneficial interest. This would be the case if the security or futures
contract is held in the name of the buyer, but the market risk actually remains with the seller. Note that this
is also caught under Section 197(5) of the SFA.

4.12.6 Matching Orders (SGX-ST Rule 5.12.2(f))

Where buy and sell orders are to be entered at about the same time and for about the same price and quantity,
this may suggest that the transaction is pre-arranged. Pre-arranged transactions have the effect of creating a
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misleading appearance of active trading, or improperly excluding other market participants from the
transaction since the first bid or offer was not adequately exposed to the market. The execution of crossings
or transactions between the same parties for the same volumes, which are subsequently reversed at the same
prices, also raises questions on whether the transaction involves a change in beneficial ownership, or are for
rollover of trades to extend settlement, or for a purpose of engaging in a circular trading scheme to create the
impression of turnover.

Matching orders or pre-arranged transactions are also caught under Section 197(3) of the SFA.

4.12.7 Erratic Movements in Price or Volume (SGX-ST Rule 5.12.2(g))

A Trading Member and Representative should consider whether the proposed transaction will or may cause
the price of the security or futures contracts to increase or decrease but following which the price is likely to
immediately return to about its previous level. The key question in this area is whether there appears to be
any logical trading pattern to the securities or futures contract’s price and volume, or whether it seems erratic.
Trading is manipulative if it is intended to move the price of the security or futures contracts.

4.12.8 Withdrawal or Amendment of Orders before Execution (SGX-ST Rule 5.12.2(h))

Where a proposed bid (offer) is higher (lower) than the previous bid (offer) but is withdrawn or amended to
avoid execution, this could indicate that the order is not genuine, especially where a distinctive pattern of such
orders is observed. Hence, it would be a breach of this Rule if, at the time the bid (offer) was made, the Trading
Member or Representative did not intend to buy (sell) but intended that the bid (offer) would not trade and
would be cancelled. Sometimes, such order is entered to induce buyers (sellers) into the market to facilitate
the filling of an order on the other side of the market.

4.12.9 Excessive Volume or Size (SGX-ST Rule 5.12.2(i))

A Trading Member and Representatives is not prohibited from trading significant volumes where there is a
legitimate purpose for the transaction, and it is executed in a proper manner. However, where the volume or
size of the order or transaction is excessive relative to reasonable expectations of the depth and liquidity of
the market at the time, this may indicate that the trading is done with the purpose of controlling the price of
a security or futures contract. If so, this would amount to manipulative trading.

4.12.10 Likelihood of Trading at Best Offer Volume / Next Price Level (SGX-ST Rule 5.12.2(j))

A Trading Member and Representative should consider whether the proposed buy (or sell) order is likely to
trade with the entire best offer (or bid) volume and part of the offer (or bid) at the next price level. If a
customer regularly buys (sells) on the up-tick (down-tick) in the face of consistent selling (buying) pressure,
the Trading Member or Representative should query whether the customer is a bona fide purchaser (seller).
Repetitive orders to clear the best offer (bid) volume, particularly within a short time, suggest that the Trading
Member or Representative might be attempting to break the market. The trading spikes or troughs were
meant to excite the market and attract spectators to join in. Such transactions would also be in breach of
Section 198 of the SFA.

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4.12.11 Series of Orders Affecting Consistency Price of Security (SGX-ST Rule 5.12.2(k))

A Trading Member and Representative should consider whether the proposed buy (or sell) order forms part
of a series of orders that successively and consistently increase (or decrease) the price of the security or futures
contract.

For example, if a customer places a sell order well above the best ask and one or more buy orders which would
increase the price towards the customer’s ask price, a Trading Member or Representative should query the
customer’s strategy. It may be that the buy orders are intended to get the price running and facilitate the sale
at the higher price. Illiquid stocks, in particular, are susceptible to this type of improper trading. Such
transactions would also be in breach of Section 198 of the SFA.

4.12.12 Legitimate Commercial Reasons (SGX-ST Rule 5.12.2(l))

Many orders for legitimate commercial reasons can change the market for, or the price of, a security or futures
contract when executed. Such orders are acceptable despite the volume and/or price impact, but the Trading
Member or Representative must consider any additional intentions that may exist and execute the order in
an appropriate manner, bearing in mind relevant obligations, including the requirement to maintain an orderly
market.

4.12.13 Spoofing and Layering257

Spoofing typically occurs when an errant trader submits a genuine order on one side of the order book, and
excessively large orders on the other side. Upon execution of the genuine order, the trader may then rapidly
cancel the fictitious large orders. This is designed to create a false impression of the supply and demand
balance and improve the trader’s chance of another market participant matching his genuine order.

Layering occurs when multiple order entries are made at, above or below the prevailing best bid or ask prices.
Where these ‘’layered orders’’ are used to induce market participants to enter their orders at prices not
representative of actual demand and supply, a false market may be created. This allows the trader to take
advantage by trading on the opposite side of the order book against other participants’ orders at prices
beneficial to him.

A Trading Member and Representative should consider whether such practices are being employed. Indicators
may include the liquidity profile of the instrument, combined size of the orders, the prices at which orders are
placed and the activities of the trader (e.g. if he is active on the opposite side of the market) when the order
are placed.

4.12.14 Marking the Close258

A Trading Member and Representative should consider if a customer is frequently trading close to or at the
intra-day high/low price for an instrument. This may be an indicator of marking the close, which is a form of
manipulation with the objective of artificially fixing the closing price. As closing prices are regularly quoted as

257 SGX Trade Surveillance Handbook – Series One, Paragraph 2.2; SGX Trade Surveillance Handbook – Series Two Paragraph 3.1.
258 SGX Trade Surveillance Handbook – Series One, Paragraph 2.3.
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a measure of an instrument’s price performance, a trader wishing to influence this may employ this
manipulation mechanism.

4.12.15 SGX RegCo Trade Surveillance Handbooks

A Trading Member and Representative can refer to the Trade Surveillance Handbooks 259
published by SGX RegCo on SGX website to increase understanding on what constitutes
potential trading malpractices.

4.13 SGX-ST Regulatory Tools to Uphold Fair, Orderly and Transparent

Markets

SGX-ST conducts rigorous surveillance of trading activities to detect any undesirable trading conduct and
enforce the listing rules. The Exchange deploys its customised surveillance system that picks up unusual
trading patterns and behaviour in individual counters real-time, throughout the trading hours. Where
necessary, Surveillance analysts may contact Trading Members and Representatives for further information
on their trades and orders as well as their customer details.

4.13.1 Public Query and Trade with Caution

When alerted, Surveillance analysts review company disclosures, macroeconomic factors as well as industry
developments that could explain the trading activity.

When the trading activity cannot be explained, the Exchange may issue a query to the listed company. The
aim of the query is to extract any yet-to-be announced material information from the listed company as well
as alert investors of unusual trading activities. The query will be posted under the company’s name in the
Company Announcements page on https://www.sgx.com/.

Where a listed company queried by SGX-ST replies that it is unaware of any reasons for the unusual trading
activities in its security, SGX-ST will issue a “Trade with Caution” announcement. This announcement from
SGX-ST reminds investors to be cautious when trading in that company’s security as the trading activity in that
listed company’s security could be caused by market forces other than the corporate developments of the
company. The “Trade with Caution” announcement will be posted under Regulatory Announcement on
https://www.sgxgroup.com/media-centre?type=359https://www.sgx.com/.

For investors, the public query serves to raise awareness that the trading activity in a particular counter is
unusual. The incidences of query serve as real-time up-to-the-minute alert to the investors to trade with care.

259 MAS-SGX Trade Surveillance Practice Guide. https://www.mas.gov.sg/-/media/MAS/News-and-Publications/Monographs-and-

Information-Papers/MAS-SGX-Trade-Surveillance-Practice-Guide.pdf.
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4.13.2 Suspension and Restriction of Trading260

Under SGX ST Rule 8.13.1, SGX-ST has the authority and power to suspend or restrict trading under certain
circumstances, including in SGX-ST’s opinion, if the market is not orderly, informed or fair, or circumstances
are about to occur that may result in there not being an orderly, informed or fair market.

In addition, SGX-ST may suspend or restrict trading in any or all listed or quoted securities:
1. When SGX-ST wishes to release information on an issuer which is market sensitive;
2. When it is of the opinion that such acts are necessary in the public’s interest;
3. When an Issuer requests and SGX-ST agrees to the suspension;
4. When access to the Trading System is generally restricted;
5. When any of the circumstances describe in Rule 1303 of the SGX-Listing Manual occurs; and
6. When SGX-ST Rule 8.14 on Circuit Breakers and Cooling-Off Periods apply;
7. When one or more of SGX-ST functions are or are threatened to be severely or adversely affected by an
emergency such as a fire, terrorist attacks, power failure, communication or complete malfunction of its
systems.

No trading of the securities which are subject to a suspension must be executed unless specifically approved
by SGX-ST. SGX-ST may lift a suspension at any time and may also decide upon lifting of suspension allow for
extra sessions of trading.

Example – Suspension and Restriction of Trading

Examples of SGX-ST suspended trading in securities are:
- Blumont Group Limited in 2013;
- Asiasons Capital Ltd in 2013;
- LionGold Corp Ltd in 2013;
- ISR Capital in 2016;
- M Development in 2017;
- Nico Steel Holdings Limited in 2019;
- Informatics Education Ltd in 2022; and
- Asti Holdings in 2022.

4.13.3 Designated Instruments261

Designation of an instrument is used sparingly in exceptional cases if, in the opinion of SGX-ST, there has been
manipulation of a security or futures contract (or its underlying), excessive speculation or if it is desirable in
the interests of the organised markets established or operated by SGX-ST.

260SGX-ST Rule 8.13 – Suspension and Restriction of Trading.

261SGX-ST Rule 8.11 – Designated Instruments.

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By declaring the security or futures contract as a designated instrument, SGX-ST may impose conditions on its
trading, including but not limited to the following:
• Requiring a Trading Member to obtain margins from each customer in respect of the customer’s dealing
in the designated instrument;
• Restricting trading in the designated instrument by a Trading Member if its outstanding contracts exceed
5% of the total issued shares or units of the relevant issuer whose shares or units are designated or
underlies the designated instrument, or any percentage or benchmark that SGX-ST may prescribe; or
• Prohibit any sale unless the seller holds the designated instrument at the time of the sale in an account
with CDP or can deliver the share certificates and executed transfer forms to the Trading Member.

SGX-ST may also require the Trading Member to provide particulars on its trading of the designated
instruments, including the particulars of the customer involved. The Trading Member must provide such
requested information by the next business day after the request is made.

Example – Designated Instruments

Examples of some designated instruments by SGX-ST:
- Dayen Environmental Limited in 2002;
- Jade Technologies in 2008;
- Blumont Group Limited in 2013;
- Asiasons Capital Ltd in 2013; and
- LionGold Corp Ltd in 2013.

4.13.4 Declaring a Corner262

SGX-ST may declare a corner on a listed or quoted security if, in its opinion (1) a single party or group has
acquired, or is likely to acquire, sufficient control over the supply of the security to be able to dictate price for
delivery or on terms dictated by the single interest group, or (2) it is deemed desirable in the interests of the
organised markets established or operated by SGX-ST.

SGX-ST may impose any conditions on the dealing in a cornered security or in a futures contract on a cornered
security, including but not limited to:
• extending the due date of delivery; or

• declaring that contracts be cash settled (without delivery).

It may also impose cash settlement terms such as:

i. If a seller contracted to sell for less than the fair settlement price, the seller must pay the buyer the
difference between the fair settlement price and the contract price;
ii. If a seller contracted to sell for more than the fair settlement price, the buyer must pay the seller the
difference between the contract price and the fair settlement price;

262SGX-ST Rule 8.12 – Corner.

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iii. If a buyer contracted to buy for less than the fair settlement price, the seller must pay the buyer the
difference between the fair settlement price and the contract price; and
iv. If a buyer contracted to buy for more than the fair settlement price, the buyer must pay the seller the
difference between the contract price and the fair settlement price.

A Settlement Committee will be formed to recommend a fair settlement price to SGX-ST. The fair settlement
price determined by SGX-ST in accordance with the procedures under the SGX-ST Rules will be final and binding
on all parties to any outstanding trades in the cornered security or in a futures contract on the cornered
security.

Example – Declaring A Corner

SGX-ST had declared a corner situation on Links Island Holdings in 2000. This was in view of a drastic increase
in its share price, which jumped nearly threefold in one and a half months. The shares of the company were
found to have been ‘’cornered’’ by a group of investors – meaning they held stakes major enough to enable
them to manipulate the share price.

4.14 Duty to Report Market Misconduct 263

A Trading Member and Representative has a duty to immediately report to MAS and SGX-ST if it or he
reasonably suspects, or knows of, any attempted market manipulation, insider trading or any other prohibited
trading conduct.

4.15 Penalties for Misconduct under the SFA

Any contravention of the market conduct rules under the SFA attracts substantial criminal and civil penalties
and liabilities. Further, the offender’s licence may be suspended or revoked depending on the severity of the
offence. Reputational loss (including the loss of customers’ confidence) is also a likely knock-on effect.

4.15.1 Criminal and Civil Penalties264

Offences for market misconduct are criminal and carry heavy penalties, which include fines and/pr
imprisonment .

In addition to criminal penalties, the CMS Licence Holder and its Representatives may also face civil action
brought by the MAS in court.

263SGX-ST Rules 5.12.8 Prohibited Trading Conduct.

264 SFA Section 204 – Penalties under this Division; SFA Section 232 – Civil Penalty.
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4.15.2 Civil Sanctions, Financial and Reputation Loss265

In addition to potential criminal and civil penalties, an offending CMS Licence Holder or its Representatives
may also be liable to compensate any person who:
i. Had entered into similar trades at the time of the offence; and
ii. Had suffered market losses due to the effects of the offence.

This is in addition to the possibility of facing further lawsuits (apart from those contemplated under the SFA)
from market players for losses incurred. Such actions may require damages to be paid resulting in financial
loss.

Reputational loss (including the loss of customers’ confidence) is also a likely knock-on effect. Further, Trading
Members or Representatives may have their licences or registrations suspended or revoked depending on the
severity of the offence.

4.16 Penalties for Market Misconduct under the SGX-ST Rules

The SGX-ST Rules empower SGX-ST to carry out investigations266 if there is a possible breach of the Rules, any
applicable laws and/or regulations. Investigations may also be carried out if SGX-ST receives a written
complaint involving any Registered Person and/or its Director, Officer, employee or agent; if there is a dispute
between Trading Members on a trading matter; if the MAS directs so; or if circumstances otherwise warrant
an investigation.

SGX-ST may take several forms of disciplinary action against an errant Trading Member or Representative. It
may charge a relevant person before the Disciplinary Committee, make an offer of composition, if SGX-ST is
of the opinion that there has been violation of Rules, or issue a letter of warning267.

The Disciplinary Committee comprises persons appointed by SGX RegCo’s board. A person who is charged is
given an opportunity to present his case to the Disciplinary Committee, in accordance with the procedures
issued in relation to the Disciplinary Committee proceedings268. If, after having heard the matter, the
Disciplinary Committee finds that the charge has been proven, it may impose one or more of the following
sanctions269:
1. Expulsion;
2. Suspension;
3. Fine if there are multiple charges, which may be permitted by the Disciplinary Committee to be paid in
instalments, not exceeding 12 months from the date of imposition of the fine;
4. Impose restrictions or conditions on the activities that the Registered Person undertakes;

265 SFA Section 234 – Civil Liability; SFA Section 235 – Action under section 234 not to Commence, etc. in Certain Conditions; SFA Section

236 – Civil Liability in event of Conviction, etc.

266SGX-ST Rule 12.1 – Investigations by SGX-ST.
267 SGX-ST Rule 12.3 – Disciplinary Action.
268SGX-ST Rule 12.5.5– Disciplinary Committee; Paragraph 4.2.1 SGX Listing Manual Enforcement Handbook (effective from 1 August

2021)
269SGX-ST Rule 12.5.7 – Disciplinary Committee.

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5. Reprimand (publicly or privately);

6. Require that the Registered Person undertakes an education or compliance programme;
7. Require reimbursement or compensation;
8. Require that any Director or Officer step down from day-to-day conduct of the business affairs of a Trading
Member; or
9. Confirm, change or discharge the appointment of a Manager under SGX-ST Rule 2.22.4(c).

The decision of the Disciplinary Committee may be appealed to an Appeals Committee, whose decision is final
and binding270.

SGX-ST may suspend or impose restrictions or conditions on a Trading Member or its Representative while
such investigations or disciplinary processes are ongoing.271

270SGX-ST Rule 12.6.14 – Appeals Committee .

271 SGX-ST Rule 2.22.1– Suspension and Restriction of Activities.
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Chapter 5:
Ethics, Codes and Standards of
Professional Conduct for Securities
Dealing
Learning Objectives
The candidate should be able to:
✓ Define the concept of ethics and ethical behaviour in the context of capital markets transactions, namely
securities dealing activities.
✓ Explain the importance of ethical behaviour.
✓ Recognise and interpret ethical issues arising from ethical dilemmas in the capital markets environment.
✓ Define and describe professional ethics and ethical expectations for representatives engaged in securities
dealing.
✓ Recognise and use the codes of ethics and standards of professional conduct as guidelines to best
practices in securities dealing.
✓ Demonstrate professional ethical standards that are expected of securities dealing representatives.
✓ Recognise and demonstrate recommended procedures for compliance in the context of securities
dealing.
✓ Apply the ethical framework to resolve ethical dilemmas.

5.1 Introduction

This chapter aims to provide guidance to professionals to understand ethical principles and issues when faced
with dilemmas in their capacity as representatives in the securities dealing environment. Representatives must
know the relevant professional codes and standards applicable to securities dealing activities and be aware of
the professional and ethical behaviour expected of them in dealings with clients and other market participants.

Representatives must appreciate the importance of doing business ethically because their professional and
personal conduct can have wider repercussions on the financial markets and the business ecosystem. By
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applying the relevant ethical frameworks, securities dealing professionals can evaluate potential ethical
conflicts and seek practical solutions to deal with them. Ethical frameworks can help instil awareness and
vigilance so that practitioners are able to make decisions and execute transactions with integrity and
professionalism.

5.1.1 Definition of Ethics in the Capital Markets Industry

The CFA Institute defines Ethics in its Code of Ethics and Standards of Professional Conduct: as:

“…… a set of moral principles or rules of conduct that provide guidance for one’s behaviour when it affects
others272”.

The dictionary defines ethics as:

A system of moral principles; or
A complex framework of moral precepts held, or rules of conduct followed by an individual.

Everyone’s moral fabric differs and is influenced by education, spiritual or religious beliefs and culture etc.
Ethics goes beyond regulations and the law and can be simply described as “doing the right thing even when
no one is looking to prevent hurting others.”

5.1.2 The Importance of Ethics

Unethical behaviour by individuals not only affect their own lives and careers but can also damage investors’
confidence, erode the public’s trust and, in severe cases, lead to market contagion. Unethical practices such
as creating a false market or cornering a specific stock, the Ponzi schemes, mis-selling of sub-prime bonds,
accounting frauds, market manipulations and other insider trading schemes have led to the destabilization of
markets. Such destabilizations are not always contained within domestic markets but can spread globally.
Financial markets have become more interconnected with cross border investment flows and international
distribution of financial products, which are developed in a particular domestic market and sold to investors
in other regions.

By having well-functioning financial markets, capital can flow efficiently to places with the most attractive
investment prospects and financial returns. Efficient capital markets enable the matching of borrowers/issuers
of securities, who are looking for capital to grow their business, with investors, who are seeking to grow their
wealth by directing funds into assets which generate positive returns. For the needs of both parties to be
served, fair and transparent market mechanisms must be in place to facilitate such transactions.

The capital markets depend on a solid ethical foundation to guide the behaviours and actions of market
participants. Therefore, it is important to instil the right ethical values so that securities dealing professionals
are aware of their responsibility to protect the integrity of the financial ecosystem, putting the wider interests
of society and markets before their own. In light of the numerous acts of misconduct and scandals in recent
years, governments and financial regulators have introduced numerous regulatory reforms to help combat
unethical and destabilising behaviour in their financial markets.

Code of Ethics and Standards of Professional Conduct, 12th Edition and Standards of Practice Handbook, 12th h Edition.
272

CFA Institute.
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5.2 The Ethical Framework

Significant codes and standards of professional conduct would be embedded within rules and regulations as
discussed in Chapters 2 to 4 of this Study Guide. Most codes of ethics and standards of professional conduct
generally serve as just guidance for best ethical or industry practice behaviours. When the codes are violated,
and the relevant laws and regulations are not enforced, acts of misconduct can result in penalties being
imposed on the individual representatives and/or their firms. They may also be subject to civil and criminal
liabilities.

The key to resolving ethical dilemmas largely relies on the sound individual judgement of the representatives,
to do the right thing when they find themselves in grey areas or in positions where they face temptations
seemingly too good to resist. An ethical framework can serve as a good foundation, which representatives can
rely upon for guidance and direction, when they need to make the right decisions. Furthermore, organisations
can also adopt such a framework to help create a positive and supportive workplace culture which promotes
ethical behaviour.

Figure 5.2: The Ethical Framework for the Capital Markets Professionals

Products /
Services

Understand Analyse Risks

Suitability / Objective / Careful

Representative
Honesty / Independent

Serves Customers Execute Solutions

Quickly / Fairly /
Transparently

The chart above shows the four components of the ethical framework. The main objective is always to serve
the best interest of the clients with integrity. This means understanding the specific product thoroughly,
analysing all the risks involved and executing solutions that best address the needs of the client.

1. Understanding and Comprehension - Representatives dealing in capital markets products are expected
to have good understanding of the products and services that they are offering for client’s consideration.
This includes understanding the risks involved and whether it is suitable for the client. In assessing product
suitability, the client’s investment profile and risk tolerance should also be taken into consideration.

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2. Analyse Risks - The risks associated with the proposed financial products and services must be discussed
in detail with the client. The representatives dealing in capital markets products should ensure that any
advice given takes into consideration the risk tolerance and financial capacity of the client.

3. Execute Solutions - Upon formulating and executing solutions for the client, securities dealing
representatives should ensure that the process is smooth and efficient. Most importantly, the process
must be transparent and carried out in a fair manner.

4. Serve Clients - Representatives dealing in capital markets products should always do their utmost to
ensure that they serve the clients with integrity and for their best interest within the framework of rules
and regulations. Representatives should never place their self-interests over that of the client.

5. Safeguarding Reputation – In accessing the feasibility and executing a transaction, representatives dealing
in capital markets products should carry out their work objectively and professionally recognizing that the
reputation of their employer and the integrity of the industry could be undermined by unethical
behaviour.

5.2.1 Why People Engage in Unethical Behaviour

External factors can influence an individual’s actions which could result in unethical conduct. An example
would be when the client puts pressure on the representative to act in a way that violates the ethical rules of
the firm, industry code of conduct or worse, circumvents prescribed rules and regulations. The representative
may feel pressured because if he does not do as the client asks, it could result in the loss of the current deal
or diminish future business opportunities with the client.

Internal factors can also contribute to unethical behaviour. Some examples are:
• An individual may commit unethical acts due to the lack of understanding and experience, proficiency, or
misinterpretation of rules that he would be expected to follow when carrying out a task. This could be due
to the person’s inadequate skills or knowledge, the lack of proper supervision, or a combination of both.
• A representative performs deliberate acts driven purely by the desire to make financial gains, or to seek a
non-financial benefit, such as gain recognition or attain a position of personal or professional advantage.
Seeking the desired outcome overrides any ethical and moral considerations, justifying the use of any
means to achieve the result.
• Pressure from one or more colleagues within an organisation. It could happen in a work environment
where there is an intense push to close deals and generate fees, even when it may not be in the client’s
best interests. The representative may succumb to influence from peers or seniors to conform, especially
if he is a junior staff member. It is a scenario that should not be discounted especially if the organisation
has a weak ethical and workplace culture.

5.2.2 Preparing to Understand the Ethical Role

To reinforce ethical thinking and action, it is important for the individual to be familiar with ethical frameworks
which can help them recognise and deal with ethical dilemmas. There are six main steps to consider and follow:
i. Putting clients’ interest first

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• Ensuring that the client’s needs and interest are given priority over self.
• Balancing between personal growth and the benefit of the capital markets and financial system.
ii. Emphasizing integrity, competence, diligence and respect
• Ensuring that there is no conflict of interest and abstaining from making decision when conflicted.
• Observing competition laws and regulations and comply with gifts and entertainment policies.
• Attending training course when new products are introduced into the markets or when new
rules/regulations are introduced.
• Ensuring that the charges, commissions and expenses incurred are fair, transparent and
communicated clearly to clients.
iii. Exercising care and independent professional judgement
• Ensuring proper understanding of products and their risks before making recommendations.
• Ensuring proper understanding of client’s needs, financial goals and risk appetite before making
recommendations.
• Providing factual information and explaining different scenarios to clients.
• Observing best execution rules and priority of clients’ orders above self-interests.
iv. Building trust with clients and ensuring respect of market conduct rules to prevent abuse of the market
• Maintain secrecy and confidentiality of client’s data and information.
• Proper handling of clients’ funds and assets.
• Maintaining transparency in communication with clients throughout the life of the product.
• Observing internal controls of the employer.
• Establishing a strong trusting client / professional relationship.
• Observe and complying with proper complaints handling procedures.
• Observing and complying with designated channels for whistle blowing.
v. Disassociating oneself from the deal or transaction
• Exercising objectivity upon facilitating the transaction and refrain from taking sides.
• Demonstrate professionalism when executing the transaction.
• Advise the client to reconsider the client’s strategy if his/her transaction has an impact on the market
(e.g. resulting in price or volume spikes in the share counter)
vi. Seek guidance from compliance and legal departments whenever in doubt
• Engaging in frequent communication with supervisors on the applicable codes of ethics and standards
of professional conduct.
• Approaching the relevant parties for assistance when facing ethical dilemmas.
• Ensuring that any transactions undertaken are always within the compliance and legal rules set out by
the relevant authorities.
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5.3 Ethical Dilemmas

5.3.1 What are Ethical Dilemmas?

Ethical dilemmas are situations when an individual has to decide whether to carry out an action which runs
contrary to his own ethical standards, rules and regulations or the provisions of a professional code of conduct.
Ethical dilemmas can come in various forms, such as conflicts of interest, confidentiality issues or even
committing something that is fraudulent and illegal.

Whenever a situation is deemed to be unethical, the primary consideration are the relevant factual evidence
and the ethical issues involved to assess if any violations have been committed. When identifying potential
ethical dilemmas, it is always important to refer to the core of ethics and standards, as listed in Section 5.4.

Example – An Ethical Dilemma

John, a security dealing representative, is under heavy pressure from his superiors to meet his commission
target. John is currently working with a client, whom he believes can enable him to close a huge transaction
and the commissions earned would more than meet his target.

To increase the success of closing the transaction, he recommends investment products to his client which
he knows are unsuitable in terms of the client’s risk appetite and profile. John is aware that such action is
unethical; however, if he does not close the deal, he will not meet his target and may be subsequently fired
by his firm. This is an example of an obvious ethical dilemma.

5.3.2 Identifying Potential Ethical Dilemmas

It is important to be vigilant and alert to situations where compliance with the organisation’s and individual’s
core ethical values is threatened. Any identified threat should be evaluated and managed swiftly to reduce or
eliminate the potential ethical conflicts. The threats faced typically arise due to:

• Self-Interest: The threat of a personal interest (e.g. monetary benefits) that will negatively affect one’s
behaviour or judgement of the representative.
• Self-Review: Lack of objectivity in analysing the recommendations made to clients or in the professional
actions being carried out. This could be due to an inherent bias which results in the favouring and
approving of work done by oneself. A more holistic review and feedback process involving other
independent party is needed to ensure checks and balances.
• Influence: Being influenced by individuals or groups (e.g. clients, superiors or departments). This could
have a bearing on one’s judgement, quality of decisions, and ultimately behaviour.

Representatives must be aware and attentive in order to identify any ethical issues or dilemmas that they may
encounter during the course of their work.

With greater awareness, representatives should be able to assess the underlying root causes of their own
ethical dilemmas and work to resolve them in a decisive manner.
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5.4 Professional Ethics, Codes and Standards of Professional Conduct for

Securities Dealing

Professional ethics is a set of behaviour and conduct expected of representative in a particular industry.
Representatives of the securities industry should be guided by spirit of a code of ethics273 as guidelines to best
practices in securities dealing as follows:
1. Act with integrity, competence, diligence, and respect and in an ethical manner with the public, clients,
prospective clients, employers, employees, colleagues in the securities dealing profession, and other
participants in the global capital markets.
2. Place the integrity of the securities dealing profession and the interest of clients above their own personal
interests.
3. Use reasonable care and exercise independent professional judgement when conducting investment
analysis, making investment recommendations, taking investment actions, and engaging in other
professional activities.
4. Practise and encourage others to practise in a professional and ethical manner that will reflect credit on
themselves and the profession.
5. Promote the integrity and viability of the global capital markets for the ultimate benefit of society.
6. Maintain and improve their professional competence and strive to maintain and improve the competence
of other investment professionals.

All professionals in the capital markets eco-system are expected to comply with these basic ethical principles
as well as the ethics and codes covered in their specific industry.

5.4.1 Standards of Professional Conduct

5.4.1.1 Professionalism

(i) Knowledge of the Law

Representatives must understand and comply with all applicable laws, rules and regulations of any
government, regulatory organization, licensing agency, or professional association governing their
professional activities. They must not knowingly participate or assist in and must dissociate from any violation
of such laws, rules, or regulations. This includes the Securities and Futures Act (SFA), applicable obligations
under the Financial Advisers Act (FAA set out by MAS and the rules and regulations of any applicable regulatory
organization, licensing agency or professional association regulating securities dealing activities.

273 Code of Ethics and Standards of Professional Conduct, 12th Edition and Standards of Practice Handbook 12th h Edition n. CFA
Institute.

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(ii) Independence and Objectivity

Representatives should apply reasonable care and judgement to achieve and maintain independence and
objectivity in their professional activities. They must not offer, solicit or accept gift, benefit, compensation, or
consideration that reasonably could be expected to compromise their own or another’s independence and
objectivity.

Representatives should also comply with internal guidelines issued in relation to gifts and entertainment
within their respective employment and observe industry codes and practices on the same. Representatives
should resist internal pressure from their firms when making investment recommendations to prevent conflict
of interest. This is especially crucial during order execution where client’s interest is priority to that of their
firms or their own.

Example – Independence and Objectivity

Jonathan, a trader working for an investment firm, is facing pressure to hit his target commissions. In order to
make a quick buck, he manages to convince his client about a trade idea that he thinks may be a winner.
However, in his haste to close the deal, he failed to conduct further research to support this recommendation.

Jonathan must ensure that he exercises independence and objectivity in carrying out his duties and separate
them from his personal issues. Even though he is under pressure to meet his targets, any recommendations
made to his client must ultimately be based on thorough analysis of the facts in order to maintain
independence and objectivity.

(iii) Misrepresentation

Representatives must not knowingly make any misrepresentations relating to investment analysis,
recommendations, actions, or other professional activities.

A misrepresentation occurs when a representative provides advice which is not based on facts and are false
or where material information has been omitted. Representatives should not knowingly make any
representations relating to investment analysis, recommendations, actions or any other professional activities
that are not factual or true, to induce clients’ choice of investment products that will bring them additional
income or commissions. Clients generally rely on their representatives to make informed decisions for their
investments. Any misrepresentations or omission of information by the representatives could alter the clients’
investment decision making processes.

Example – Misrepresentation

Timothy, a professional trader at a reputable company, has created a personal blog about his research reports.
His personal blog gives the impression that he is acting as an independent analyst.
On his blog, Timothy has several recommendations for which the companies’ stock prices are expected to
increase. However, he does not disclose his contractual relationships with the companies that he has covered
on his personal blog.

Timothy’s personal blog can be misleading to potential investors. Even though the recommendations Timothy
has made may reflect his true personal opinions, his non-disclosure of his relationship with the companies he
is recommending is tantamount to misrepresentation. There is a conflict of interest that Timothy has failed to
highlight to his blog visitors.

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(iv) Misconduct

Representatives must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit
any act that reflects adversely on their professional reputation, integrity, or competence.

Such behaviours include lying, cheating and not observing rules of conduct or not giving clients’ orders priority
over his/her own trades. Representatives should comply with accounting policies, procedures and disclosure
requirements within their specific industry. Other ethical conduct requirements may include declaring
personal investments honestly and accurately so as not be deemed in breach of closed window periods of
investments or conflict of interest provisions. Typically, reputable CMS licence holders have well-defined codes
of conduct as their compliance requirements to be fulfilled by their staff and representatives on a regular
basis.

(v) Competence

Representatives should continuously maintain or improve the competence required by their professional
responsibilities. Over time, representatives’ role may expand, requiring new or different knowledge, skills and
abilities. They should therefore develop and refine their skills and abilities throughout their professional
careers.

5.4.1.2 Integrity of Capital Markets

(i) Material Non-public Information

Representatives who possess material non-public information that could affect the value of an investment
must not act or cause others to act on the information.

Information is “material” and “non-public” only if its disclosure has the potential to impact the price of a
security and has not yet been disseminated to the general marketplace. Representatives who are in possession
of such information must not act or cause others to act on them to accord unfair advantage over other
investors. Such information includes but are not limited to:

• Earnings;
• Merger and acquisitions;
• Changes in assets and asset quality;
• New business, products, licences, processes;
• Changes in management;
• Auditors qualified opinions or legal disputes;
• Bankruptcies;
• Regulatory breaches and sanctions; or
• Change in credit ratings.

Any investment or trading decisions made based on the material non-public information would result in an
unfair advantage gained by the investor and can potentially undermine the integrity of the capital markets.
This would also constitute a breach of regulation on insider trading under SFA Section 216 “Material Effect on
price or value of securities, securities-based derivatives contracts or CIS units”. Please refer to Chapter 4 of
this Study Guide for a more detailed discussion of insider trading and ‘’inside’’ information.

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5.4.1.3 Duties to Clients

(i) Loyalty, Prudence and Care

Representatives have a duty of loyalty to their clients and should act with reasonable care and exercise
prudent judgement. They are to act for the benefit of their clients and place their clients’ interest before their
employer’s or their own interest.

A representative has a duty to place his or her client’s interests first and has a duty of loyalty to manage the
client’s investments to the best of their abilities according to what they believe is in their client’s best interest.
All known facts and information must be provided to the client for him/her to make informed decisions and
due care, skills and diligence has been applied in the relationship. Representatives should not take advantage
of their clients and must always carry out clients’ investment transactions prior to their own. Most importantly,
any investment recommendation made, or action taken by the representative should take into consideration
the client’s needs and objectives.

Example – Loyalty, Prudence and Care

Leonard is a representative who works for an investment firm, SmartInvest. After providing a performance
report on a client’s account to the external-facing departments before its release to the client, Leonard noticed
that the performance report has omitted a trade which recorded a large loss. If the omission is rectified and
included in the report, it will severely affect the performance on the report. The client has previously placed
SmartInvest on a watch-list for termination if the performance of his investments continues to do badly.
Leonard clearly knows that it is undesirable news but nevertheless proceeds to correct the error before the
report is released to the client.

Even though Leonard’s actions may lead to the potential termination of the services of SmartInvest by the
client, purposefully withholding information would not be in the best interest of the client. Leonard has
recognised this and demonstrated loyalty, prudence and care towards the client.

(ii) Fair Dealing274

Representatives ought to deal fairly and objectively with all clients when providing investment analysis,
making investment recommendations, taking investment action, or engaging in other professional activities.

They have to advise and disclose the CMS licence holders’ policies and procedures with regards to the
investment services to their clients from the beginning of the investment relationship. Investment decisions
executed must be informed to the client immediately and any change must be informed to the client with
justifications. Communications have to be up to date and media of information dissemination has to be made
known i.e. whether through phone, fax or only through official correspondences, including how performance
reports are to be sent and their frequency.

Fair dealing practices are applicable especially to representatives who provide advice. Fair dealing also
includes being fair when handling executions and ensure that clients’ wishes are complied with and in
accordance with the agreed risk profile and portfolio mix.

274
MAS Guidelines on Fair Dealing – Board and Senior Management Responsibilities for Delivery of Fair Dealing Outcomes to
Customers (FAA G11).
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For representatives who provide advice or make a recommendation to his/her client to buy or sell an
investment product, such advice would constitute financial advice even though the trade may not be executed
subsequently.

In circumstances where representatives provide execution related advice275 (‘ERA) on listed Excluded
Investment Products276 (EIPs) to clients, they are required to include the rationale for their recommendations.

Representatives who wish to provide financial advisory services beyond the scope of ERA in respect of listed
EIPs must also be appointed as representatives under the FAA. However, if they confine themselves to ERA
with respect of listed EIPs, they can be exempted from being regulated under the FAA.

Distinction is also made for the provision of ERA and the distribution of research reports which is separately
regulated under FAA. Distribution of research reports refers to research opinions made by researchers for
general distribution without regard to any specific investor in mind.

(iii) Suitability
1. When representatives are in an advisory relationship with a client, they must ensure that they have a
reasonable basis for making an investment recommendation to the client 277:
a) Make reasonable inquiries into a client’s or prospective client’s investment objectives, financial
situation and particular needs prior to making any investment recommendation or taking investment
action and must reassess and update this information regularly;
b) Determine that an investment or trade recommendation is suitable to the client’s risk appetite,
financial situation and is consistent with the client’s written financial objectives, mandates, and
constraints before making a recommendation or taking investment action; and
c) Judge the suitability of investments/trades in the context of the client’s total portfolio.
2. When representatives are responsible for managing a portfolio to a specific mandate, strategy, or style,
they are to make only investment recommendations or take only investment actions that are consistent
with the stated objectives and constraints of the portfolio.

Suitability refers to the matching of product risk to the client’s risk profile. A representative must always
understand the risks in a product before determining which product category investors may invest in. The risk
profile and appetite of the client is an important assessment consideration prior to entering into a transaction
on behalf of the client. For details on best execution practices for securities dealing, please refer to Section
6.4 of Chapter 6.

When observing the professional standard of suitability, it is important for representatives to ensure that
clients’ needs, and interest are given priority over their own interests. Even if a representative has an interest

275 Under Financial Advisers Regulations 33A (8), execution-related advice is defined as advice that is provided by a dealer, or a trading
representative of the dealer, to a client of the dealer where –
a) the advice concerns any listed excluded investment product;
b) the advice is provided to the client directly or through any publication or writing, whether in electronic, print or other form
(other than through the issuance or promulgation of any research analysts or research report, whether in electronic, print or
other form);
c) the provisions of the advice is solely incidental to the carrying out of any execution activities by the dealer or the trading
representative (as the case may be); and
d) no discrete fee is charged by the dealer or trading representative (as the case may be) for the advice.
276 A list of the excluded investment products can be found in the Fifth Schedule of the Financial Advisers Regulations.
277 FAA Section 36: FAA Notice on Recommendations on investment Products (FAA-N16).

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in transacting in a certain security, priority of transaction must be given to their clients’ instructions to execute
the same product.

Representatives must make effort to understand the client’s risk appetite and profile based on several factors
as covered in Section 6.2 of Chapter 6. The client’s investment mandate must also be respected, and their
interests safeguarded, by awarding a more conservative profile and therefore investing only in lower-risk
products if it is appropriate, notwithstanding the regulatory definition of investor classification. Respecting
the client’s desires and wishes are crucial elements to successful client relationship management.

Representatives providing financial advice must comply with the FAA requirements as above. Those who
confine themselves to execution-related advice for listed EIPs are however exempted from the FAR
requirements278 such that:
a) At account opening, the representative shall provide the client with a prominent disclosure in writing
that the ERA does not consider the client’s investment objectives, financial situation and particular
needs and highlight to the client that it is his/her responsibility to ensure the suitability of the product
recommended; and
b) The representative to state the rationale for the ERA provided to the client.
c) A CMS licence holder must maintain a register on representatives who provide ERA on listed EIPs and
who are not specified in the public register of representatives as appointed representatives in respect
of any type of financial advisory service.

On 7 October 2023, MAS, in conjunction with the Association of Banks in Singapore (ABS), Association of
Financial Advisers (Singapore) (AFAS) and Life Insurance Association (LIA), launched a Basic Financial Planning
Guide to help Singaporeans take steps to enhance their financial well-being. The Guide outlines a few rules of
thumb, for individuals to start taking proactive steps to address their savings, insurance, and investment needs
(Go.gov.sg).

Example – Suitability
Lauren, a securities dealer, had just on-boarded a new client, Thomas. Thomas is new to investing and is unsure
which investment products to invest in and asked for Lauren’s recommendation. Thomas had stated in his
client profile to Lauren that he is seeking for investment products that provide capital preservation and stable
income with minimal risks. This is so as Thomas is saving up for his children’s education expenses. Lauren, on
the other hand, persuades Thomas that he can afford to take on more risk than he should as his full-time job
is paying well and that he should take advantage of the booming markets.

In this instance, even though Thomas has a steady stream of high income, Lauren did not consider the
suitability of her recommendations to both Thomas’ financial objective and risk appetite. Even though if there
are opportunities to be taken in a booming market, Lauren should be prioritizing Thomas’ financial objectives
instead of looking at investments as opportunities not to be missed out.

(iv) Performance Presentation

When communicating investment performance information, representatives must make reasonable efforts to
ensure that it is fair, accurate, and complete.

278 Financial Advisers Regulations, Regulation 33A (4) and (5) – Exemption from Section 27 for Dealers and Related Exemptions.
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Performance presentation refers to the report presented to a client which shows how his/her investment
portfolio has performed. This include whether investments have gained in value or face losses. The basis of
valuation must be communicated together with the values. Such valuations must be supported by appropriate
source of information.

(v) Preservation of Confidentiality

Representatives must keep information about current, former, and prospective clients confidential unless the:
1. information concerns illegal activities on the part of the client or prospective client;
2. disclosure is required by law; or
3. client or prospective client permits disclosure of the information.

The relationship between clients and their representatives requires a high level of trust. This means that client
information must be kept confidential and this includes not only the personal information of the client but
also his or her portfolio information. Information must be preserved and not shared with others. The principle
of “need to know” must apply within the institution and the provisions of the Personal Data Protection Act
(PDPA) must be observed. Any breach in confidentiality may lead to litigation and reputation risk.

Example – Preservation of Confidentiality

Ross works as a market maker in a trading desk at QRS Bank. Chandler, a C-level executive at a major firm
called Central Perk Corporation (CPC), is in the process of selling the bulk of his personal shares in CPC
through QRS Bank, where Ross is the one to execute the trade. However, this trade information has not
been made public yet.

Rachel, another client of Ross, also has interests in CPC. Because Rachel enjoys a close-knit relationship with
Ross, Ross lets her in on the trade made by Chandler. Anticipating that the share price of CPC will fall, Rachel
immediately contacts her broker to sell her CPC shares.

Ross should have exercised his professionalism by not disclosing material information about his client to
third parties. By doing so, Ross has damaged the integrity of the financial markets.

Other examples of the need to preserve client confidentiality are the Panama Papers, Portcullis Trust and the
HSBC’s Swiss private bank’s leakages. In all 3 cases, trust of clients has been compromised. High net worth
clients and private banking clients generally prefer to deal very confidentially with the institutions they bank
with. They expect their information to be protected and secure so that their wealth is not known to others
except the representatives they deal with. Unless with their specific consent they expect their information to
be secret and only for release for specific purposes. However, confidential information of clients was leaked
and made public. This caused a public outcry and caused regulators all over the world to investigate if there
were tax evasion and other proceeds of crime. It caused embarrassment to their clients who may not have
committed any wrongdoing but have their accounts exposed to the public causing misunderstanding and
unnecessary problems in dealing with regulators. It also caused them to lose trust and faith in the firms, which
resulted in many of them closing their accounts.

In the cases of Portcullis Trust and HSBC’s Swiss private bank, the information was leaked by employees. By
leaking the information, the employees betrayed the employer’s trust and caused much embarrassment to

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the firms and made clients lose trust in them. This resulted in clients closing their accounts and loss of business
for the firms.

5.4.1.4 Duties to Employers

(i) Loyalty
In matters related to their employment, representatives must act for the benefit of the employer and not
deprive their employer of the advantage of their skills and abilities, divulge confidential information, or
otherwise cause harm to their employer.

In addition to his duties to clients, a representative must also protect the interest of the firm by refraining
from conduct that would risk the reputation of the firm, deprive it of profit or not giving due time and applying
skills and abilities to benefit the firm in which he is employed.

The standard of loyalty provides guidance on the following areas:

• Employer responsibilities;
• Employee responsibilities;
• Whistle blowing; and
• When leaving an employer (including non-solicitation and appropriation of clients’ list,
misappropriation of trade secrets and misuse of confidential information).

a) Employer Responsibilities
Employers have a duty to set out clear policies and procedures on their expectations of conduct of
employees, which includes having a clear employee code of conduct detailing such expectations.
Training must be provided to staff and representatives on the internal Code of Conduct and clearly
spell out remuneration strategies including non-sales or other non-business indicators such as
compliance with laws and regulations, honesty and Integrity requirements, banking secrecy and
confidentiality, what to do in conflicts of interest situations, personal account dealing requirements
and the need to observe Gifts and Entertainment policies, including incorporating whistle blowing
procedures.

b) Employee Responsibilities
Representatives are expected, as part of their employment, to comply with their firms ‘code of
conduct and follow a set of behaviour which includes protecting the reputation of the firms. They are
expected to act in good faith, honestly and diligently with respect to the firms’ clients, avoiding
complaints and ensuring all dealings are transparent but confidential. They are expected to remain fit
and proper279 at all times.

c) Whistle Blowing
Observing market integrity is an important aspect of ensuring good market performance. A
representative should be aware of his or her clients’ interest, employer loyalty and his or her personal
interest accounts to the integrity of the capital market. If he believes that the integrity of the market
will be compromised by certain actions of the clients or the employers, he should whistle blow to the
right authority to prevent interruption of the market or for the price mechanism to be interfered with.

279 MAS FSG-G01 on Guidelines on Fit and Proper Criteria.

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It is important to note that if a representative is aware of a wrongdoing or an unethical behaviour, he

is obliged to whistle blow as to remain “silent” may be construed as being in collusion if it is found that
the representative was aware and part of the process, although not directly responsible.

Example – Whistle Blowing

You are an employee in a broking firm and noticed that senior management members of the firm seems
to be putting in bids towards the end of the market day just before closing of trading on a particular
counter. You note that it may be a situation where they are trying to manipulate the price of that counter
without meaning to follow through with transactions in the meantime.

You are faced with a dilemma whether to remain loyal to the employer and not reveal anything, or to
act according to your conscience and be honest by whistle blowing.

You have obligation to whistle blow as to remain “silent” may be construed as being in collusion.

d) When Leaving the Employer

When leaving their employer, representatives must continue to act in the employer’s best interest by
observing the following:
• No solicitation - The representative must not take records of files to the new employer, unless
with written permission of their previous employers;
• Misappropriation of trade secrets - These include not taking with them the policies and
procedures in certain businesses without the permission of the employers such as broker
relationship policies or trading strategies; and
• Misuse of confidential information - All representatives are bound by confidentiality rules and
must continue to keep confidential information of their previous employers confidential.

Example – Soliciting Former Clients

Jacob is a representative with XYZ Brokerage, but has become disillusioned with his career prospects in
the firm. He has been offered a job at ABC Brokerage.

Before leaving XYZ Brokerage, Jacob calls up several of his most important clients and asks them to open
accounts with ABC Brokerage. He also persuades some prospective clients of XYZ Brokerage to switch to
ABC Brokerage instead.

By doing so, Jacob has failed to observe his duty to act for his employer’s (XYZ Brokerage) benefit.
Instead, he was acting out for his own personal gain and his solicitation of XYZ Brokerage’s clients was
unethical.

(ii) Additional Compensation Arrangements

Representatives must not accept gifts, benefits, compensation, or consideration that competes with or might
reasonably be expected to create a conflict of interest with their employers’ interest unless they obtain written
consent from all parties involved.
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Additional compensation arrangement arises where a representative negotiate for additional compensation
outside of the official fees that was agreed and documented unknown to his employer. Such arrangements
are not allowed as all fees, commissions and charges must be clear and transparent and a representative must
not arrange payments to himself without the knowledge of the employer.

(iii) Responsibilities of Supervisors

Representatives must make reasonable efforts to ensure that anyone subject to their supervision or authority
complies with applicable laws, rules, regulations, codes and standards.

MAS places the responsibility for the proper market conduct of representatives on the board of directors and
senior management of a CMS licence holder. Before a representative can be registered under the
Representative Notification Framework (RNF), the CEO must affirm that the representative meets the Fit and
Proper criteria as mentioned earlier in this section under Employee Responsibilities.

As the CEO and the board of directors cannot supervise everyone directly, this duty is delegated to supervisors
who are then charged with the responsibility to ensure proper supervision of the staff and representatives
under them. This means ensuring that they observe the code of conduct as well as all internal control
procedures of the firm. They must ensure that the staff and representatives are properly trained and know
the regulatory framework of the business they are in and undertake. Remuneration and benefits of the staff
and representatives are not just based on financial key performance indicators (KPIs) but assessed together
with other non-financial KPIs such as complying with laws and regulations, not breaching any codes of conduct
or rules, and not being abusive to other staff or representatives.

5.4.1.5 Investment Analysis, Recommendations and Actions

(i) Diligence and Reasonable Basis

Representatives are to:
1. exercise diligence, independence, and thoroughness in analysing investments, making investment
recommendations, and taking investment actions; and
2. have a reasonable and adequate basis, supported by appropriate research and investigation, for any
investment analysis, recommendation, or action.

Before making any recommendations on investments or taking actions, the representative must first
understand the product and the related risks and if it concerns shares and stocks of individual entities, he must
research them carefully with facts available. Every investment recommendation must be based on known facts
and understood at the time and any investigation done must be thorough. Third party research relied upon
must be sourced after due diligence on the reputation of the third party and only reports of approved third-
party suppliers are used which are considered sound and reputable.

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(ii) Record Retention

Representatives should develop and maintain appropriate records to support their investment analyses,
recommendations, actions, and other investment - related communications with clients and prospective
clients.

All records of communication with clients are to be kept for audit trail purposes. This include personal notes
from meetings, call reports, press releases, official reports, risk analysis reports and other computer printouts
given to clients and the bases of recommendation. A file on the clients should be maintained.

(iii) Communication with Clients and Prospective Clients

When communicating with clients or prospective clients, it is important that representatives ensure that they:
1. disclose to clients and prospective clients the basic format and general principles of the investment
processes they use to analyse investments, select securities, and construct portfolios and must
promptly disclose any changes that might materially affect those processes;
2. disclose to clients and prospective client’s significant limitations and risks associated with the
investment process;
3. use reasonable judgement in identifying which factors are important to their investment analyses,
recommendations, or actions and include those factors in communications with clients and
prospective clients; and
4. distinguish between fact and opinion in the presentation of investment analysis and
recommendations.
5. Disclose the nature of services provided and information about the costs associated with those
services to the clients and prospective clients.

Communication of the information to the clients must be clear and with only relevant information for them
to make informed decision in whichever form given. Scenarios must be included to assess the consequences
of changes in the investment environment. The risks in the different scenarios must be well explained. Other
forms of communications such as e-mails, phone messages, facsimiles, blog posts etc. need to be cleared with
the legal and compliance unit of the entity to limit liability for usage. Some firms have mobile phones policy
which does not allow mobile phone usage and if called requires call back to the LAN lines. Some do not allow
e-mails and each representative must be aware of their firms’ policies on such communications. Where
indemnities are required, representatives must endeavour to obtain the signed indemnity from their clients.

5.4.1.6 Conflicts of Interest

(i) Avoidance and Disclosure of Conflicts

Representatives must avoid or make full and fair disclosure of all matters that could reasonably be expected
to impair their independence and objectivity or interfere with respective duties to their clients, prospective
clients, and employers. They must ensure that such disclosures are prominent, are delivered in plain language,
and communicate the relevant information effectively.

Representatives should avoid being in actual or potential conflict of interest situations. If conflicts do arise,
they must make full and fair disclosure of all matters that could reasonably be expected to impair their

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independence and objectivity or interfere with their duties. Such disclosures must be clear and disclosure
details must be properly and prominently communicated.

Conflicts of interest often arise in the investment profession and can occur between the interests of the client,
the employer, and other members of the exchange as well as the representative. Examples of conflicts include
the following (note that these are not exhaustive):
• Conflict to clients, e.g. personal investments of the representative, or their employers’ investments,
cause conflict with the clients’ interests such that clients’ transactions are not given priority over
proprietary or personal investment positions. Allocation of investments could also not be fairly carried
out, favouring one set of customers over others;
• Conflict to employers, e.g. where an employer has interest in a high-profile profitable investment
project, an employee whose family also has interest in the same project, must declare his interest and
not be involved in the employer’s project and should recuse himself. Failing which he may cause
conflict between himself and his employer;
• Cross-department conflicts, such conflicts can occur where one department is acting for a client for
an investment to be launched for raising funds and another department is acting for a private banking
client for the acquisition of the investment. Information must be closed from flowing from one
department to another. This is when policies and procedures on Chinese walls must apply so as not to
allow conflicts;
• Conflicts with stock ownership, this happens when a joint venture is to be sold and each joint venture
wishes to divest its shareholdings without wishing to buy out the other. Adviser who owns stocks in
the parent of the joint venture partners respectively would be in conflict as to which joint venture to
advise as they are conflicted by owning shares in the parent respectively; and
• Conflicts as a director, e.g. Directors having interest in client’s business or representatives having
outside employment which conflicts with their work. This also breaches the SFA280 which requires
representatives to represent only one principal, unless the principals are related.

If conflicts cannot be avoided, their existence must be clearly and completely disclosed. Once disclosed, the
employer, clients, and other stakeholders can evaluate the situation objectively and act according to the
circumstances and information provided.

Where conflicts or potential conflicts arise, it is important for representatives to recognise them, refrain from
making decisions in those circumstances, disclose the conflict and escalate the matter to an independent
dedicated party for dealing with such conflict for assessment of the conflict so that appropriate action can be
taken to deal with the conflict.

(ii) Priority of Transactions

Representatives must always give priority to the transactions of their clients first. If a representative happens
to want to enter transactions of his own, he must not transact for his own account until the client’s transaction
has been completed.

280 SFA Section 99J - Representative to Act for Only One Principal.

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Example – Priority of Transactions

Britney owns 500,000 shares of a wellness company, 24HourFitness, which is a substantial number of shares
of that company. Justin, who is Britney’s broker, received a market order from Britney to sell the entire of her
500,000 shares of 24HourFitness. Justin personally holds stocks in 24HourFitness and expect share price of
24HourFitness to plummet once Britney’s sell orders are executed. To avoid huge capital losses, Justin put in a
sell order for his personal shares before entering Britney’s sell order.

Justin has prioritised his personal transactions over that of his client’s due to a conflict of interest. Justin owes
a fiduciary responsibility to Britney. This is an example of failure of a representative to observe priority of
transactions.

(iii) Referral Fees

Referral fees are fees paid to firms for referring clients or for distribution of products. Such fees are spelt out
in a referral agreement between two firms in an arrangement for such services. A representative must not
negotiate further fees on his own privately outside of the agreed arrangement.

5.4.2 Recommended Procedures for Compliance

CMS licence holders and their representatives ought to observe the standards of professional conduct as
illustrated in section 5.4.1 by establishing following protocols to ensure compliance to the standard practices
discussed above.

5.4.2.1 Segregation of Sales/Dealing and Research Staff

Business activities should be segregated, and Chinese walls should be established with written policies and
procedures to limit the flow of confidential and price-sensitive information that prevent insider dealing, front-
running and conflict of interest. Representatives should look to the guidance of these rules as a check against
standard conduct. Front office activities should be physically away from back office functions and staff
reporting lines are to be clearly segregated. Investment decision making process is to be kept separate and
independent of the dealing process. Similarly, proprietary activities are to be segregated from client-related
activities. Risk Management, compliance and internal audit functions have distinct reporting lines from front
office to ensure independent controls of breach reporting.

Proper segregation of duties between sales and research staff ensure material non-public information to be
kept confidential so that staff do not take advantage of having insider information and deals to benefit
themselves or cause market disruption. Research staff may have confidential information from their visits and
research done on entities which they are not supposed to disclose. Any leakage of material non-public
information to the sales staff may result in such staff taking advantage of the information and taking positions
in advance of the release of information to profit themselves.

5.4.2.2 Resist undue influence from sponsoring companies

External sources may try to influence the investment process by offering analysts and portfolio managers with
a variety of benefits. Corporations may seek expanded research coverage issuers. Underwriters may wish to
promote new securities offerings. Brokers may want to increase commission business and independent rating
agencies may be influenced by the company requesting the rating. (Refer to Section 5.4.1.1 (ii) above).
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To prevent undue influence, CMS licence holders have internal rules on gifts and entertainment to prevent
excessive gifts and entertainment to be received or inducing favourable outcomes or giving excessive gifts and
entertainment to induce more business. Moderate gifts and entertainment can build good client relationships,
but excessive expenditure goes against the principle of fair competition which if done may breach the
Competition Law in Singapore.

MAS has set out guidelines and conduct requirements for persons acting as financial advisers under the FAA
281
, including, where appropriate, conduct requirements for representatives who perform any financial
advisory service on behalf of financial advisers. Integrity, objectivity, confidentiality, competence and due care
of diligence are exemplary qualities required of a representative to prevent conflict of interest. Generally, CMS
licence holders must have policies and procedures in place for representatives to declare their gifts and
entertainment in compliance with all applicable laws, rules and regulations and guidelines relevant to its
business activity.

Example – Resistance to Undue Influence from Sponsoring Companies

Trion Pte Ltd (Trion) is a shipping company listed on the SGX-ST. The management of Trion had entertained
James Lim, a representative who is a well-known securities dealer and acclaimed stock researcher. Trion
entertained James lavishly, including buying him a luxury watch with wine and entertainment so that he would
write a positive opinion on Trion, which was facing some issues with SGX for non-reporting of material
information such as key personnel movement and financial developments that would be detrimental to the
share price of the company.

As a representative, James should have declined the entertainment and gifts and evaluate Trion based on
independent opinion, objective investigation and analysis of the company to uphold independence,
objectivity and unbiased recommendations.

5.4.2.3 Protecting Integrity of Opinion

CMS licence holders ought to achieve fair balance in compensation between business achievements and
compliance with ethical standards of behaviour. Representatives should be compensated not solely on
business indicators but also compliance with high standards of conduct.

For example, CMS licence holders should establish policies stating that every research report concerning the
securities of a corporate client should reflect the unbiased opinion of the analyst. Firms should also design
compensation systems that protect the integrity of the investment decision process by maintaining the
independence and objectivity of the analyst. To ensure compliance, most firms would have ‘’Staff Personal
Investment Policies’’ which covers approval, reporting and declaration of conflicts requirements. Restricted
lists are also drawn up for reporting to an appointed officer which is usually the compliance. Representatives
are to comply strictly with such requirements to ensure fair and unbiased integrity of opinions.

281 FAA-GO4 on Guidelines on Standards of Conduct for Financial Advisers and Representatives.

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Example – Protecting the Integrity of Opinions

Justin, a vice president at Queen Banking Corporation (Queen), has thoroughly analysed and concluded that
the current trading price of mortgage-backed securities (MBS) are overvalued.

However, he is concerned that a negative report may jeopardize his close relationship with his superiors at
Queen, as most of them are long on the housing markets. Justin thinks that this may potentially result in
management retaliation, such as being cut off from conference meetings or side-lined from new business
opportunities.

In spite of his concerns, Justin’s analysis should still be independent and objective. Any pressure that comes
from Queen is inappropriate. Justin should seek to protect and reinforce the integrity of his opinions by
ensuring that his investment research reports are based on a fair analysis of the asset fundamentals and
relative valuation.

5.5 Applying the Ethical Framework to Resolve Ethical Dilemmas

To apply the ethical framework effectively, representatives should diligently go through a fact-finding process
so as to identify and resolve the ethical issues. Some key factors to consider and appropriate questions to ask
are:

1. Gather relevant facts and identify existing problem

• Have I acquired all the necessary information to properly assess the situation at hand?
• What assumptions am I making? What facts can be used to replace the assumptions made?
• What is the source of the ethical dilemma? What factors are causing the problem?

2. Consider the ethical issues involved

• What are the ethical issues involved? Consider the professional, regulatory and personal code of ethics
and standards of professional conduct.
• What are the threats to complying with these fundamental ethical issues? Are there any obvious
ethical conflicts?
• Would these issues compromise the integrity of the investment and trading profession?
• Would these issues affect the interest of the public?
• Would these issues affect the capital markets at large?
• Would these issues affect the clients’ interests?
• What are my personal interests in this issue? Is my judgement clouded by my personal biases?

3. Identify the affected parties

• Who are the key stakeholders that are involved in this issue?
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• Is it at an individual, departmental or organisational level?

• What are the conflicts between the different stakeholders?
• Who are my allies? Do I have any colleagues or superiors that I can trust with this information?
• Would my decision and action cause ripples in the market and create market instability?

4. Refer to the firm’s internal reporting procedures

• What are my firm’s policies and procedures in reporting issues of ethical conflicts?
• Does my firm have an internal whistle blowing mechanism in place?
• When should I start seeking help from external sources if things don’t go as planned?

5. Evaluate alternatives to resolve the issue

• Are there any better alternatives to resolve the issue?
• Will alternative actions result in better outcomes for others?
• Which course of action would best benefit the capital markets industry and society?

6. Implement the best course of action and monitor its progress

• Monitor the results of the action you have taken.

• Document your thought processes and decision making upon implementing the action. Written records
will prove very useful in ascertaining the ethical issue at hand, as well as justifying your actions.

Example – Application of the Ethical Framework

Rick is a remisier. He has a client, Aaron, who runs a noodle stall. Aaron had little education but has strong
financial capacity as his popular cash-based business which he ran for more than a decade has allowed him
to amass a certain amount of wealth. More importantly his wealth has been given an additional boost
recently after he received an inheritance from his deceased uncle who had no children. Notwithstanding his
wealth, Aaron was assessed as having a low risk profile because he lacks knowledge and experience in
investments. Therefore, high-risk or complex financial products would not be suitable for him.

Rick must meet sales targets as he is below his given sales quota. He realized that there is a recent high-risk
product which has been approved for client investment with very dynamic risk profile and that will allow
anyone who sold it to receive very large commissions. Training was given on the product, but Rick missed
the product training. Therefore, he is not certain about the risks of the product.

As Aaron has the financial capacity, Rick decided to purchase that investment product for him to earn that
commission. Rick put in an execution order quickly to take advantage of early sale to gain early commission
which will soon be computed as it was close to end of the month.

Applying the Ethical Framework

1. Understanding the Products/Services - Rick failed to understand the product and its risks as he did not
make any attempt to go for the product briefing.

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2. Analyse Risks Objectively/Carefully/Independently - Rick also did not assess the product
independently and consider whether the risks would match Aaron’s risk profile. He failed to consider
the client’s interest and the client’s risk profile.

3. Execute Solutions Quickly/Fairly/Transparently – Rick executed the product quickly to earn his
commission and did not make good efforts to secure the best purchase price of the investment for his
client.

4. Serve Customers with Honesty and Integrity - Rick prioritised his own interest in earning more
commissions rather than the interest of the client in protecting the client’s portfolio risk. He did not
serve his client honestly and with integrity and therefore had betrayed the trust of the client.

What Rick should have done was to ensure that he attended the product training and understood the risks
related to the product. He then should have considered the low risk profile of Aaron and not endeavour to
invest in the risky product for Aaron, thereby meeting suitability requirements. Rick should consider his
client’s interest before his own. He should not have executed the transaction to earn the higher commission.

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Chapter 6:
Securities Dealing Practices and
Skills
Learning Objectives
The candidate should be able to:
✓ Explain what is required for the client on-boarding process which includes:
• Determining the type of investor they are dealing with, such as retail investors, accredited
investors (AI), institutional investors (II) or Expert Investors (EI);
• Determine the financial capacity of clients and their understanding and experience of capital
markets products and markets;
• Other factors to consider in profiling the risk of the clients and their risk appetite; and
• Understanding risks in different products themselves and match them to the risk profile of the
clients and formulate their investment strategy accordingly and ensuring that the principle of
suitability is complied with.
✓ Interpret the client servicing and communication requirements and apply the highest service standards
of the securities dealing industry.
✓ Describe best execution practices for securities dealing representatives.
✓ Recognise the importance of credit risk management and understand credit risk exposure.

6.1 Introduction to the On-boarding and Advisory Process

A representative who is a securities dealer, remisier or a researcher with a CMS licence holder offering
brokerage and research services, must understand the rules and regulations that govern these activities. The
first step for all representatives would be to meet the fit and proper criteria and comply with examination
requirements under the SFA and Financial Advisers Act (FAA)282. Representatives need to be aware of the

282 Refer to the MAS Guidelines on Fit and Proper Criteria (FSG-G01), Notice on Reporting of Misconduct of Representatives by Financial

Advisers (FAA-N14), Notice on Reporting of Misconduct of Representatives by Holders of CMS Licence and Exempt FIs (SFA 04-N11),
Notice on Competency Requirements for Holders of Capital Markets Services Licence and Exempt Financial Institutions under the
SFA (SFA 04-N22 ) and Notice on Competency Requirements for Representatives of Licensed Financial Advisers and Exempt Financial
Advisers (FAA-N26).

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provisions of the SFA and Securities and Futures Regulations (SFR) and the rules of the relevant exchange or
SGX-ST. These rules and requirements are discussed within Chapters 2-4 of this Study Guide.

This Chapter discusses several important practices and skills considerations for representatives when dealing
in capital markets products with respect to securities on behalf of their clients. When dealing with clients and
executing their requirements, representatives may also provide financial advisory services and therefore the
FAA and Financial Advisers Regulations (FAR) will also apply to them. In addition, they need to follow client
on-boarding practices to determine the type of customers they are dealing with, profile their risks based on a
number of factors, understand the products and the related risks before introducing or recommending any
type of products deemed appropriate for their clients.

6.2 Client On-boarding Process

Whenever a CMS licence holder or representative has acquired a new client, they must take the client through
the on-boarding process which involves gathering information and data about the client which is required to
commence the business relationship with the client. When on-boarding a client, the “know your client” (KYC)
process must also be carried out.

The KYC process serves two purposes:

i. To assess the anti-money laundering (AML) and countering the financing of terrorism (CFT) risk of the
potential client to the institution, to prevent money laundering and counter terrorism financing; and
ii. To assess the potential client’s investment objectives and risk appetite to determine the type of products
suited to meet his or her investment objectives and personal risk profile in order to formulate an
appropriate investment strategy for the client.

When assessing the risk of money laundering (ML) and terrorist financing (TF) by a potential client, a CMS
licence holder could either perform a simplified customer due diligence (CDD) or an enhanced customer due
diligence (EDD). Simplified CDD will be performed if the CMS licence holder considers that it is adequate to
effectively identify and verify the identity of the client and it is satisfied that the risks of ML and TF are low.
The assessment of low risks must be supported by a thorough analysis of the risks, with simplified CDD
measures being undertaken that commensurate with the appropriate level of risk as identified by the CMS
licence holder.

CMS licence holders are required to perform EDD when dealing with higher risk clients, for example clients
who are politically exposed persons (PEPs), their family members and close associates, international
organisation PEPs283, or clients who operate in high-risk business activities. Screening284 is intended to be
another preventive measure of ML and TF, in addition to simplified and enhanced CDD, and should be done
before the commencement of any business, irrespective of the client’s risk profile. CMS licence holders and
their representatives should also conduct additional KYC to understand their specific customers’ risk profiles.
Thorough conduct of simplified or enhanced CDD during periodic screening allows for timely detection and

283 Based on the FATF Guidance: Politically Exposed Persons (Recommendations 12 and 22) Jun 2013, international organisation PEPs
are persons who are or have been entrusted with a prominent function by an international organisation and refers to members of
senior management or individuals who have been entrusted with equivalent functions, i.e. directors, deputy directors and members
of the board or equivalent functions.
284 Paragraphs 6.39 to 6.41 of the MAS Notice SFA 04-N02 on Prevention of Money Laundering and Countering the Financing of

Terrorism and Paragraph 6.15 of the Guidelines to MAS Notice SFA 04-N02
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obligations by CMS licence holders in implementing swift actions required to mitigate ML and TF risks. Please
refer to Chapter 8, Section 8.8 for further details on CDD, EDD and screening.

In this Chapter, we will discuss the second purpose with regard to exercising due diligence in assessing a
potential client’s risk profile and classifying him or her into the proper class of investors.

6.2.1 Clients Risk Profiling and Determining their Risk Appetite

In order to profile the risk of client, it is important to have a robust data gathering process when on-boarding
the potential client. The representative has to:
i. Gather information to determine background of the potential client, such as identification, age,
educational qualifications, work experiences for an individual and, for a company, the country of
incorporation, primary business activity, financials and organisational structure of the company;
ii. Determine the client’s financial objectives for establishing the relationship. For example, is the client
seeking capital investment, capital preservation or capital appreciation regardless of risk? It is
important to capture such information of the potential client to determine what products would then
be suitable for him or her to invest in;
iii. Determine if the potential client has experience in trading and investing, the type of products that he
intends to invest in and whether the client has sufficient financial means to invest in products to meet
the financial objectives;
iv. Determine the economic activity the client is engaged in and whether he is still economically active or
retired. For example, if the client is retired, does he have passive income and other assets to sustain
his/her financial obligations?;
v. Determine whether the client’s investments will be carried out as an individual account or through a
company structure. The representative must check the types of structures, related or associated
parties that are relevant for the client; and
vi. Establish the investment horizon of the client. For example, high returns will carry high risk and
depending on the client’s investment horizon, such expectations must be managed and balanced
accordingly in order to achieve his or her investment objectives.

CMS licence holders are required to assess a retail client’s investment knowledge and experience before selling
investment products to the client285. In line with these requirements, representatives who deal in capital
markets products or provide financial advice on investment products must pass the relevant CMFAS
examinations286. The intent of these requirements is to ensure that CMS licence holders properly disclose the
features and risks of investment products, that representatives offering investment products to clients meet
certain requirements, and that there is a reasonable basis when recommending investment products to
clients.

Representatives must conduct a Customer Knowledge Assessment (CKA) before opening an account for a retail
client to transact in unlisted specified investment products (SIPs) or a Customer Account Review (CAR) if client
wishes to open an account to transact in SIPs listed on an exchange. (Please refer to Chapter 2, Section 2.6.5
for more details on SIPs and conducting the CKA and CAR).

285MAS Notice on Sale of Investment Products (SFA 04-N12).

286 MAS Notice on Competency Requirements for Representatives of Holders of Capital Markets Services Licence and Exempt Financial
Institutions (SFA 04-N22).
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For retail investors who wish to trade SIPs but do not satisfy the CAR assessment, representatives may require
them to complete the SGX Online Education module on ‘’Specified Investment Products” to confirm their
understanding of the risk and features of such complex financial products. Successful completion of both the
CAR and/or the SGX Online Education module on “SIPs” by a retail investor does not automatically qualify the
investor’s eligibility to trade in SIPs. Ultimately, representatives must make an independent assessment to
gauge the suitability of their client to trade in SIPs based on several factors, including the results of the CAR
and the SGX Online Education module on SIPs.

Every CMS licence holder would have its own data gathering form and questionnaire to assess the knowledge
and experience of potential clients. Securities dealing representatives must ensure that their client’s
information and data are captured accurately and are verifiable through documentation. They need to ensure
that the questionnaire capturing all the client’s personal information, financial capacity, experience and
knowledge and risk tolerance is completed.
As judgement is applied during the assessment, it would be prudent practice to have a supervisor or dedicated
person review the first assessment in order to arrive at the final assessment objectively based on the written
policies and procedures that are in place in the firm. For example, applying the “4 eyes principle” of internal
control287 reduces subjectivity. Once the risk assessment of the client’s risk profile is arrived at, the
representative should explain to the client how he was assessed. If the client agrees with the assessment, the
representative should ensure that the client signs off on his or her assessed risk profile.
From the data provided, it would be good practice to classify clients after assessing their risks, objectives and
investment horizons and categorise the potential client into risk categories, for example:
• Low Risk;
• Low - Medium Risk;
• Medium - High Risk; or
• Very High Risk.

After the client’s risk profile has been assessed, the representative can determine the type of investments that
can be recommended based on the risks of the product. Some firms may have a product risk matrix that
determines which products can be sold to the different risk categories of clients to serve as a guide for their
advisers or dealers.
Some clients may not agree with the risk rating or risk profile that was arrived at and may wish to have a higher
risk profile even though the available information reflects a lower risk. In such situations, it is general industry
practice for the representative to advise against changing the client’s risk rating288, and the advice must be put
in writing for the client to sign off. Such statements dealing with exceptions are usually available in standard
form.

Example – Mismatch of Client’s Profile with Investment Interests

Conner is a young professional with 2 years of work experience. His only source of income is from his
employment as an engineer. He started to invest in the financial markets about a year ago and he invested
in small lots of listed blue chips in Singapore with a securities brokerage firm, BLSH Securities (BLSH).

Now, he wishes to open another securities trading account with Simon, who is a representative in another
securities brokerage firm, Excel Securities (Excel). Conner wants to invest in securities listed in emerging

287 The “4 eyes” principle recommends that a business transaction must be approved by at least two individuals before it can be carried
out. The principle is based on the fact that while neither individual might detect all errors, two reviewers or readers are likely to spot
different errors so that overall, more errors will be caught.
288 FAA Section 36 - Recommendations by Licensed Financial Advisers.

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markets although he is not familiar with those markets. Currencies in emerging markets have been volatile
recently, therefore there also exist foreign exchange risks in such investments, in addition to the unfamiliar
and less structured market rules in those markets.

Simon advised Conner not to invest in the emerging market securities, as these securities were deemed to
be unsuitable for him based on Connor’s risk profile which was assessed by Simon and his supervisor at
Excel.

Conner’s case is clearly a mismatch of his profile with the risk of the investment product (i.e. emerging
market securities) and such products are not suitable for him due to his current salary and his limited
investment experience which is mainly investing in stable blue-chip companies in the Singapore market.
Simon acted responsibly by advising Connor against investing in the emerging market securities.

6.2.2 Different Categories of Investors

During the on-boarding process, in addition to gathering information and verifying the data collected, it is
important to determine which category of investor the client fits into. The SFA289 as well as FAA have
definitions on AIs, IIs, EIs and others which do not fall under any of those categories are considered Retail
Investors.

6.2.2.1 Accredited Investors

AIs can be individuals, corporations, trustee or a trust, entities (other than a corporation) as well as specific
types of partnerships. Figure 6.2.2.1 illustrates the different types and characteristics of AIs in Singapore.

289SFA Section 4A - Specific classes of investors; Securities and Futures (Classes of Investors) Regulations 2018 – Section 2 – Persons
Prescribed for Definition of “Accredited Investor”.

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Figure 6.2.2.1 – Types of AIs

Accredited
Investors

Entity Partnership
Individual Corporation Trustee of a Trust (Other than a (other than a
corporation) limited liability
corporation)

• Net personal • Net assets • Any trust, all the • Net assets • Every partner is
assets exceed exceeding S$10 beneficiaries of exceeding an AI.
S$2 million, million which are S$10 million in
provided that individuals, value
• The entire
primary corporations or
share capital
residence other persons
of which is owned
value can prescribed as
by one or more
only accredited
persons, all of
contribute up investors
whom is an AI
to S$1 million
• Any trust, all the
• Financial settlors of which
assets (net of (i) individuals,
liabilities) corporations or
exceed S$1 other persons
million prescribed as
accredited
• Income is not
investors, (ii)
less than
have reserved to
S$300,000 in
themselves all
the preceding
powers of
12 months
investment and
• Holder of a asset
joint account management
with an AI, in functions under
respect of the trust; and
dealings have reserved to
through that themselves the
joint account power to revoke
the trust
• Any trust, the
subject matter of
which exceeds
S$10 million in
value

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A person who satisfies the AI thresholds under the SFA may only be treated as an AI if he opts in to being
treated as such. An AI may also opt out of being treated as an AI (and instead opt to be treated as a retail
investor) at any time.

A CMS licence holder must provide the potential AI with a statement that it has assessed the investor to be an
AI, give a prescribed warning of the risks involved290 and sufficient information to allow the investor to make
an informed decision, and request for the investor’s consent to be treated as an AI. The investor may at any
time withdraw his or her consent in this regard.

It should be noted that the AI status of a customer has a material impact on the manner in which a CMS licence
holder or a representative may deal with the customer. This includes the level of disclosure required, the
instruments that the customer may trade, and the applicability of other exemptions from conduct of business
requirements.

6.2.2.2 Institutional Investors

IIs include the following:

• The Government of Singapore and any statutory body established under any Act in Singapore;
• An entity wholly and beneficially owned by a central government of a country and whose principal
activity is to manage funds and any entity whose funds are so managed;
• A foreign central bank, government or agency;
• A prescribed multilateral or international agency;
• Licensed banks;
• Licensed merchant banks;
• Licensed finance companies;
• Licensed Insurers;
• Licensed Trust Companies;
• Pension funds or collective investment schemes;
• CMS licence holders;
• Approved exchanges and clearing houses, recognised market operators and clearing houses, licensed
trade repositories, an approved holding company and a depository under the SFA;
• A foreign entity or trust that carries on a financial or regulatory function similar to the Singapore
authorities under relevant statutes;
• Persons (other than individuals) who carry on the business of dealing in bonds with AIs or EIs;
• Trustees of such trust as the MAS may prescribe; and
• Persons prescribed by the MAS291, including:
- Designated market makers;

290 Securities and Futures (Classes of Investors) Regulations 2018, First Schedule.
291 Securities and Futures (Classes of Investors) Regulation 4 .

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- Headquarters companies or finance and treasury centres which carry on fund management
(where such business has been approved as a qualifying service);
- Singapore residents who undertake fund management on behalf of not more than 30 qualified
investors; ;
- Service companies which carry on business as agents of a member of Lloyds;
- Corporations where the entire share capital owned by an II or persons all of whom are IIs; and
- Partnerships in which each partner is an II.

6.2.2.3 Expert Investors

EIs include the following:

• Persons whose business involves the acquisition and disposal, or the holding, of capital market
products (whether principal or agent);
• Trustee or such trust as the Authority may prescribe, when acting in that capacity; and
• Persons prescribed by the MAS.

6.2.2.4 Retail Investors

All other investors who do not fall under the definition of AI, II and EI will be deemed to be retail investors.

6.2.3 Importance of Properly Categorising Clients and Investors

Under Singapore law, the highest protection is accorded to retail investors. This is because for the 3 other
categories of investors (AI, II and EI) they are assumed to be knowledgeable, experienced, have strong financial
capacity and access to information that allows them to make informed decisions. Therefore, certain
exemptions are allowed when dealing with AIs, IIs and EIs. These include exemptions from the following (and
are not exhaustive):
i. Disclosure of certain interests in respect of underwriting agreement292;
ii. Specified products borrowing and lending293; and
iii. Dealing in SIPs or Overseas Listed Investment Products294.

Therefore, in order to comply fully with the laws and regulation, a representative must categorise his or her
clients and investors correctly and ensure that retail investors are given due disclosures and information on
any product which is then matched to their risk appetite and profile.

Suitability of investment products which are properly mapped to the investor’s risk profile is the key
consideration for any securities dealing representatives, both at the on-boarding stage and at the execution
level. Representatives must have a clear understanding of which type of client they are dealing with and accord
the appropriate risk rating or profile, because the client’s categorisation and rating will influence which
products are chosen, what risks must be explained, and documentation and communication procedures.

292 SFR(LCB) Regulation 47A - Disclosure of Certain Interests in respect of Underwriting Agreement.
293 SFR(LCB) Regulation 45 – Specified Products Borrowing and Lending.
294 MAS Notice on Sale of Investment Products (SFA 04-N12).

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Clients should also be provided with scenarios to explain how investment values can be impacted as a result
of market conditions and other changes. Investments do not always appreciate but may also result in
depreciation, therefore both negative and positive scenarios should be used to demonstrate movements for
the clients to consider before making decisions.

Example – Unsuitable Product Sold to Client

Jessica is a housewife with primary school education. She is married to a banker whose family has
shareholdings in many financial institutions. Therefore, she is well provided for as her husband bears all the
financial responsibility of their family and she receives a generous monthly allowance. She has decided to
invest her savings in the financial markets although she does not have knowledge or experience in this area.
There is no urgency for funds, neither does she need to see it grow substantially.

Jessica decides to open an account with Joan, who is a remisier, and asks Joan to formulate a strategy for
her portfolio. Joan is aware of Jessica’s financial circumstances and knows that she has strong financial
capacity.

A new bond product for the oil and gas industry has just been launched, which promises high returns but
also carries high risk. As the commission for this product is very attractive for Joan, she decides to place
more than 50 % of Jessica’s funds into this product, so Joan can reach her commissions target for the month.
Given the high risk of the product and the fact that Jessica has little education and understanding of the
financial markets, despite Jessica’s strong financial capacity, Joan should not have invested 50% of Jessica’s
portfolio in the new bond product. This investment decision and action did not fit into Jessica’s conservative
profile.

In this example, the interest of the client is not considered. Joan is putting her own interest before Jessica’s
by recommending an unsuitable product to Jessica. Joan has failed to meet the principle of only
recommending products that are suitable to the client

When on-boarding clients for the reason of assessing their risk appetite and profile, it is important to note
that in addition to assessing their investor category, a CMS representative must ensure that the client or
person that one is dealing with is of sound mind and have not lost his or her mental capacity as defined in the
Mental Capacity Act. If there is reason to suspect that the potential client may be of unsound mind or suffering
from dementia and or is being coerced by another party, representatives should escalate the matter to their
supervisor to have a second opinion or to confirm any suspicions.

6.2.4 Recommendations on Capital Markets Products295

The CMS licence holder 296 and its representatives are expected to have sufficient knowledge of his or her
client’s investment objectives, financial situation and needs before they advise on sales or purchases of capital
markets products suitable for the client. Thus, it is not normally possible for a CMS licence holder and its
representatives to offer such advice to a new client before the relevant information is obtained.

Obtaining relevant information about the client is usually done at the time when the relationship is first
established. If execution-related advice is provided on an on-going basis, a CMS licence holder and tis

295MAS Guidelines on Conduct of Business for Execution-Related Advice (FAA-G08), Paragraphs 7-10.
296Under FAR Regulation 34A (2) , “dealer” means a person exempt from holding a financial adviser’s licence under section 23(1)(a),
(b) or (d) of the Act and who carries on a business of providing execution-related advice.
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representative should update the client’s profile and conduct a needs analysis at least once a year. This is also
consistent with good business practice of reviewing customers’ profiles and needs on a regular basis.
Additionally, where products are traded on a margin basis, the CMS licence holder and its representatives
should highlight the risks of such products to the clients.

When a client does not wish to accept any of the product recommendation given by the CMS licence holder
and its representative, the CMS licence holder ad its representatives can proceed with the client’s request.
This should be followed by a documentation of the client’s decision and a warning to the client that any
recommendation made, or advice given would not take into account his investment objectives, financial
situation and risk tolerance. Ultimately, it is the client’s responsibility to ensure the suitability of the product
recommendations.

6.2.5 Documentation and Record Keeping297

It is the duty of the CMS licence holder and its representative to maintain the client’s profile and to record the
recommendation or warning made to the client. The recording can be in the form of file notes or tapes of a
conversation. This will assist both the client and the CMS licence holder and its representative in resolving any
disputes regarding the advice or execution instructions provided, based on the client’s investment profile.
Please refer to Section 6.7 of this Chapter for details on the record-keeping requirements of client
communication and documentation.

As best practice, MAS recommends that CMS licence holders and representatives , maintain their records for
at least 5 years. The nature of the records to be kept can be determined by the CMS licence holder and its
representatives, taking into consideration the nature of the client’s business and factoring in the likelihood of
a client disputing that the advice was given without due consideration of the client’s investment profile and
financial needs.

Record keeping and documentation are important elements in ensuring trust between the employer and
employee and helps to keep the reputation of the entity and industry. Good record keeping and
documentation that can stand up to scrutiny is important and helps with the audit trail. Documentation can
also help to protect the CMS licence holder and representatives against any wrongful complaints or complaints
arising from poor advice or inept execution. Clear records and documents can serve as evidence of how the
advisory or execution was conducted in order to prevent wrongful accusations.

6.2.6 Disclosure of Conflicts of Interest298

The CMS licence holders and its representatives should disclose any potential conflict of interest to its clients,
either in writing or orally or both. However, once disclosed, the CMS licence holder and its representative are
not required to make such a disclosure every time they make a recommendation or provides execution-related
advice to a client, provided that:
i. The previous disclosure remains up-to-date, accurate and comprehensive; and
ii. The client can be reasonably expected to be aware of the previous disclosure.

The CMS licence holder and its representatives should also take note whether there is a long lapse between
the current recommendation and the previous disclosure. Consideration should also be given as to whether

297 MAS Guidelines on Conduct of Business for Execution-Related Advice (FAA-G08), Paragraphs 11 and 12.
298
MAS Guidelines on Conduct of Business for Execution-Related Advice (FAA-G08), Paragraphs 13 and 14.
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the client is likely to assume that the current recommendation given by the CMS licence holder and its
representatives no longer applies to the previous disclosure. If ever in doubt, the CMS licence holder and its
representative should not hesitate to disclose to the client about any conflicts of interest that could potentially
occur.

6.2.7 Disclaimers299

The CMS licence holder and its representatives can choose to include formal disclaimers in their documents
to their clients that they are in the business of only executing trades for their clients. If these disclaimers are
made, the CMS licence holder and its representative should ensure that they set up procedures and systems
for them not to provide advice to their clients.

All CMS licence holder and its representatives will still be subject to the same rules and regulations by the
authorities. Such disclaimers stating that it is the responsibility of the clients to ensure the validity of the
recommendations will not remove the CMS licence holder and its representatives of their liabilities imposed
under the SFA or the FAA, which are designed to protect retail investors.

6.3 Present Coherent View of Investment and Trading Strategies

Trading strategies that are designed must be clearly communicated to the client. The portfolio mix which is
suggested as part of the strategy, including the types of products, asset classes and geographies to be invested
in, must be properly explained with reasons for inclusion. This would include the relevant ratios or percentage
to be invested in with explanation on how the portfolio mix was arrived at. Explanations must be documented,
which has to include why it matches the risk profile of the client.

CMS licence holder and its representatives should periodically communicate with the client on the portfolio
performance and provide justification for not meeting the agreed or pre-determined targets or why the
portfolio is performing better than expected. Reviews should include where performance is trending based on
market conditions at the time. Where a change is proposed to the strategy, the basis for the proposal must be
advised to the client clearly and the time frame for the investment. All related communications must be
properly documented to reduce the likelihood of claims and subsequent disputes that the advice was rendered
without due consideration of the client’s investment objectives, financial capacity and needs.

6.4 Best Execution Practices for Securities Dealing

This section seeks to give guidance on the elements of best execution practices, where CMS licence holders
and their representatives should also be aware of and incorporate such guidelines into providing the best
trade execution services for their clients

Best execution is the responsibility of the securities dealing representatives of CMS licence holders. A
representative must take reasonable steps to obtain the most advantageous trade result for his/her client.
This includes considering the price, costs, speed, likelihood of execution and settlement, size, execution quality
or any other factor that is relevant to the order execution. It is also essential that representatives ensure that

299
MAS Guidelines on Conduct of Business for Execution-Related Advice (FAA-G08), Paragraphs 15 and 16.
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their clients fully understand the nature and potential risks of the product offered to them, before the
transactions are executed300.

Under FAA-G04301, a financial adviser should take all reasonable steps to execute client orders promptly, in
accordance with the instructions of clients and on the best available terms. The financial adviser should also
provide its clients with prompt written confirmation or documentation that the clients’ orders have been
executed. Similarly, CMS licence holders and their representatives should familiarize themselves with
applicable obligations under the FAA in executing transactions on behalf of clients.

MAS has issued a Notice in September 2020 together with accompanying guidance302 on best execution
requirements for financial institutions, including CMS licence holders. A CMS licence holder which places
and/or executes customers’ orders for capital markets products must, in a manner that is commensurate with
the nature, scale and complexity of its business, implement written policies and procedures to deal with:

i. customers’ orders on the best available terms; and

ii. comparable customers’ orders in accordance with the time of receipt of such orders.

To achieve the best available terms for customers’ orders, the CMS licence holder should consider different
factors holistically, including but not limited to price, costs, speed and likelihood of execution. The relative
importance of the factors should consider the circumstances of the order and type of capital markets product.
A CMS licence holder should also not receive Payment for Order Flow (PFOF) in placing and/or executing
customers’ orders. PFOF refers to commission or other form of payment which a CMS licence holder receives
from another broker/counterparty in return for routing customers’ orders to that broker/counterparty. The
receipt of PFOF introduces conflicts of interests and the CMS licence holder may be incentivised to pursue
commission or other form of payment from another broker/counterparty by routing customers’ orders to that
broker/counterparty for its own benefit.

The CMS licence holder should monitor the effectiveness of its best execution policies and procedures. It
should also provide adequate disclosure to customers on such policies in a clear and easily understood
manner.

6.4.1 Elements of Best Execution Practices

6.4.1.1 Speed and Likelihood of the Execution

Levels of volatility affect both price and volume, thus the CMS licence holders and representatives should seek
to execute client orders as fast as reasonably possible. When prices are volatile, a client placing orders with
large volumes can create order imbalances and backlogs, affecting the speed and likelihood of the execution.

300 The Singapore Guide to Conduct and Market Practices for the Wholesale Financial Markets, April 2018 Chapter III, General Dealing
Principles and Market Conduct Section 3.2.,
301 Guidelines on Standards of Conduct for Financial Advisers and Representatives (FAA-G04) Section 5.3 – Prompt and Best Execution.
302
MAS Notice on Execution of Customers’ Orders (SFA 04-N16), and MAS Guidelines to MAS Notice SFA 04-N16. The Notice and
Guidelines took effect on 3 March 2022.

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6.4.1.2 Price Improvement and Overall Consideration of Costs

Price improvement would consist of the opportunity, but not the guarantee, for an order to be executed at a
better price than what is quoted publicly. Orders in OTC and listed derivative products are routed to market
makers and/or market centres if there are opportunities for price improvement. The criteria to be used by
other market-makers and/or market centres include:
• Automatically filling pending limit order with incoming market and limit orders; and
• Crossing transactions where price improvement is offered to one or both sides of the trade.
6.4.1.3 Size Improvement

CMS licence holders and trading members should always seek markets which provide the greatest liquidity
and the possibility for execution of large orders. They should always be on the lookout for opportunities for
client orders to benefit from order-size guarantees offered by exchanges and other trading members.

6.4.1.4 Overall Execution Quality

When determining how and where to route or execute an order, CMS licence holders and trading members
should draw on the professional knowledge and experience with various markets and market makers and
focus on an accurate and efficient execution.

6.4.1.5 Client-Specific Instructions

Whenever there is a specific instruction from the client on how to execute the order, the CMS licence holder
or trading member should always execute the client’s order according to the instructions given. Consequently,
if a client requires an order to be executed in a particular manner that is not in accordance with best execution
principles, the client should clearly state the desired method of execution when he places the order.

6.4.1.6 Holistic Consideration of Factors

To achieve the best available terms for customers’ orders, the CMS licence holder should consider the different
factors above holistically. The relative importance of the factors should consider the circumstances of the
order and type of capital markets product.

6.4.1.7 Monitoring

A CMS licence holder should also establish adequate systems or arrangements to monitor, on a periodic basis,
its compliance with its best execution policies and procedures and their effectiveness. The monitoring systems
or arrangements should be commensurate with the nature, scale and complexity of the business of the CMS
licence holder.

6.4.1.8 Disclosure to Customers

Prior to the placement and execution of customers’ orders, a CMS licence holder should provide sufficient
information to customers on its best execution policies and any material changes made to the policies
thereafter. The information must be provided to the customers in writing, including via electronic means
provided the customer is aware of the mode of communication. The information must be presented in a clear
and easily understood manner.

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Example – A Client Who Traded through Direct Market Access (DMA)

A client chooses to execute an order via a broker’s DMA system, with the client selecting certain parameters
of the trade. In this case, the representative will be deemed to have satisfied its duty of best execution, if
the trade was executed respecting those parameters specifically instructed by the client.

If, however the representative had not respected the parameters, he should justify his actions and may be
deemed as not having met the duty of best execution for his client.

In the event that a client’s instruction is unclear, the representative will determine any non-specified
components of the execution in accordance with these best execution principles.

The responsibility of the representatives to provide best execution not only relates to price but also involves
the consideration of various factors, including cost, speed and likelihood of execution and settlement. Even if
a trade has not been executed at the best possible price, this does not necessarily constitute a violation of
best execution practices.

Naturally, price would be of high priority in obtaining the best result possible for clients. However, in certain
circumstances, the CMS licence holder or trading member may prioritize the speed and likelihood of execution
over immediate price and cost factors, if these factors are critical in delivering the optimal result. This typically
occurs when there are large client orders with illiquid shares or when a stop-loss has been triggered.

6.4.1.9 Foreign Exchange/Non-Deliverable Forward Dealing Practices 303

Sufficient measures must be taken to ensure that both the clients and only authorized staff can deal in foreign
exchange/non-deliverable forwards. Transacting in rollovers of foreign exchange (FX) transactions at off-
market rates is not recommended as deals done on off-market rates could be used to conceal profit or loss,
or to perpetuate a fraud. Henceforth, representatives who are not authorised to deal in the stated transactions
as defined by their entity must refrain from dealing in those products.

6.4.1.10 Order Types

The FX Global Code specifies that a representative should be aware of how different order types may have
specific considerations for executions when handling clients’ orders304. Representatives have the responsibility
to adhere to these specific considerations when faced with different order types such as stop loss orders, fixing
orders or partial fill orders.

In addition to these guidelines, representatives have to comply with securities trading conventions and
procedures as outlined in the SGX-ST Rules (Refer to Chapter 5 on Trading Practices and Conduct for details).

Example – Stop Loss Order

A client leaves an order for Maple Bank to sell $50 million USD/CAD at 1.27 on a stop loss with instructions
to execute the order once 1.27 USD/CAD has traded.

Maple Bank starts executing the order once 1.27 trades in the market. Maple Bank immediately notifies the
client that the stop-loss order has been executed and is filled at 1.2695 which is in line with the client’s

303 The Singapore Guide to Conduct and Market Practices for the Wholesale Financial Markets, April 2018 , Chapter VI Foreign
Exchange/Non-Deliverable Forward Dealing Practices.
304 The FX Global Code July 2021, Execution, Principle 10.

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expectation based on the time of the day and the volume traded at the time the order is executed. In this
case, the client’s stop loss order was appropriately handled.

6.4.2 Principles for Best Execution Practices305

6.4.2.1 Roles and Capacities of a Representative

Representatives should clearly distinguish their roles and capacities in managing and executing trades for their
clients (or principals). They may have an agreement with the client as to their roles in regard to executing
trades, or they may manage their relationship by determining their roles before executing each trade.

The representative receiving a client order may either act as an agent or principal. A representative or agent
executes order on behalf of the client which is strictly governed by the investment mandate. However, a
representative acting as a principal can take on more risks with that order and they act on their own behalf.
There is no obligation to execute the order until both parties have reached an agreement.

6.4.2.2 Fairness and Transparency

Representatives should handle clients’ orders with fairness and transparency. When communicating with
clients about the execution of their trades, they should always be truthful in their statements and should use
clear and unambiguous language. Representatives should also establish procedures in place to analyse and
advise on the trades made by the client and record the client’s trades before and after the execution.

6.4.2.3 Cross Trades

CMS licence holders should have a policy in place to regulate cross-trading and only facilitate the purchase
and sale transactions between client accounts where it is in the best interest of both clients. This must be
appropriate and relevant to the investment objectives of both clients and must adhere to the guidelines and
restrictions provided. Cross-trading between staff personal accounts and client accounts should be prohibited.
Cross-trading using a house account, where it can be both controlled by the representative and client, should
also be prohibited.

6.4.2.4 Late Trading

Late trading refers to the activity where the investor is allowed to place an order to subscribe, switch, cancel
or redeem the units/shares in securities which comprise collective investment schemes (CIS), after the dealing
deadline set out in the prospectus or trust deed but receives price per unit/share calculated as of the dealing
deadline. Late trading should not be allowed as it could lead to the dilution of the value of the CIS and could
allow speculators to take advantage of price fluctuations of the CIS that occurred after the net asset value was
calculated.

305 The FX Global Code July 2021, Execution; IMAS Code of Ethics and Standards of Professional Conduct 2010 Section 3 and 4; The
Singapore Guide to Conduct and Market Practices for the Wholesale Financial Markets, April 2018 , Chapter III, General Dealing
Principles and Market Conduct.

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To prevent late trading, representatives should comply with dealing deadlines and only honour orders which
are received by the deadline. CMS licence holders should implement procedures and measures to ensure that
all orders from clients as well as internal parties comply with the applicable dealing deadlines.

6.4.2.5 Risks

It is important that representatives ensure the clients are aware of the risks associated with the trades they
want to be executed. The clients should clearly communicate to representatives their expectations in
executing the orders.

6.4.2.6 Other General Dealing Principles and Market Conduct

All representatives have a duty to make clear whether the prices they are quoting are firm or merely indicative.
Prices quoted by representatives should be taken to be firm in marketable amounts unless otherwise qualified.
They are strictly prohibited from making frivolous quotes which they have no intention of honouring and which
are designed merely to mislead market participants.

There must be strict adherence to after-hours and off-premises dealing rules to prevent any denial of deals
transacted. Under no circumstances should representatives engage in artificial transactions for the purpose
of concealing positions or transferring profits and losses as such activities, sometimes referred to as “points”
or “position” parking, which not only undermines the integrity of the markets but may also attract legal liability
for the representatives or CMS licence holders concerned.

6.5 Risk Management and Internal Controls for Securities Dealing

The importance of risk management and internal control cannot be overstated. Risk management is the
process of identifying possible risks or problems and developing strategies to mitigate the risk before they
happen. A system of effective internal controls is fundamental to the safe and sound management of business
operations within capital market intermediaries.

6.5.1 Key Risk Management Practices

The MAS Guidelines on Sound Risk Management Practices sets out recommendations to provide CMS licence
holders with guidance on risk management practices, some of which include the following:
i. CMS licence holders should have comprehensive and sound policies and procedures for prudent
management of significant risks arising from their operations;
ii. The Board of Directors and/or senior management should ensure that policies and procedures are
approved and are consistent with the nature, complexity and materiality of the CMS licence holder’s
activities;
iii. Policies and procedures should be documented and periodically reviewed to ensure that they reflect
current practices and the appropriate controls are in place;
iv. CMS licence holders should establish a comprehensive code of conduct commensurate with their
structure, size and complexity of operations, to promote a strong ethical corporate culture. The code of
conduct should prescribe a set of ethical values that CMS licence holders expect representatives to
observe in discharging their duties. It could, for instance, include guidelines on acceptance of gifts and

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entertainment, conflict of interest, personal benefits, confidentiality of information and personal

investments;
v. There must be adequate segregation of duties to mitigate the risk of unauthorised transactions or
fraudulent activities;
vi. Periodic reviews should be conducted on the responsibilities of key personnel to minimise areas of
potential conflicts of interest and ensure independent checks are in place. An example would be that an
individual should have segregated responsibility for trade execution and operations functions such as
trade settlement;
vii. CMS licence holders are expected to adopt conservative and consistent accounting policies for the
treatment of profits and losses, especially those arising from treasury and financial derivatives
transactions designated as hedged or trading positions. Open trading positions have to be marked-to-
market on a daily basis, with resultant losses recognised promptly in the institution’s profit and loss
account. Minimum retention periods for taped telephone conversations and documents, taking into
account the relevant laws, rules and regulations are to be established;
viii. There must be adequate management information systems (MIS) to facilitate the effective management
and control of all aspects of operations. An accurate, informative, and timely MIS is also essential to the
risk management process. Exposures and profit and loss positions should be reported at least daily to
managers who supervise but do not themselves engage in position-taking activities, and to risk managers
who report independently and regularly to the Board of Directors and/or senior management on the risk-
taking activities of the institution;
ix. CMS licence holders should ensure that there is adequate physical security for their place of business and
cash-in-transit. Access to sensitive areas such as the dealing room, computer room and funds transfer area
should also be strictly granted on a need-to basis to minimise the risk of unauthorised transactions, fraud
or disruption to operations;
x. There should be clear policies and procedures for the independent, fair and proper valuation of assets.
Prices, interest rates, exchange rates and volatility factors used in the revaluation process for the financial
accounting of treasury and financial derivatives transactions have to be obtained from independent
sources or be independently verified, and not decided by the CMS licence holder’s representatives or
dealers;
xi. There should be proper verification and reconciliation procedures for ascertaining the accuracy of
transaction details and activities. Staff performing verification checks must be independent of those
responsible for originating the transaction or preparing the data. For instance, reconciliation of trade data
should be performed by staff independent of dealing/trade execution function. As far as possible,
customers should be required to indemnify representatives and their trading members against losses for
accepting instructions given verbally, via facsimile or via electronic mail. All telephone conversations,
where institutions receive transaction-related instructions, should be tape recorded where practicable as
they could aid in the resolution of disputes;
xii. Customer orders should be promptly processed in accordance with instructions given and on the best
available terms. Trading members should ensure that controls are in place to ensure trades matching and
confirmations are performed as soon as possible after execution. Early detection would help to avoid
errors in recording trades, which could result in increased risks and costs; and
xiii. CMS licence holders should, where possible, establish standardised settlement instructions in their
systems. Changes to these instructions should be reviewed to ensure that they have been properly
authorised by the customers/counterparties. Procedures should also be in place for validating funds

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transfer requests, which could include, among other things, telex testing, call-back and signature
verification.
The complexity of some financial derivatives products increases a CMS licence holder’s vulnerability to
reputational risk. As such, the organisation needs to formulate clear written policies, approved by the Board
of Directors and/or senior management, to address issues relating to the appraisal of customers and risk
disclosure and to reduce the risk of misunderstandings and contractual disputes. Further to that, CMS licence
holders should implement procedures to assess customer suitability. When the representative believes that a
particular transaction may not be appropriate for a customer, but the customer wishes to proceed with the
transaction, the representative should document his or her own analysis and any risk disclosure information
provided to the customer. This would protect the representative and firm’s position in the event that the
customer makes a claim for indemnification against losses. In addition, it is recommended that such
transactions be independently reviewed by the relevant department or personnel of competence and, where
necessary, escalated for the attention of the senior management of the institution and/or customer.

6.5.2 Key Internal Controls

With respect to internal controls306 of business processes, CMS licence holders are to establish and maintain
adequate control systems by:
i. Having comprehensive and explicit policies on suitability and risk disclosure of products to customers;
ii. Establishing sound customer due diligence policies and procedures;
iii. Placing adequate controls over accounting and record-keeping process;
iv. Setting adequate MIS in place for effective management and control of all aspects of operations,
including monitoring of compliance with internal controls and regulatory requirements, such as setting
credit or positions limits and monitoring positions to manage market and credit risks, and comply with
notification requirements on monitoring thresholds as prescribed by the Exchange;
v. Monitoring margin calls and managing customers’ accounts that are in margin deficit or fail to meet
settlement obligations;
vi. Defining and managing sources of liquidity to ensure that there are sufficient liquidity facilities to meet
increased settlement obligations;
vii. Allowing access to sensitive areas such as the dealing room, computer room and funds transfer area
granted on a strict need-to basis;
viii. Ensuring that prices, interest rates, exchange rates and volatility factors used in revaluation obtained
from independent sources or independently such as the computation and collection of margins,
including the conducting daily valuation of customers’ positions and collateral;
ix. Setting adequate verification and reconciliation processes for ascertaining the accuracy of transaction
details and activities
x. Having timely confirmation of trades with customers performed independently of the
dealing/execution function;
xi. Establishing procedures for validating funds transfer requests;
xii. Limiting the impact of significant market movements through the use of tools such as cash flow
projections, stress testing or credit limits; and

306 MAS Guidelines on Risk Management Practices - Internal Controls 2014; SGX-ST Rule 10.8 – Internal Controls
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xiii. Meeting such other requirements as the Approved Exchange may prescribe from time to time.

When executing transactions, care should be taken to execute transactions which fit into the risk profile of the
client. Before taking instructions to execute any deals, the representative must take care to follow the policies
and procedure of the firm which generally includes: -
i. Checking the profile of the client against the risk of the product. If it does not match, the
representative should not carry out the instruction and should advise the client against the
transaction, and have the advice documented and the signature of the client obtained;
ii. Check the portfolio mix which was agreed at the commencement of the business relationship, so that
the product risk mix does not exceed each risk level and exemptions are prevented;
iii. If the client insists on carrying out the transaction against the representative’s advice, this should be
escalated to management for a decision;
iv. Adhering to internal trading and control policies which may include prohibition against trading in
certain financial products during stipulated black-out periods by the firm;
v. Ensuring that there is no conflict of interest between the client, the representative and the firm, and
making the proper disclosures to resolve any conflicts;
vi. Ensuring that even if there is no conflict of interest, that the client’s transaction is executed first before
any of the representative’s own transactions;
vii. Checking that the transactions was not done in the name of a third party or other connected persons
who are not officially authorised to transact on the account.
viii. Checking that the transaction did not originate from material non-public information sources;
ix. Remembering to observe the rules, regulations and industry codes of conduct and ethical standards
and prevent market misconduct; and
x. Checking the account mandates to ensure that instructions are accepted from the authorised parties
of the account only.

6.6 Types of Accounts

6.6.1 Personal Accounts

Personal accounts are simple to manage as there is only a single person owning the account and only one
decision maker. Although there is no minimum age threshold legally for opening and operating an account, it
is important to note that there may be risks in opening accounts for minors due to constraints and related
concerns in handling transactions both from the suitability and credit perspectives. Losses incurred by minors
may become irrecoverable.

Individual accounts may be maintained as cash accounts or margin accounts. It is easier to manage cash
accounts for purchases and sales, as before making the purchases for the client all the dealer has to do is to
ensure there is sufficient funds in the account to pay for the purchases. If there are insufficient funds, then
the representative should advise the client not to proceed with the purchase. In the case of a sale, all proceeds
are credited back to the account.

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Margin accounts are more complex as not only it is important to know the securities, the number of unit and
the value of the securities, the representative is expected to know the financing margin agreed with the client.
The value of the securities must be updated to the current date and further purchases must be kept within
the financing margin that was agreed at the outset.

Before any purchase, a representative should check whether the agreed terms are maintained and if the
margins are breached, and he should advise the client accordingly before a transaction is carried out. Even
without transactions, margins can be breached depending on the market situation which may cause reduction
in the value of the portfolio. As a result, there may be a need to call for top ups to the account, either with
cash or securities to bring the account to within the agreed margin levels. Sale of securities may also be
necessary to bring account to within the margin but before carrying out the sales, the dealer has to check the
agreed contract as the margin terms on each contract differ from one contract to another. Therefore, before
a sale is carried out it is important to give the client adequate notice of the intention to sell in accordance with
the Margin Account terms. A single personal account holder will be easier to handle under such circumstances.

The credit status or standing of a personal account is not dependent on another person’s credit standing.
Personal accounts also limit unauthorised usage of accounts. In some cases, the single account holder may
execute a Power of Attorney (’POA’), and when this happens there is an increased risk of conflict over
unauthorised transactions and disputes by the account holder. Where a POA has been given, it is important
to check the terms of the POA to prevent accepting instructions wrongly. The other disadvantage of single
accounts is that they are subject to the probate process where in the event the account holder passes away,
the court will order and supervise the process of gathering the account holders’ assets and distributing them
to creditors and inheritors.

6.6.2 Joint Accounts

There is no legal restriction to the number of persons in a joint account. It is important to be clear who can
operate the account and what conditions have to be met before instructions can be accepted or authorised.
The credit standing of a party to the account may affect the credit standing of the account as a whole and the
other parties to the account. The risk of dispute between or among parties to the account is higher than a
single account, thus increasing the risk of the firm when dealing with joint account holders especially they are
not related to each other.

For the representative, it is important to ensure that the dealing mandate is clear and that all parties of the
joint account are liable for the accounts’ transactions. A joint account of many individuals will also be subject
to a probate process should one party pass on which may result in the freezing of the account’s assets.

6.6.3 Personal Investment Holding Company Accounts

Personal investment holding company accounts are set up usually to avoid or minimize estate duties and the
probate process. A personal investment holding company usually has greater flexibility in investing in different
asset classes and usually has a professional investment manager acting on its behalf. It is therefore important
to establish who is mandated to operate the account and maintain the documents to support such
authorisation.

The risk profile of the company has to be supported by its investment objectives in writing, and proper
investment mandates must include all authorisations for operating the account as well as the investment
portfolio, asset classes and geographies. The representative is responsible for ensuring that the client’s

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investment mandate is complied with. Failing to comply or having exceptions to the mandated portfolio-mix
may result in litigation risk, which may lead to higher reputation and financial risk for the CMS licence holder.

6.6.4 Trust Accounts

Trust accounts are usually set up to protect the privacy of the settlor and his or her assets. The trust deed
spells out the powers of the trustees. It is important for a representative to be clear who are the parties he
should be dealing with and taking instructions from.

With trust structures, the assets of the trust are protected in the event of any litigation against the
beneficiaries, as no single individual owns the asset. Trust accounts are usually managed by professional
trustees who are deemed to be knowledgeable in the law and investments. Therefore, when dealing with trust
accounts, the representative must obtain a copy of the trust deed and ascertain the powers of the trustee to
act on behalf of the trust because the trust deed is the key document which lists out the requirements of the
trust.

6.6.5 Corporate or Institutional Entity Accounts

The accounts of corporate or institutional entities are run mostly by professional investment managers and
ownership is generally separate from management. The operation of such accounts is usually covered by
authorisation through a Board Resolution naming the authorised employees who can operate the account.

It is therefore critical when managing such accounts to establish who the main contact person is. For example,
who are the parties mandated to give instructions for investment, movement of funds and make decisions for
the account? A representative who takes any action outside of such mandates will run the risk of possible
litigation. Therefore, the litigation risk of such accounts is high and the key to preventing this risk is to ensure
that there are no exceptions to the mandate as given. The investment strategy must be clearly discussed,
communicated and documented before commencing. Reputation risk is also higher for corporate or
institutional accounts. Compliance with internal control processes when dealing with such accounts are
usually not compromised because of the high risk of litigation and loss of reputation resulting in loss of client
base.

Corporates and individuals may also register or set up offshore companies in tax havens or countries with low
tax regimes, sometimes for genuine tax efficiency and avoiding unnecessary taxes but there are times when
some corporations or Special Purpose Vehicles (SPV) are set up for tax evasion to take advantage of the privacy
around shareholders and beneficiaries.

It is therefore important when on boarding SPVs, which are set up in such offshore jurisdictions, to take extra
care in performing due diligence. Usually enhanced due diligence is expected for such entities incorporated in
offshore low tax jurisdictions as the risk of money laundering and terrorism financing is higher as source of
funds are harder to trace. Many institutions require that the Certificate of Incumbency and Good Standing be
obtained from the Registrar.

Under MAS regulations, ownership of such entities must be traced to an individual person who is the ultimate
beneficial owner and merely obtaining a declaration of beneficial ownership is not adequate. There are
however exemptions, for example if the SPV is established by a company that is listed in an exchange of a
FATF307 member country, with the objective of holding certain assets and are part of a syndicated loan, then

307 Financial Action Task Force (FATF) is an intergovernmental agency which aims to combat money laundering.
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tracing back to the ultimate beneficiary is not required. In the case of individuals who set up SPVs, it is
important to exercise enhanced due diligence especially in establishing the source of wealth and funds and
purpose for setting up the SPVs.

Offshore jurisdictions usually emphasize clients’ privacy and therefore it is difficult to get information needed
to assess the ML/TF risks. Given the FATCA308 and AEOI309 requirements that have been placed on banks as
intermediaries, the nationality and tax obligations of clients must be clearly identified. Notwithstanding the
difficulties, it is important that information is obtained before client acceptance. An example of reputation
risk as in the case of the Panama Papers where information on clients was leaked and the world of finance
was shocked by parties who had accounts in offshore centres through offshore vehicles.

It is important to note, however, that not all offshore vehicle owners are tax evaders, but the onus is on the
representative to ensure due diligence is conducted vigilantly and to onboard only reputable parties with
legitimate sources of wealth and funds.

6.7 Developing a Strong Client Relationship Built on Trust

Trust is the key in building a strong client relationship. To earn the trust of the client, in addition to ensuring
that client interest comes first, as a licensed representative it important to show that you are competent,
diligent and respects your clients wishes. To demonstrate these characteristics, representatives need to: -
i. Keep updated on rules and regulations to prevent breaches of such rules and regulations;
ii. Continue to attend training on products, processes and ensure they know the control processes of
their organisation;
iii. Make sure all risk disclosures are communicated to clients for them to make informed decisions;
iv. Follow up with documentation;
v. Independently study the product risks, originators reputation, product features and all terms and
conditions;
vi. Respect clients’ risks appetites and objectives;
vii. Disclose all costs, fees with no hidden costs;
viii. Avoid conflict of interest and declare, if there is any; and
ix. Ensure priority of execution for clients’ orders and getting the best price.

6.7.1 Relationship Management with Clients

Relationship management refers to an approach in which a continuous and consistent level of engagement is
conducted with the clients. It ultimately aims to create a build a relationship and loyalty between the
institution and client, rather than being merely transactional. Relationship management can be performed at
the client or an institutional level, and can include a variety of communication tools, such as electronic mailing
lists, newsletters or any other forms of engagement, e.g. when there is a new product release. However, the

308 Foreign Account Tax Compliance Act (FATCA) is a federal law by the United States which requires all US persons including those
living outside the U.S. to file yearly reports on their non-U.S. financial accounts).
309 Automatic exchange of information (AEOI) refers to the regular exchange of financial account information between jurisdictions for

the purpose of detecting tax evasion.

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representative ultimately must consistently follow up with the client on any updates on her investment
portfolio.

6.7.2 Periodic Review and Updates of Accounts

As part of the review process, CMS licence holders and representatives will require their clients to update on
their “Know-Your-Customer” (KYC) information. Other than procuring updated personal information from the
clients, representatives should seek to actively update changes on the client’s financial situation as well. Both
CMS licence holders and representatives are expected to keep KYC information regularly updated.

CMS licence holders and representatives should follow up on any discrepancies on a timely manner. If the
periodic review process is not kept up-to-date and vigilant, the professional relationship with the existing client
base may be undermined.

6.7.3 Professionalism in Client Communication

Client communication plays a vital role in establishing rapport with a client. Particularly when investment
strategies and policies can be complex, it is the professional duty of the representative to disclose any material
information that may affect the client’s decision.

Representatives must:

i. Ensure that the principles of the entire investment process are disclosed to the client, including the
process which they used to analyse investments and other instruments;
ii. Disclose to clients any risks or significant limitations about the investment strategy formulated;
iii. Use reasonable judgement to identify factors that are critical to the investment strategy. Such factors
include investment analysis, recommendations or implementations;
iv. Carefully distinguish between an opinion or a fact during the presentation of investment strategy and
recommendation to the client; and
v. Ensure that client communication is properly documented and stored in the event that the client or trader
or licensed representative would like to review the conversation in future.

6.8 Credit Risk Management

Credit risk is defined as the risk of losses that arise when a counterparty fails to perform its obligations under
a contract or when its ability to perform such obligations is impaired. Credit risk could stem from activities
both on and off the balance sheet of a CMS licence holder . CMS licence holders are increasingly facing credit
risk from diverse financial instruments such as trade finance and acceptances, internal transactions, foreign
exchange, financial futures, swaps, bonds, equities, options, commitments and guarantees, and settlement of
transactions.

To effectively manage credit risk, a CMS licence holder must first establish a credit strategy that determines
the level of credit risk it is prepared to bear. It is followed by adopting a risk management structure that
commensurate with its size and business activities. The credit policies instituted should lay down parameters

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and guidelines to govern the granting, maintenance/monitoring and management of credit, at both the
individual transaction and portfolio level310.

Another important element of credit risk management is the establishment of exposure limits for single
customer311 and groups of connected customers. The size of the limits should be based on the credit strength
of the customer and the CMS licence holder’s risk tolerance level. CMS licence holders should also establish
appropriate limits for particular industries, economic sectors, or geographic regions to control concentration
risk. Credit limits should be reviewed on a periodic basis to account for changes to credit strength and
economic conditions

When a client wishes to have credit extension, a representative must assess the client’s financial capacity for
the credit line by gathering information on his/her financial position, assess repayment ability and credit
record, consider if the asset coverage is adequate for cases where the client wants the credit collateralised
against assets.

Credit may be given in the form of margin accounts where the initial deposit of securities forms the collateral
for the credit. Nonetheless, it is good practice for representatives to consider the client’s financial position to
prevent overextension or any forced sales if margins breach the agreed thresholds.

Once the line of credit is determined and approved, it is important that the percentage of financing is observed
through monitoring the exposures. If the value of collateral falls below the threshold, quick action must be
taken to call for top-ups or decision has to be made to liquidate some assets if calls are not acted upon. If the
client ignores continuous calls for top-ups or the collateral no longer supports the credit, legal action may have
to be initiated.

310 SGX-ST Rule 4.10.1 – Risk Management and Financial Controls.

311 SGX-ST Rule 3.6.4 – Exposure to Single Customer.
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Chapter 7:
Central Provident Fund
Investment Scheme (CPFIS)
Learning Objectives

The candidate should be able to:

✓ Know the Central Provident Fund Investment Scheme (CPFIS).
✓ Know and differentiate between the two parts of the CPFIS.
✓ Know the account opening process and operating process.
✓ Know the factors a member has to consider before he commits to an investment using his/her CPF
ordinary account’s balances.
✓ Be aware of the investments included under the CPFIS.
✓ Know the CPF investment limits for the various instruments.
✓ Know the restrictions tied to investing in securities through CPFIS.
✓ Know how profits, losses and dividend etc. are treated in CPFIS.
✓ Know that there are charges for investing in securities through CPFIS.
✓ Know the circumstances under which a member’s investments through CPFIS will be released to him.
✓ Know how bankruptcy and death cases impact the CPFIS and the use and distribution of the funds.

7.1 General Information and History of CPFIS

The Government first allowed CPF members in 1987 to use part of their savings in the Ordinary Account (OA)
to invest in approved investment products. Over the years, more options were added to the scheme, for

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members to invest in with their CPF savings. The scheme was broadened in January 2001 to allow members
to invest using savings in their Special Account (SA) as well.

Currently, the CPFIS has 2 parts:

• CPFIS-Ordinary Account (CPFIS-OA); and

• CPFIS-Special Account (CPFIS-SA).

These give CPF members who are financially savvy and willing to take on some risk more options to invest
their CPF savings to enhance their retirement savings. However, CPF members should consider their own
investment objectives, time horizon, risk appetite and financial decision to make an informed investment
decision. They also need to consider the investment risks and compare the expected return against the interest
rate their money would have earned in their CPF accounts.

7.2 Differences between CPFIS-OA and CPFIS-SA

Under CPFIS-OA, investments can only be made using funds from the members’ Ordinary Account Savings
whilst the Special Account Savings can only be used for investments under CPFIS-SA. The types of products
allowed for investment under CPFIS-OA and CPFIS-SA are also different.

A CPF Investment account is required for investments made under the CPFIS-OA but not required for CPFIS-
SA.

7.2.1 Types of Investments Allowed under the 2 Types of the CPFIS and Investment Limits 312

Table 7.2.1 on Types of Investments Allowed under CPFIS and Investment Limits

Table 7.2.1 illustrates Types of Investments Allowed under CPFIS and Investment Limits.

CPFIS-OA CPFIS-SA

Ordinary Account savings can be invested in: Special Account Savings can be
invested in:
• Fixed Deposits
• Singapore Government Bonds • Fixed Deposits
• Singapore Government Treasury Bills • Singapore Government Bonds
• Statutory Board Bonds • Singapore Government
• Bonds Guaranteed by Singapore Government Treasury Bills
• Annuities • Statutory Board Bonds
• Endowment Insurance Policies (secondary markets only)
• Fund Management Accounts • Bonds Guaranteed by Singapore
• Investment-Linked Insurance Products (ILPs) Government
• Unit Trusts • Annuities

312Refer to the list of instruments that can be invested under CPFIS (CPF website):
https://www.cpf.gov.sg/content/dam/web/member/growing-your-savings/documents/CPFISInvestmentProducts.pdf

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CPFIS-OA CPFIS-SA
• Exchange Traded Funds (ETFs) • Endowment Insurance Policies
• Selected ILPs313
Up to 35% of investable savings can be invested in: • Selected Unit Trusts323
• Shares • Selected ETFs323
• Property Funds (or Real Estate Investment Trusts)
• Corporate Bonds

Up to 10% of investable savings can be invested in Gold:

• Gold ETFs
• Other Gold products (Only UOB offers these new gold
products)

The first $60,000 in a CPF member’s combined CPF accounts earns extra interest (capped at $20,000 from the
Ordinary Account). To enable CPF members to optimise the extra interest on the first combined $60,000, only
monies in excess of $20,000 in the Ordinary Account and $40,000 in the Special Account can be invested via
the CPF Investment Scheme. However, a member can continue to service his regular premium insurance
policies (but NOT recurring single premium insurance policies or regular savings plans for unit trusts) and agent
bank fees with CPF savings, even if the Ordinary Account balance falls below $20,000.

7.3 What is a CPF Investment Account?

A CPF Investment account is an account opened with a CPFIS agent bank314 to facilitate the settlement of a
member’s purchases and sales of investment and to keep track of his/her investment holdings and
transactions in his/her CPF Investment Account.

CPFIS agent banks are appointed by the CPF Board and are one of the 3 local banks i.e. Oversea-Chinese
Banking Corporation Ltd (OCBC), United Overseas Bank Ltd (UOB) and DBS Bank Ltd (DBS). The agent banks
are appointed by the CPF Board for their extensive branch network and facilities to support the investment
and settlement of equities and bonds listed on SGX-ST. Each member can only maintain one CPF Investment
Account at any one time.

7.4 Eligibility Criteria

A CPF member who meets the following requirements can participate in the CPFIS:
• Is at least 18 years of age
• is NOT an undischarged bankrupt

313 Generally, only ILPs, unit trusts and ETFs in the lowest 3 tiers of CPF Board’s Risk Classification System Table (i.e. lower risk, low to
medium risk and medium to high risk).
314
Refer to section 7.5 for listing and explanation of CPF Agent Bank.
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• Have more than $20,000 in his Ordinary Account (for Investment under CPFIS-OA) and/or more than
$40,000 in his Special Account (for investment under CPFIS-SA)

From 1 October 2018, any new CPFIS investor will be required to take the Self-Awareness Questionnaire (SAQ)
before the member can commence investing under CPFIS315. This is to help them assess their basic financial
knowledge and whether CPFIS is suitable for them.

7.5 Opening a CPFIS Investment Account

To open an investment account under CPF Investment Scheme Ordinary Account (CPFIS-OA), a member can
approach any one of the following CPFIS agent banks:
• DBS

• OCBC

• UOB

A member can apply for his investment account online or at the agent banks’ branches. He will need to bring
along his or her identity card, Self-Awareness Questionnaire status document, and any of his CPF statement
for agent bank to verify his CPF account number. He can access his statement at https://www.cpf.gov.sg via
my cpf Online Services by using his SingPass. Members can only maintain one CPF Investment Account at any
one time.

7.6 Processes for Purchase and Sale of Investments (CPFIS -OA only)

After opening a CPFIS account with an agent bank, the member must inform his dealer of the account details
for settlement of transactions before entering into a transaction using his CPF funds.

The agent bank will liaise with the CPF Board and the various product providers to settle the member’s
purchase and sale of investment and keep track of his investment holdings and transactions in his CPF
investment account.

A member can sell his investments which are listed on SGX-ST, 1 trading day after the purchase date if the
purchase trade has been accepted by the agent bank as a CPFIS-OA trade. Agent banks may accept the trade
if:
i. The stock broker has keyed the purchase trade on the day the purchase contract is made; the trade was
successful; and
ii. The member has sufficient investible funds (and limits for stock and/or gold investments) in his/her CPF
Investment and/or Ordinary Account to settle the purchase.

315Refer to the CPF website https://www.cpf.gov.sg/member/faq/growing-your-savings/cpf-investment-schemes for FAQs on First-

Time Investment of your CPF.

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7.7 Service Providers under the CPFIS 316

Members are required to buy or sell their investments only through service providers included under the CPF
Investment schemes as provided in Table 7.7:

Table7.7 on Service Providers for Different Instruments

Instruments Service/Product Providers

Fixed Deposits Fixed Deposit Banks

Singapore Government Bonds Bond Dealers or Brokers

Singapore Government Treasury Bills Bond Dealers

Statutory Board Bonds Bond Dealers or Brokers

Bonds Guaranteed by Singapore Government Brokers

• Annuities Insurance Companies

• Endowment Insurance Policies
• ILPs

Unit Trusts • Fund Management Companies

• Investment Administrators

Fund Management Accounts Fund Management Companies

• Shares Brokers
• Property Funds
• Corporate Bonds
• Exchange Traded Funds (ETFs)

Gold • For Gold ETFs: Brokers

• Gold ETFs • For other Gold products:
• Other Gold products (such as Gold o Sell through your Agent Bank
certificates, Gold savings accounts, o Buy through UOB Agent Bank and you need a UOB
Physical Gold) investment account

316Refer to CPF website at https://www.cpf.gov.sg/content/dam/web/member/growing-your-

savings/documents/CPFISInvestmentProducts.pdf
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7.8 Criteria for Inclusion of Investment Products under CPFIS

All instruments (except Gold products offered by CPF Agent Banks, Singapore Government Bonds and
Singapore Government Treasury Bills) under the CPFIS are only included upon the product providers’
applications and CPF Board’s review317. These instruments must meet the inclusion criteria.

All investment made under CPFIS must be in Singapore dollars except where otherwise stated. Investments
under CPFIS cannot be assigned, pledged or used as collateral. The table below show the conditions attached
to some of these investments:

7.8.1 Inclusion Criteria for Investment Products318

Table 7.8.1: Inclusion Criteria for Investment Products

Table 7.8.1 illustrates the criteria for instruments to be included under CPFIS

Instruments Included Under the CPF Investment Scheme (CPFIS)

Instrument Criteria

Fixed Deposits (i) Must be offered by CPFIS-included Fixed Deposit Banks319 only;
(ii) The bank must be locally incorporated with minimum capital funds of
S$1.5 billion and good credit rating;
(iii) The bank must be a subsidiary of a locally incorporated bank which
meets the criteria at (ii). The bank must continue to be a subsidiary of
the locally incorporated bank; or
(iv) If the bank is a foreign bank, it must be accorded the Qualifying Full
Bank privileges.

• Singapore
Government
Bonds
The bonds/treasury bills are traded in Singapore dollars and are scripless.
• Singapore
Government
Treasury Bills

Statutory Board (i) The bonds are issued by a Statutory Board of the Singapore Government;
Bonds320
(ii) The bonds are listed on the SGX-ST Main Board;
(iii) The bonds are traded in Singapore dollars;

317 Unit Trusts, Investment-linked insurance products and Exchange Traded Funds would need to be evaluated by CPF Board’s
appointed Investment Consultant before they can be included under CPFIS.
318
https://www.cpf.gov.sg/content/dam/web/member/business-
partners/documents/APPLICATIONANDADMISSIONCRITERIAFORFUNDSMANAGEDBYFMC.pdf.
319 DBS, OCBC, UOB and Malayan Banking Berhad.
320 Under CPFIS-SA, currently members can only invest in Statutory Board Bonds in the secondary market.
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Instruments Included Under the CPF Investment Scheme (CPFIS)

Instrument Criteria
(iv) The bonds are not offered to institutional investors or accredited investors
and certain other persons only under Section 274 or 275 of the Securities and
Futures Act (SFA);
(v) The bonds are not subject to trading restrictions in the secondary market; and
(vi) Prospectus, which comply with the SFA requirements for the bonds, are
issued. For bonds which are exempted from the prospectus requirement, an
information memorandum setting out the terms of the issue, the risks of
investing in the bonds and other relevant information must be issued and
made available to CPF members.

Bonds Guaranteed (i) The bonds are listed on the SGX-ST Main Board; and
by Singapore
(ii) The bonds are traded in Singapore dollars.
Government

• Annuities (i) Must be offered by Insurance Companies included under CPFIS;

• Endowment (ii) Life insured must be the member himself;
Insurance Policies(iii) Only single premium or recurring single premium policies are allowed (new
• Investment linked regular premium policies are not allowed from 1 January 2001); and
Insurance (iv) For endowment policies, maturity date must not be later than the member’s
products321 62nd birthday, or the prescribed minimum retirement age, whichever is later.

Unit Trusts (i) Must be managed by Fund Management Companies included under CPFIS;
(ii) Must be evaluated by CPF Board’s appointed Investment Consultant to be
among the top 25th percentile of global peer group;
(iii) Must have Total Expense Ratio (TER) not exceeding the TER caps set by CPF
Board;
(iv) No sales charge;
(v) Preferably have track record of good performance for at least 3 years; and
(vi) Must comply with the CPF Investment Guidelines (CPFIG) set by CPF Board.

Exchange Traded (i) Must be listed on SGX;

Funds
(ii) Must be managed by Fund Management Companies included under CPFIS;
(iii) Good prospects of tracking index efficiently with low tracking error
(iv) Total expense ratios will be taken into consideration
(v) No sales charge

321
Refer to the CPF website https://www.cpf.gov.sg/content/dam/web/member/business-
partners/documents/RCSILP1.pdf
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Instruments Included Under the CPF Investment Scheme (CPFIS)

Instrument Criteria
(vi) Physical replication (full or partial)
(vii) Preferably have good tracking record for at least 3 years; and
(viii) Must comply with CPFIG.

Fund Management The Fund Management Company that manages the account must pass the
Accounts322 (CPFIS- qualifying criteria set out by the CPF Board.
OA only)

Shares of Companies (i) Must be offered by companies incorporated in Singapore;

(CPFIS-OA only)
(ii) The shares are listed on the SGX-ST Main Board as a primary listing (provided
that the shares are not new Catalist shares or shares transferred from the
SGX-ST Main Board to Catalist, except for former SESDAQ shares);
(iii) The shares are traded in Singapore dollars;
(iv) The company allows CPF Agent Banks to appoint all CPF shareholders as
proxies to attend and vote at shareholders’ meetings; and
(v) The shares are not placed on an SGX-ST watch list.

Property Funds (i) Must be offered by companies incorporated in Singapore;

(CPFIS-OA only)
(vi) The fund is listed on the SGX-ST Main Board;
(vii) The fund is traded in Singapore dollars; and
(viii) The company allows CPF Agent Banks to appoint all CPF unitholders as proxies
to attend and vote at meetings.

Corporate Bonds (i) Must be offered by companies incorporated in Singapore;

(CPFIS-OA only)
(ii) The shares are listed on the SGX-ST Main Board;
(iii) The bonds are traded in Singapore dollars;
(iv) The bonds are not offered to institutional investors or accredited investors
and certain other persons only under Section 274 or 275 of the SFA;
(v) The bonds are not subject to trading restrictions in the secondary market;
(vi) The bonds are rated at least A2 by Moody's, A by Standard and Poor's or A by
Fitch; and
(vii) The prospectus, which complies with the Securities and Futures Act
requirements for the bonds, is issued. For bonds which are exempted from
the prospectus requirement, an information memorandum setting out the

322Members can use part of all of the available amount in their Ordinary Account to open a Fund Management Account (FMA) with
an approved fund manager. Members must apply to CPF Board to withdraw the funds from their Ordinary Account. If Members wish
to close their FMA or the fund manager is no longer approved by CPF Board, the fund manager must transfer the members’ money
to their CPF Investment Account. Refer to the CPF website at https://www.cpf.gov.sg/content/dam/web/member/business-
partners/documents/CRITERIAFORFUNDMANAGEMENTCOMPANIES.pdf

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Instruments Included Under the CPF Investment Scheme (CPFIS)

Instrument Criteria
terms of the issue, the risks of investing in the bonds and other relevant
information must be issued and made available to CPF members.

Gold (CPFIS-OA only) a) Gold ETFs323:

(i) Must be listed on SGX-ST;
(ii) The gold ETF is backed by physical gold that meets the London Good
Delivery Rules issued by London Bullion Market Association (or other
equivalent globally accepted standards);
(iii) The gold ETF is offered by a Singapore-incorporated company (for locally
constituted gold ETF authorized by MAS) or through a local
representative (for foreign gold ETF recognised by MAS); and
(iv) The company allows the CPF Agent Bank to appoint all CPF unitholders of
the gold ETF as proxies to attend and vote at meetings.
b) Other Gold products
Only UOB offers these gold products. If you wish to invest in gold, you need an
investment account with UOB.

7.9 Transfer of Monies from CPF Investment Account to CPF Ordinary

Account

A member may transfer monies from his CPF Investment Account to his CPF Ordinary Account at any time
using his agent bank’s facilities (e.g. ATMs/ Phone/ Internet banking facilities). The member may also make
the transfer over the counter at the bank.

The agent bank will also automatically transfer the cash balance held in the member’s CPF Investment Account
to his CPF Ordinary Account (at the end of the month) if his Investment Account has been inactive (i.e. If the
member has not made any investment transactions) for 2 consecutive months. If the member has been
unsuccessful in an IPO application, his agent bank will transfer the unused CPF for the IPO application to
his/her Ordinary Account at the end of the month.

7.10 Dividends and Profits Earned 324

Any dividends, profits earned from investments under CPFIS-OA and / or CPFIS-SA are not withdrawable as
the purpose of investing is to grow members’ CPF savings for retirement. However, the dividends or profits

323Refer to the CPF website https://www.cpf.gov.sg/content/dam/web/member/business-

partners/documents/LISTOFGOLDEXCHANGETRADEDFUNDSINCLUDEDUNDERCPFIS.pdf
324 Refer to the CPF website https://www.cpf.gov.sg/member/faq/growing-your-savings/cpf-investment-schemes for FAQs on
Investment Profits and Losses.
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can be used for other CPF schemes, subject to the terms and conditions of these schemes. However, losses do
not need to be made good.

7.11 Charges

A member will incur charges for his CPFIS investment, which can be paid out of his CPF savings. Charges may
be levied by product or service providers or by the agent bank for providing the CPF Investment Account and
facilitating the settlement and accounting for transactions.

Since October 2018, the caps on these charges have been revised to reduce the costs of investing. In the first
phase of reduction, the sales charge cap was reduced from 3% to 1.5%, and the wrap fee cap was reduced
from 1% to 0.7%. The second phase was rolled out in October 2020, where sales charges were removed, and
the wrap fee cap was further reduced to 0.4%.

7.12 Release of Investment Holdings 325

Upon reaching the age of 55 years old, a member can apply to the CPF Board to withdraw his CPFIS-OA and
CPFIS-SA investments as well as the cash balance in his Investment Account, as long as he has set aside the
Full Retirement Sum (FRS) or the Basic Retirement Sum (BRS) with sufficient property charged /pledge in the
Retirement Account (RA).

For CPFIS-OA, the Board will inform the agent bank to close the member’s CPF Investment Account. The
member may approach the bank for the withdrawal of investments and cash after the Board has notified him.
The member’s investment will be transferred to his own name and he may thereafter liquidate them as he
wishes and have the sales proceeds paid to him directly.

For CPFIS-SA, CPF Board will inform the member’s product provider(s) to transfer the member’s investment
to his own name and he may thereafter liquidate them as he wishes and have the sales proceeds paid to him
directly.

If a member is unable to set aside the FRS or the BRS with sufficient property charge/pledge in the RA, his
investments will not be transferred to him. Upon liquidating the investments, the sale proceeds will be
credited to his CPF Investment Account for CPFIS-OA or Special Account for CPFIS-SA.

7.13 Bankruptcy

Undischarged bankrupts, who had previously used their CPF monies to invest can hold or liquidate their
investments. The sale proceeds upon liquidation will be credited back into their CPF Investment Account or
Special Account. They are however, not allowed to use their CPF monies again for new investments.

325 Refer to the CPF website https://www.cpf.gov.sg/member/faq/growing-your-savings/cpf-investment-schemes/can-i-withdraw-my-

cpf-investment-scheme-cpfis-investments for FAQs on Withdrawal of Investment Holdings (Reaching 55)

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Upon reaching the age of 55 years, an undischarged bankrupt will need to set aside the set aside the FRS or
BRS with sufficient charge/pledge in the RA before his CPFIS investments and cash balance in the CPF
Investment account can be withdrawn. CPFIS investments and cash balances in the CPF Investment Account
are protected from claims by creditors and/or the Official Assignee if these remain within the CPF Investment
Scheme.

7.14 Death

CPFIS Investments are not covered under CPF Nomination. When a member passes away, his investments
under the CPF Investment Scheme and any cash held in his Investment Account with his agent bank will form
part of his estate. CPFIS insurance policies with revocable nominations made with insurers will bypass the
estate administrator/executor process and be paid directly to the beneficiaries nominated with the insurer. In
the absence of nomination, then the death proceeds will then be distributed by the administrator/executor
together with the rest of the deceased’s estate. Irrevocable nomination is not allowed for CPFIS insurance
policies.

The estate administrator/executor must produce the Letters of Administration/Grant of Probate to claim the
investments from the agent bank or product providers. Upon the death of the member, the CPFIS investments
and cash in his/her Investment Account would cease to be protected and might be used to satisfy the deceased
member’s creditor’s claim in accordance with the Probate and Administration Act.

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Chapter 8:
Prevention of Financial Crimes
Learning Objectives

The candidate should be able to understand:

✓ What are financial crimes and the concept of key financial crimes:
• Money laundering (ML) / terrorism financing (TF)
• Sanctions and embargoes
• Fraud.
✓ The anti-money laundering and counter-terrorism financing regime in Singapore.
✓ The laws and regulations against financial crimes, and the roles and responsibilities of capital markets
intermediaries and their representatives in the prevention and detection of financial crimes.
✓ The know-your-customer (KYC), risk profiling and due diligence process (including simplified and
enhanced due diligence) which must be carried out before account opening and client onboarding.
✓ Red flags to look out for during the due diligence process, and internal policies for ongoing monitoring,
reviews and operational controls.
✓ Documentation and record keeping requirements, including the independent verification of client
information.
✓ Penalties and risks associated with non-compliance of regulatory requirements:
• Legal risks
• Financial risk
• Reputation risk
• Civil and Commercial risk.
✓ Reporting and filing requirements.
✓ Training requirements.

8.1 Introduction to Prevention of Financial Crimes

8.1.1 Definition of Financial Crimes

Financial crime is a wide and complex term that involves a range of criminal offences. The main financial
crimes that impact financial institutions and systems most and are on regulators’ radar screens are:

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i. Money Laundering (ML);

ii. Terrorism Financing (TF);
iii. Embargoes and Sanctions; and
iv. Fraud.

Banks and financial institutions326 are the major movers of funds through deposits, payments and transfers.
Not only do they move cash, but transfers are made through global clearing systems of securities and paper
assets. Therefore, it is crucial that the international community make a concerted effort to combat financial
crimes. Regulators in international financial centres must proactively manage the risks of being used as a
conduit for illicit funds by putting in place a robust framework of laws and regulations against financial
crimes as well as a rigorous regime of supervision on financial institutions to prevent and detect such crimes.

Capital markets intermediaries (CMIs) 327 in Singapore are required to conduct their business activities and
operations based on the following principles outlined in the MAS Notice on Prevention of Money Laundering
and Countering the Financing of Terrorism – Capital Markets Intermediaries (SFA04-N02) (Notice):

a) exercise due diligence when dealing with customers, natural persons appointed to act on the person’s
behalf, connected parties of the customer and beneficial owners of the customer;

b) conduct its business in conformity with high ethical standards, and guard against establishing any
business relations or undertaking any transaction, including a digital token transaction, that is or may
be connected with, or facilitates or may facilitate ML or TF; and

c) assist and cooperate with the relevant law enforcement authorities in Singapore to prevent ML and
TF.

8.1.2 Definition of Money Laundering

ML is a process intended to mask the proceeds obtained from criminal activities such as drug trafficking and
other serious crimes so that they appear to have come from a legitimate source.

There are generally three steps in the process of money laundering:

1. The Placement stage refers to the physical disposal of benefits for criminal conduct. These are placed
with licensed deposit-taking companies like banks and finance companies.
2. The Layering stage refers to the separation of benefits of criminal conduct from their sources by creating
layers of financial transactions designed to disguise the audit trail. Criminals may buy luxury or high value
goods from genuine suppliers, resell them to unknowing customers and then place the legitimate funds
back in the bank as payments by cheque or wire transfers.

326
Financial institutions refer to banks, merchant banks and holders of Capital Markets Services (CMS) licence as defined in Appendix
2 of MAS Notice on Prevention of Money Laundering and Countering the Financing of Terrorism – Capital Markets Intermediaries
(SFA04-N02).
327 A CMI refers to a person holding a capital markets services licence under the Securities and Futures Act, a fund management
company registered under paragraph 5(1)(i) of the Second Schedule to the Securities and Futures (Licensing and Conduct of
Business) Regulations (SFR(LCB) or a person exempted from the requirement to hold such a licence under paragraphs 3(1)(d) or
7(1)(b) of the Second Schedule to the SFR(LCB).
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3. The Integration stage refers to the provision of apparent legitimacy to the benefits of criminal conduct.
If the layering succeeds, the integration schemes place the laundered funds back into the financial system,
making them appear as legitimate business funds.

However, these stages do not need to take place sequentially. Please refer to Figure 8.1.2 for an illustration
of the stages of the money laundering process.

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Figure 8.1.2 : An Illustration of the Money Laundering Process

1. PLACEMENT STAGE
Cash deposited in
banks or finance
companies

Proceeds from
Criminal Activities

2. LAYERING STAGE 1st Layer

Payments from Purchase of luxury
customers by cheques Resells assets and high-end or high value goods
or wire transfers are supplies to unknowing from genuine
placed as “legitimate customer suppliers
funds” back in banks 2nd Layer

3. INTEGRATION STAGE
Sale of Investments and
return of sale proceeds
from Brokers in the form
of cheques or wire
transfers to banks Shell Company
Issues Bearer Shares

Transfer of Investment
with Brokers

Capital market transactions offer a vast array of opportunities for transforming money into a diverse range
of assets, as capital market transactions are no longer predominantly cash based. The ease with which these
assets can be converted to other types of assets, especially if they are liquid and marketable, further aids the

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layering process. Hence capital markets transactions are particularly attractive to money-launderers for
layering their illicit proceeds for eventual integration into the general economy.

Whilst capital markets generally do not accept cash transactions, there are still some retail CMIs which would
be affected by cash placements (for top-ups or answering to margin calls to accounts).

Unless proper action is taken, CMIs could unwittingly facilitate the layering and integration stages through
high-frequency transactions and payments to third parties or dealing with clients whose beneficial owners
(BOs)328 are not clear through holdings in shell companies and whose ultimate beneficiaries could be people
on sanctioned lists. Criminals may set up these companies with their ill-gotten gains in offshore jurisdictions
where the laws against ML are not as stringent and are not committed to follow the Financial Action Task
Force (FATF) standards.

Ownership of these companies may not be transparent, or it may be layered through holding many subsidiaries
to block the audit trail of ownership. They may then use these shell companies on the pretext of investing
through private bankers acting as intermediaries, who then deal through brokers or introduce them to brokers.

CMIs must have adequate due diligence processes to identify the ultimate BOs because they are at risk of
unwittingly dealing for the clients who are involved in ML activities. The high frequency of transactions serves
to keep ‘’washing’’ the funds which adds legitimacy to the payments and transfers as they come from licensed
and regulated entities. With the funds given legitimacy, the criminal audit trail gets harder to follow as it gets
circulated and eventually fully integrated in the legitimate financial system.

As a CMI often depends on other intermediaries who introduce business to them, it must conduct due
diligence to satisfy itself that the intermediaries are subject to and supervised for compliance with anti-
money laundering and countering terrorism financing (AML/CFT) requirements consistent with standards set
by FATF.
Under the Notice, the Monetary Authority of Singapore (MAS) allows for a risk-based approach to be
adopted by CMIs. CMIs need not inquire if there exists any BO for certain types of customers which are
further discussed in Section 8.9.5.2.

Where the CMI has doubts about the veracity of the Customer Due Diligence (CDD) information or suspects
that the customer or business relation may be connected to ML, it should conduct full due diligence on the
client or transaction due to the increased risk. The responsibility on the CMI for preventing ML is not
diminished by relying on intermediary information.

328 As defined in the MAS Notice on Prevention of Money Laundering and Countering the Financing of Terrorism – Capital Markets
Intermediaries (SFA 04-N02), a beneficial owner (BO) is, in relation to a customer of a CMI, the natural person who ultimately owns or
controls the customer or the natural person on whose behalf a transaction is conducted or business relations are established and
includes any person who exercises ultimate effective control over a legal person or legal arrangement.

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8.1.3 Definition of Terrorism Financing

TF can be defined as providing funds to terrorists to carry out acts of terrorism which usually have roots in
political beliefs or ideology and seek to influence or compel governments into particular course of actions or
intimidate the public or a section of the public. The sources of funding can be illegitimate as well as legitimate;
illegitimate sources include robbery, drug trafficking, kidnapping, extortion or hacking of online accounts and
legitimate sources include donations from charities, sale of publications on beliefs and ideology, legitimate
business operations and self-funding by individuals.

Similar to ML activities, a CMI may inadvertently allow itself to be part of a TF scheme, for example when funds
or assets are transferred to a third party who is not a client of the CMI and due diligence has not been
conducted on the third party. CMIs should ensure that their payment policies and processes require further
checks for payments or transfers to third parties. CMIs should be vigilant as TF does not always involve large
sums of money and can be hard to detect.

8.1.4 Criminal Liability Involving Embargoes and Sanctions

An embargo is the complete ban or prohibition of trade or financial dealings with a particular country, in order
to isolate it from participating in economic activity. Different categories of embargoes include:
i. Embargoes affecting all relations with a particular country, e.g. North Korea;
ii. Embargoes affecting certain named individuals or entities, e.g. Specially Designated Names (SDN);
iii. Embargoes on certain sectors, e.g. armaments and weaponry; and
iv. Economic sanctions which also vary from imposing import duties on products from certain countries and
blocking of exports of certain goods to target countries, or full blockage of a country’s products.

Sanctions are the trade prohibition on certain type of products, services, or technology to another country
due to various reasons, including nuclear non-proliferation and humanitarian purposes Sanctions can be
considered as “partial embargoes” as they restrict trade in certain areas.

Embargoes or sanctions are considered strong measures imposed in an effort by the United Nations (UN),
United States of America (US), European Union (EU) or the embargo-imposing country, to elicit a positive
reaction from the country on which it is imposed. Sanctions are used where diplomatic efforts have failed and
military force remains a last resort.

Although a CMI does not deal in goods, it could again unintentionally allow itself to enter into transactions
with an SDN listed party for securities transactions. It may have dealt with an offshore company where the
ultimate BO is not known or is not transparent in the structure. Many sanctioned parties have created layers
of shell companies to get around sanctions imposed, which was intended to keep them out of the financial
markets.
In the Notice, CMIs are required where there are legal arrangements and structures, especially through
offshore vehicles, to trace to a natural person or persons exercising control or ownership (including through a
chain of control or ownership). This due diligence requirement is aimed at reducing the risk of dealing with
sanctioned parties that hide behind structures or a chain of vehicles.

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Implications
Why should CMIs be concerned with embargoes and sanctions when they deal only in
financial securities?

Financial assets are high value items and thus large amounts can be transacted each time.
Many people may have formed layers of shell and offshore companies making it difficult to
trace the ultimate BOs. CMIs may not have traced the many layers of ownership to the BOs
or even if they know who the ultimate BO is on onboarding, the ultimate BOs may change
over time especially if the ownership of companies are “bearer” shell companies and not
“registered”.

“Bearer Share” companies do not list their shareholders and as the name suggests, the
owner is the person who holds the share certificate. Many financial institutions these days
do not accept dealings with bearer share companies – the policy in most institutions is to
request that clients register the shares. Even if they do accept dealings, it is only with clients
they know, and they require their client’s shares to be deposited with them. This is still a
risk as the shareholder can always get a replacement share certificate by claiming that they
have “lost” the original share certificates. Therefore, a good policy is not to accept “Bearer
Share” companies as clients at all because of the inability to know for certain the identity of
the ultimate BO.

In such situations, CMIs may unwittingly facilitate the transfer of funds in the sale and
purchase of securities by SDNs or embargoed country nationals. By facilitating such
transfers, they would have breached the regulations on sanctions and embargoes, and this
may result in fines imposed by the sanction imposing country. For example, in Singapore,
if a financial institution facilitates a transfer to North Korea, it would have breached the
Financial Services and Markets (Sanctions and Freezing of Assets of Persons - Democratic
People’s Republic of Korea) Regulations 2023, which prohibits transactions with North
Korea329.

The embargo against Iran has been lifted. However, it does not mean there are no sanctions
against Iran. There are still sanctions on certain SDNs, trade, sectors and financial services
against Iran issued by the UN Security Council as well as the MAS. Financial institutions and
its representatives must be vigilant and exercise care when faced with issues concerning
Iran and are advised to consult their legal and compliance functions before entering into
transactions with Iran.
There is still an embargo against North Korea - a CMI and its representatives are not to
enter into transactions with North Korea.

A new directive has been issued by MAS on 14 March 2022 prohibiting entering into
financial transaction or providing financial assistance or services, etc, in relation to the
raising of new funds for the Russian Government and the Central Bank of the Russian
Federation. A CMI has to exercise due diligence to prevent offering services to parties

329 Regulation 10 of the Financial Services and Markets (Sanctions and Freezing of Assets of Persons — Democratic People’s Republic
of Korea) Regulations 2023 - Prohibition against entering into financial transactions or providing financial assistance or services, etc.,
in relation to trade.

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whose ultimately aim is to raise funds for the Russian Government through a layer of special
purpose vehicles whose BOs are not clear.

8.1.5 Fraud

Fraudulent acts are acts that involve deception and dishonesty by which a person obtains or seeks to obtain
an advantage or benefit at the expense of another. It can be committed by staff or outside parties, and the
risk increases where the operational risk is not properly managed.

Example – Internal Fraud

A representative may know his client’s behaviour and be aware that the client could be out of town. Taking
advantage of the situation and knowing the client’s account details, the representative could instruct the
sale of investments and arrange for payments to be made to a fictitious account operated by him.

When the funds are received, they will be withdrawn very quickly, and the representative too will disappear.
In some cases, if he does not disappear, he will cover his tracks through falsifying the client’s instruction
records. Therefore, operational checking systems, controls and audits must be robust in CMIs.

Example – External Fraud

External fraud could result when someone outside of the institution uses a client’s name and account after
discovering the details (e.g. through hacking a client’s computer system), and then instructs a CMI to sell the
client’s holdings and pay the proceeds to his own account (which is different from the records in the books
of the CMI). This is possible because very often instructions are given through the telephone. The CMI must
be able to have controls in place to verify such instructions. If it fails to have such controls, then the
fraudster - after receiving the funds into his account - may withdraw the funds very quickly, disappear and
evade capture.

Therefore, it is important for a CMI to have a good system of control and verification process for instructions
and payments. Another good practice is to have a policy in place for staff receiving telephone instructions to
do an independent call back to the client to verify the instructions. If it is not an instruction given by the
client, then the bank should be alerted, and no transfer should be allowed.

8.2 Anti-Money Laundering and Counter-Terrorism Financing Regime in

Singapore

Singapore is a member and signatory to the FATF, which is an inter-governmental body established in 1989 by
the Ministers of its Member jurisdictions to set standards and promote effective implementation of legal,
regulatory and operational measures for combating ML, TF and the financing of proliferation, and other
related threats to the integrity of the international financial system. The FATF Recommendations set out a

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comprehensive and consistent framework of measures which countries should implement in order to combat
ML and TF, as well as the financing of proliferation of weapons of mass destruction.

As a member of the FATF, Singapore is committed to the effective implementation and enforcement of the
FATF Recommendations.

Regulators have found that the most efficient way to stem the flow of funds to criminals or to starve them of
their funding for criminal activities is to stop institutions from facilitating such flows. This in turn is done by
making financial institutions (e.g. banks, brokerages, investment companies) and their employees or
representatives responsible for preventing the flow of funds to criminals.

8.3 The Regulatory Framework of Financial Crimes – Rules and

Regulations

8.3.1 The Singapore Penal Code 1871

The Penal Code of Singapore sets out general principles of criminal law in Singapore, as well as the elements
and penalties of criminal offences such as homicide, theft and cheating.

8.3.2 Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act,
1992 (CDSA)

The CDSA regulates money laundering activities and includes (among others) drug trafficking, prostitution,
gambling, TF and tax evasion offences. It was first introduced to criminalize ML and to allow for investigation
and confiscation of benefits from ML. At the time of the introduction of the CDSA, drug trafficking was the
primary source of funds for money laundering.

The CDSA has since been amended to include drug dealing and other criminal conduct including bribery,
criminal breach of trust, counterfeiting, theft extortion, robbery, cheating, etc. In 2013, tax evasion was added
as a listed crime in the CDSA.
Table 8.3.2(1) sets out a summary of the money laundering offences under the law.

Table 8.3.2(1): Summary of Key Provisions of the CDSA

Offences Description

Sections 53(1) ACQUIRING, POSSESSING, USING, CONCEALING OR TRANSFERRING BENEFITS FROM

and 54(1) DRUG DEALING OR FROM CRIMINAL CONDUCT
(1) Any person who:
a) Conceals or disguises any property which is, in whole or in part, directly or indirectly,
represents the person’s benefits of drug dealing or the person’s benefits from criminal
conduct; or
b) Converts or transfers that property or removes it from the jurisdiction; or

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Offences Description
c) Acquire, possesses or uses that property;
shall be guilty of an offence.

Sections 53(3) ACQUIRING, POSSESSING, USING, CONCEALING OR TRANSFERRING BENEFITS OF DRUG

and 54(3) DEALING
Any person who, knowing or having reasonable grounds to believe that any property is,
in whole or in part, directly or indirectly, represents, another person’s benefits of drug
dealing or benefits from criminal conduct, acquires that property or has possession of or
uses such property, shall be guilty of an offence.

Sections 53(2) ACQUIRING, POSSESSING, USING, CONCEALING OR TRANSFERRING BENEFITS OF DRUG

and 54(2) DEALING
Any person who, knowing or having reasonable grounds to believe that any property is,
or in whole or in part, directly or indirectly, represents, another person’s benefits of drug
dealing or benefits from criminal conduct:
a) Conceals or disguises that property; or
b) Converts or transfers that property or removes it from the jurisdiction,
shall be guilty of an offence.

Sections 50(1) ASSISTING ANOTHER TO RETAIN BENEFITS OF DRUG DEALING / FROM CRIMINAL
and 51(1) CONDUCT
A person who enters into or is otherwise concerned in an arrangement, knowing or
having reasonable grounds to believe that, by the arrangement:
a) The retention or control by or on behalf of another (called in this section as that other
person) of that other person’s benefits of drug dealing or benefits from criminal
conduct is facilitated (whether by concealment, removal from jurisdiction, transfer to
nominees or otherwise); or
b) That other person’s benefits of drug dealing or from criminal conduct:
i) are used to secure funds that are placed at that other person’s disposal, directly
or indirectly; or
ii) are used for that other person’s benefit to acquire property by way of
investment or otherwise;
and knowing or having reasonable grounds to believe that that other person is a person
who carries on or has carried on drug dealing or has benefitted from drug dealing or who
engages in or has engaged in or has benefited from criminal conduct shall be guilty of an
offence.

Sections 50(5), PENALTY FOR MONEY LAUNDERING OFFENCES UNDER SECTIONS 50-51 AND SECTIONS
51(5), 53(5), 53-54
54(5)
Any person who commits any of the offences stated above shall be liable on conviction:

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Offences Description
a) If the person is an individual, to a fine up to S$500,000 or imprisonment up to 10 years,
or both; or
If the person is not an individual, to a fine up to S$1 million or twice the value of the
benefits of drug dealing or criminal conduct in respect of which the offence was
committed, whichever is higher.

Section 55 POSSESSING OR USING PROPERTY REASONABLY SUSPECTED TO BE BENEFITS FROM

DRUG DEALING, ETC.
Any person who possesses or uses any property that may be reasonably suspected of
being, or of in whole or in part, directly or indirectly, representing, any benefits of drug
dealing or benefits from criminal conduct shall, if the person fails to account satisfactorily
how the person came by the property, be guilty of an offence.

A person who commits an offence under this section shall be liable on conviction:
a) If the person is an individual, to a fine up to S$150,000, or imprisonment up to 3 years,
or both; or
b) If the person is not an individual to a fine not exceeding S$300,000.

Sections 57 TIPPING-OFF
Any person who:
a) knows or has reasonable grounds to suspect that an authorised officer is acting, or is
proposing to act, in connection with an investigation which is being, or is about to be,
conducted under or for the purposes of the CDSA; and
b) discloses to any other person information or any other matter which is likely to
prejudice that investigation or proposed investigation,
shall be guilty of an offence.

Any person who —

a) knows or has reasonable grounds to suspect that a disclosure has been or is being
made to an authorised officer under the CDSA (referred to in this section as the
disclosure); and
b) discloses to any other person information or any other matter which is likely to
prejudice any investigation which might be conducted following the disclosure,
shall be guilty of an offence.

Section 57 PENALTY FOR BREACH OF SECTION 57

a) Fine up to S$250,000; or
b) Imprisonment up to 3 years; or
c) Both.

Section 56 PROOF AND KNOWLEDGE, ETC., OF PREDICATE OFFENCE

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Offences Description
To prove an offence under sections 50 to 55 of the CDSA, it is not necessary for the
prosecution to prove the particulars of any offence constituted by the drug dealing or
criminal conduct, or that the person knows or has reasonable grounds to believe that the
whole or part of the property constitutes, or directly or indirectly represents, the benefits
of a particular offence. It would suffice to prove that the person knows or has reasonable
grounds to believe that the whole or part of the property constitutes, or directly or
indirectly represents, the benefits of an offence generally.
To prove under sections 50 to 55 of the CDSA whether any act in a foreign country
constitutes drug dealing or criminal conduct –
(a) where the prosecution adduces, to the satisfaction of the court, some evidence that
doing or being concerned in the act satisfies every element of a foreign drug dealing
offence or foreign serious offence, it is presumed, until the contrary is proved, that the
act constitutes that foreign drug dealing offence or foreign serious offence, and
(b) the court may take judicial notice of any Act passed by the legislature of that foreign
country.

Sections 36, PRODUCTION ORDERS AND AUTHORITY TO SEARCH

39 and 40
For the purpose of an investigation into drug dealing or criminal conduct, as the case may
be, an authorised officer may apply to a court for an order under Section 36 (Production
Order) or apply to a court for warrant in relation to specified premises under Section 40
(Search Warrant).
Any person who contravenes the order under Section 36 without reasonable excuse or
hinders or obstructs an authorised officer in the execution of a warrant issued under
Section 40 shall be guilty of an offence.

Sections 40 PENALTY FOR BREACH OF SECTION 40

A person who commits an offence under section 40 shall be liable on conviction to:
a) Fine up to S$10,00 or
b) Imprisonment up to 2 years; or
c) Both.

Section 39(1) FAILURE TO COMPLY WITH PRODUCTION ORDER where a person is required by a
and (2 production order to produce any material or make any material available to an
authorised officer for inspection, the person shall be guilty of an offence under this
section if the person -
a) contravenes the order without reasonable excuse or,
b) in purported compliance with the order produces or makes available any material
known to the person to be false or misleading in a material particular without-
ii) indicating to the authorised officer to whom the material is produced or made
available that the material is false or misleading and the respect in which the
material is false or misleading; and
iii) providing correct information to the authorised officer if the person is in
possession of, or can reasonably acquire, the correct information.
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Offences Description

A person guilty of an offence under the above section shall be liable to a fine up to
$10,000 or to an imprisonment for a term up to 2 years or both.

Section 45 PENALTY FOR FAILURE TO REPORT SUSPICIOUS TRANSACTIONS

Any person who contravenes section 45 shall be guilty of an offence and shall be liable
on conviction –
a) If the person is an individual, to a fine up to S$250,000 or imprisonment up to 3 years
or to both.
b) If the person is not an individual, to a fine up to S$500,000.

Section 46 STATUTORY PROTECTION IN REPORTING

Sections 46 provide statutory protection to an institution and its employees or officer in
making STRs under the CDSA, specifically: -
Section 37
(4) A financial institution which complies with an order made under subsection (2) is not
to be treated as being in breach of any restriction upon the disclosure of information or
material imposed by law, contract or rules of professional conduct
(5) No action shall lie against a financial institution which in good faith produces
materials or gives access materials relating to the account of its customer by reason of
that financial having produced or given access to the materials in compliance with an
order made against it under subsection (2) or any act done or omitted to be done in
relation to any funds or investment or property in the account if that customer in
consequence of the production of or access to those materials.
(6) In subsection (5) each reference to a customer of a financial institution is, if the
financial institution is a VCC, a reference to its member.
(7) The proceedings for an application for a production order under this section are to be
heard in private.
(8) The Public Prosecutor or the person duly authorized by the Public Prosecutor may
exercise the powers conferred on the Public Prosecutor or the person (as the case may
be) by this section to the production of, or the giving of an access to, any particular
material or material of a particular description

Section 43 RETENTION OF RECORDS

Section 43 provides for the statutory duty of financial institutions to keep records.
Financial institutions are required to retain Financial Transaction Documents (FTDs) for a
minimum period.
a) FTDs are defined in Section 42(1) to refer to any document that relates to financial
transactions carried out by the institution in its capacity as a financial institution and
includes but is not limited to documents that relate to:
- Opening/closing of an account;

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Offences Description
- Operation of an account;
- Opening or use of deposit box;
- Telegraphic or electronic fund transfer;
- Transmission of funds between Singapore and a foreign country or between
foreign countries;
- Loan application forms; or
- Customer identification records.
b) Minimum period of retention is:
i) if the document relates to the opening of an account with the institution, the
period of 5 years after the day on which the account is closed;

ii) if the document relates to the opening by a person of a deposit box held by the
institution, the period of 5 years after the day on which the deposit box ceases to
be used by the person; or

iii) in any other case, the period of 5 years after the day on which the transaction
takes place.

Section 43(3) PENALTY FOR FAILURE TO RETAIN FTDs

A financial institution which fails to retain FTDs (such as those set out in section 43) shall
be guilty of an offence and shall be liable on conviction to a fine up to S$10,000.

Section 44(1) KEEPING REGISTER OF ORIGINAL FTDs RELEASED

and (2)
A financial institution may be required by law to release an original of an FTD before the
end of the minimum retention period applicable to that FTD. In such instances, the
financial institution must retain a complete copy of the original FTD released until the
end of the minimum period of retention or until the original FTD is returned, whichever
occurs first. It must also maintain a register of all FTDs so released.

Section 44(3) PENALTY FOR FAILURE TO RETAIN COPY OR MAINTAIN REGISTER OF FTDs RELEASED
Failure to retain copy and maintain register of FTDS released is an offence punishable on
conviction with a fine up to S$10,000.

Section 37(1) PRODUCTION ORDER

and (2)
All financial institutions must comply with a Production Order issued under Section 36 of
the CDSA by the High Court within a reasonable period, but not less than 7 days, as the
Order may specify.

Section 39(2) PENALTY

Failure to comply with a Production Order is an offence punishable with:
- Fine up to S$10,000; or
- Imprisonment up to 2 years; or

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Offences Description
- Both.

Section 40(6) SEARCH WARRANT

A person must not hinder or obstruct an authorised officer conducting a search under a
search warrant issued by the court under the CDSA.

Section 40(6) PENALTY

Hindering or obstructing an Authorised Officer in the execution of a warrant issued under
section 40 of the CDSA is an offence publishable on conviction with:
- Fine up to S$10,000; or
- Imprisonment up to 2 years; or
- Both.

Sections 6, RESTRAINT ORDER, CHARGING ORDER AND CONFISCATION ORDER

7,18, 19 and
Besides a Production Order and a search warrant, all institutions must also comply with a
20
Restraint Order, Charging Order and Confiscation Order. A person who fails to comply
with such orders issued by the Court may be charged for contempt of court.

In addition to the above penalties which are not exhaustive, it is also important to note that failure to comply
may lead to:
i. Regulatory sanctions;
ii. Reputation Risks; or
iii. Loss of business and thus face financial risks.

8.3.3 The Mutual Assistance in Criminal Matters Act 2000 (MACMA)

The MACMA was enacted to allow the Government of Singapore to provide mutual assistance to other
countries, in relation to investigations or criminal proceedings for offences covered under the MACMA. This is
because ML or TF crimes usually also involve cross-border transactions. As it is difficult to only investigate one
side of the transactions, it is easier and more effective if both sides of the transactions are investigated and
analyzed. This is especially so where high value ticket items or overseas investments are involved.

8.3.4 Terrorism (Suppression of Financing) Act 2002 (TSOFA)

The TSOFA was enacted to give effect to the International Convention for the Suppression of the Financing of
Terrorism (which Singapore signed in 2001) and the UN Security Council Resolution 1373.

The TSOFA criminalizes TL and allows for the seizure and confiscation of property related to terrorist and
terrorism purposes. It also imposes a duty on all to provide information pertaining to TF to the Police. A failure
to do so is a criminal offence.

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Specifically, the following acts are prohibited under the TSOFA330:

i. The provision or collection of property for terrorist acts;

ii. The provision of property and services for terrorist purposes331;

iii. The use or possession of property for terrorist purposes; and

iv. The dealing with property of terrorists.

A person who does any of the acts listed in i) to iv) above will be guilty of an offence under the TSOFA and
shall be liable on conviction332:

a) In the case of an individual, to a fine up to S$500,000 or to imprisonment for a term up to

10 years or to both; or

b) In the case of a person who is not an individual, to a fine not exceeding the higher of (i)
S$1 million; or (ii) twice the value or the property (including funds derived or generated
from the property), financial services or other related services, or fina ncial transaction (as
the case may be) in respect of which the offence was committed.

8.4 MAS Notices and Regulations on Prevention of Money Laundering and

Countering the Financing of Terrorism

8.4.1 MAS Notice on Prevention of Money Laundering and Countering the Financing of
Terrorism (SFA 04-N02)

The Notice sets out the obligations for a CMI to take measures to help mitigate the risk of Singapore’s capital
markets being used for money laundering or terrorist financing. All CMIs are required to comply with the
Notice and the Guidelines to the Notice (Guidelines).

The Notice sets out the principles guiding the conduct of CMIs in preventing the system from being used for
criminal purposes and the due diligence required to be performed with proper controls to be implemented.

The Guidelines provide guidance on some of the requirements set out in the Notice and should be read
together with the Notice. The degree of observance with these Guidelines by a CMI may have an impact on
MAS' overall risk management of the CMI, including the quality of its board and senior management oversight,
governance, internal controls and risk management.

330 Sections 3 to 6 of the TSOFA.

331 This includes the financing of travel of an individual to any place other than the state of which the individual is a citizen or in
which the individual resides, in order for the individual to provide or receive any training in facilitating or carrying out any
terrorist act.
332 Section 6A of the TSOFA.

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8.4.2 MAS Notices and Circulars to All Financial Institutions on Sanctions and Regulating
Financial Institutions

MAS has issued several more guidelines on safeguarding the financial system integrity against risks emanating
from dealing with sanctioned countries and sanctioned individuals or persons dealing in sanctioned activities
in sanctioned countries.

These guidelines include:

• Taking appropriate action to meet the recommendations of the FATF;
• Doing enhanced due diligence and give particular attention to business relations and transactions with
persons from or in sanctioned countries;
• Protecting against the use of correspondent banking relationships333 and front companies to shield illicit
activities and be alert generally to the impact of dealing with sanctioned countries; and
• Freezing assets and reporting suspicion of ML and TF activities when alerted, and to prevent release of
assets without approval from the regulator.

MAS has also set additional guidance334 for CMIs to consider incorporating in their processes to better detect
and manage sanction-related risks. Specifically, CMIs should:
• ensure that there is strong Board and Senior Management oversight of sanctions-related risk; and
• continue to strengthen their sanction-risk detection capabilities.

8.5 Targeted Financial Sanctions related to Anti – Money Laundering and

Terrorism Financing

As a member of the United Nations (UN), Singapore is committed to implementing and giving effect to the
sanctions under the UN Security Council Resolutions. These resolutions may require imposing targeted
financial sanctions against specific individuals and/or entities identified by the UN Security Council which
possibly present a particular threat to, or breach of, international peace and security. These sanctions are
made legally binding through the regulations (MAS Regulations) issued under the Financial Services and
Markets Act 2022 (FSMA) and are applicable to all financial institutions in Singapore.

In general, the MAS Regulations require financial institutions to:

• Immediately freeze funds, other financial assets or economic resources of designated individuals and
entities;

• Not enter into financial transactions or provide financial assistance or services in relation to: (i) designated
individuals, entities or items; or (ii) proliferation and nuclear, or other sanctioned activities; and

333 Correspondent banking relationships include the provision of correspondent account services, which means the provision of
services under a cross-border relationship between a CMI and a respondent financial institution, in relation to any activity for which
the CMI is regulated under the SFA, whether for that respondent financial institution as principal or for that respondent financial
institution's customers.
334
MAS circular No: AMLD 11/2023 dated 31 August 2023 Circular on ensuring effective detection of sanctions-related risks.
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• Notify MAS of any fact or information relating to the funds, other financial assets or economic resources
owned or controlled, directly or indirectly, by a designated individual or entity.

Under the FSMA, a financial institution that is in breach of any MAS Regulations is guilty of an offence and
will be liable on conviction to a fine up to S$1 million and, in the case of a continuing offence, to a further
fine of $100,000 for every day or part of a day during which the offence continues.
Before engaging in a business relationship or providing any financial service, financial institutions must ensure
that they do not deal with designated individuals and entities. Financial institutions are required to conduct
comprehensive screening of their prospective and existing clients against the lists of designated individuals
and entities to proactively avert themselves from linking to AML/CFT activities.
CMIs should refer to the lists of targeted financial sanction regulations335 and lists of designated individuals
and entities336 for detailed information on their respective obligations under the UN or MAS Regulations.

8.6 Designation of Tax Crimes as Money Laundering Predicate Offences

in Singapore

With effect from 1 July 2013, the offences of tax evasion and serious fraudulent tax evasion under the Income
Tax Act 1947 and the offence of tax evasion and improperly obtaining refund of tax under the Goods and
Services Tax (GST) Act 1993 have been designated as ML predicate offences.

8.6.1 What are the Tax Offences?

Singapore has designated tax offences under Sections 37M(3), 37M(4), 96 and 96A, of the Income Tax Act
and Sections 62 and 63 of the GST Act as ML predicates for direct tax and indirect tax offences respectively.

8.6.2 Direct Tax Offences under Sections 37M(3), 37M(4), 96 and 96A of the Income Tax Act

8.6.2.1 Section 37M(3) – Giving False Information to Comptroller of Income Tax, etc., to Obtain, or to
Assist Another Person to Obtain, Cash Pay-out or Productivity and Innovation Credit (PIC) Bonus
(or both), etc.

Any person who wilfully with intent to obtain or to assist any other person to obtain a cash payout or PIC
bonus (or both) or a higher amount of cash pay-out or PIC bonus (or both) which he or that other person is
not entitled to:
i. Gives to the Comptroller any information when submitting an irrevocable written election for a cash
payout that is false in any material particular or omits any material particular from any information or
document given when submitting an irrevocable written election for a cash payout; or

335 For the current list of targeted financial sanctions regulations, please refer to the MAS website at:
https://www.mas.gov.sg/regulation/anti-money-laundering/targeted-financial-sanctions/lists-of-designated-individuals-and-
entities
336 For the current list of designated individuals and entities, please refer to the MAS website at:

https://www.mas.gov.sg/regulation/anti-money-laundering/targeted-financial-sanctions/lists-of-designated-individuals-and-
entities
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ii. Gives any false answer, whether verbally or in writing, to any question or request for information asked
or made by the Comptroller,

shall be guilty of an offence.

8.6.2.2 Section 37M(4) – Falsifying Records or using Contrivances, etc., to Obtain, or Assist Another Person
to Obtain, Cash Pay-out or PIC Bonus (or both), etc.

Any person who wilfully with intent to obtain or to assist any other person to obtain a cash payout or PIC
bonus (or both) or a higher amount of cash pay-out or PIC bonus (or both) which he or that other person is
not entitled to:
i. Prepares or maintains or authorises the preparation or maintenance of any false books of account or other
records or falsifies or authorises the falsification of any books of accounts or records; or
ii. Makes use of any fraud, art or contrivance or authorises the use of such fraud, art or contrivance,

shall be guilty of an offence.

8.6.2.3 Section 96 - Tax Evasion and Wilful Action to obtain PIC Bonus
Any person who willfully with intent to evade or to assist any other person to evade tax:
i. Omits from a return made under the Income Tax Act any income which should be included;
ii. Makes any false statement or entry in any return made under the Income Tax Act or in any notice made
under Section 76(8);
iii. Gives any false answer, whether verbally or in writing, to any question or request for information asked
or made in accordance with the provisions of the Income Tax Act; or
iv. Fails to comply with Section 76(8),

shall be guilty of an offence.

8.6.2.4 Section 96A - Serious Fraudulent Tax Evasion

Any person who willfully with intent to evade or to assist any other person to evade tax:
i. Prepares or maintains or authorises the preparation or maintenance of any false books of account or other
records or falsifies or authorises the falsification of any books of account or records; or

ii. Makes use of any fraud, art or contrivance or authorises the use of any such fraud, art or contrivance;

shall be guilty of an offence.

8.6.3 Indirect Tax Offences Covered by Sections 62 and Sections 63 of the GST Act

8.6.3.1 Section 62 - Tax Evasion

Any person who willfully with intent to evade or to assist any other person to evade tax:
i. Omits or understates any output tax or overstates any input tax in any return made under the GST Act;
ii. Makes any false statement or entry in any return, claim or application made under the GST Act;

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iii. Gives any false answer, whether verbally or in writing, to any question or request for information asked
or made in accordance with the provisions of the GST Act;
iv. Prepares or maintains or authorises the preparation or maintenance of any false books of account or other
records or falsifies or authorises the falsification of any books of account or records; or
v. Makes use of any fraud, art or contrivance whatsoever or authorises the use of any such fraud, art or
contrivance,

shall be guilty of an offence.

8.6.3.2 Section 63 - Improperly Obtaining Refund

Any person who knowingly:

i. Causes;
ii. Attempts to cause;
iii. Does any act with intent to cause; or
iv. Makes default in performance of any duty imposed upon him by the GST Act with intent to cause,
the refund to that person by the Comptroller of any amount in excess of the amount properly so refundable
to him, shall be guilty of an offence.

Implications
What does this mean for the industry?

Financial institutions must apply the full suite of AML/CFT measures (as contained in the
relevant MAS Notices) to prevent the laundering of proceeds from serious tax crimes. This
involves the conduct of rigorous customer due diligence and transactions monitoring, as well as
proper reporting of suspicious transactions. Financial institutions must adequately identify and
assess tax related risks and act to appropriately manage and mitigate those risks. These
requirements will apply to both new and existing accounts.

8.7 The Three Lines of Defence

The board of directors and senior management of a CMI are ultimately responsible and accountable for
ensuring compliance with AML/CFT laws, regulations and notices. The board of directors and senior
management are responsible for ensuring strong governance and a sound AML/CFT risk management and
controls at the CMI. While certain responsibilities can be delegated to senior AML/CFT employees, final
accountability rests with the CMI's board of directors and senior management.

CMIs must identify and assess ML/TF risks on an enterprise-wide level, as well as have policies and procedures
to assess ML/TF risks presented by an individual customer. CMIs should ensure a strong compliance culture
throughout their organizations, where the board of directors and senior management set the right tone, set a
clear risk appetite and develop a compliance culture throughout their organizations.

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8.7.1 The 1st Line of Defence – Business Units

Business units (e.g. front office, customer-facing functions and operations within the business) are the 1st line
of defence in identifying, assessing and controlling ML/TF risks of their businesses. Robust controls are needed
to detect illicit activities, and there should be sufficient resources allocated to perform these functions
effectively.

The CMI's policies, procedures and controls on AML/CFT should be clearly specified in writing, and
communicated to all relevant employees, officers and representatives in the business units. Employees and
representatives in business units should be adequately trained to be aware of their obligations and provide
clear guidance and instructions on how to ensure the CMI's compliance with prevailing AML/CFT rules,
regulations and notices.

8.7.2 The 2nd Line of Defence – Compliance and AML / CFT Unit Functions

The 2nd line of defence includes the AML/CFT functions within the financial institutions, as well as other
support functions such as risk management and permanent control. These functions work together to identify
ML/TF risks and are responsible for ongoing monitoring of the fulfilment of all AML/CFT obligations of the
CMIs. This implies sample testing and the review of exception reports. The AML/CFT compliance function
should alert the senior management and the board of directors of the CMI of any potential breaches or ML/TF
risks and concerns, including where it believes that the employees, representatives or officers in the line
departments are failing or have failed to adequately address ML/TF risks and concerns. Other support
functions such as operations, human resources or technology also play a role to help mitigate the ML/TF risks
that the CMI faces. The AML/CFT compliance function is typically the contact point regarding all AML/CFT
issues for domestic and foreign supervisory or law enforcement authorities and financial intelligence units.

The board and senior management should ensure that AML/CFT compliance functions are adequately
resourced and effectively by:
i. Empowering compliance functions to drive the monitoring and review of risks and controls;
ii. Providing sufficient clarity on compliance function's AML/CFT mandate in the policies and procedures
(particularly for compliance functions which have multiple responsibilities and reporting lines); and
iii. Equipping compliance functions with adequate AML/CFT resources as well as capabilities through
appropriate training337.

8.7.3 The 3rd Line of Defence – Internal Audit Function

The internal audit function is the 3rd line of defence and plays an important role in conducting independent
and periodic evaluations on the AML/CFT risk management framework, policies, procedures and controls of
the CMIs and reports to the audit committee of CMIs which is typically formed by the board of directors, or a
similar oversight body. This independent evaluation is achieved through the internal audit or equivalent
function's periodic evaluations of the effectiveness of the CMIs’ compliance with prevailing AML/CFT policies,
procedures and controls.

The CMI should establish policies for periodic AML/CFT internal audits covering areas such as:

337 For examples, please refer to Case Studies G and H of the MAS Guidance to CMIs on Enhancing AML/CFT Frameworks and
Controls dated Jan 2019.
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i. The adequacy of the CMI's AML/CFT policies, procedures and controls in identifying ML/TF risks,
addressing the identified risks and complying with laws, regulations and notices;
ii. The effectiveness of the CMI's employees, officers and representatives in implementing the CMI's policies,
procedures and controls;
iii. The effectiveness of the compliance oversight and quality control including parameters and criteria for
transaction alerts; and
iv. The effectiveness of the CMI's training of relevant employees, officers and representatives.

Such internal audit function must be independently and adequately resourced, and the board and senior
management must actively oversee the remediation of audit findings. Policies and procedures for periodic
AML/CFT audits, reporting of strengths and gaps, as well as monitoring and closure of follow-up actions should
also be established and implemented.

The board and senior management need to institute appropriate reporting structures, so that they are kept
updated regularly on audit issues and are able to assess whether the control gaps and recommended
enhancements raised by auditors have been appropriately addressed in accordance with agreed timelines338.

8.8 Governance

Given the inherent ML/TF risks in CMIs’ businesses, the board and senior management should put in place a
robust AML/CFT risk management framework as an organizational priority, and emphasize the importance of
detecting, disrupting and deterring ML/TF attempts. The board and senior management need to ensure that
the ML/TF risks arising from a CMI’s business are properly assessed and mitigated in line with the
organizational risk appetite.

The board and senior management should also take steps to foster strong AML/CFT practices and behaviors
that permeate the firm. These steps may include, for instance, factoring effectiveness of AML/CFT compliance
in staff performance appraisal at all levels and taking stern actions against individuals who perpetuate
improper AML/CFT conduct339.

The board of directors and senior management of the CMI should also ensure that the CMI's processes are
robust and there are adequate risk mitigating measures in place. The successful implementation and effective
operation of a risk-based approach to AML/CFT depends on the CMI's employees, officers and representatives
having a good understanding of the ML/TF risks inherent in the CMI's business.

Further, the board of directors and senior management should understand the ML/TF risks the CMI is exposed
to and how the CMI's AML/CFT control framework operates to mitigate those risks. This should involve the
board and senior management:
i. Receiving sufficient, frequent and objective information to form an accurate picture of the ML/TF risks
including emerging or new ML/TF risks, which the CMI is exposed to through its activities and individual
business relations;

338 For examples, please refer to Case Studies I, J and K of the MAS Guidance to CMIs on Enhancing AML/CFT Frameworks and Controls
dated Jan 2019.
339 For examples, please refer to Case Studies A and B of the MAS Guidance to CMIs on Enhancing AML/CFT Frameworks and Controls

dated Jan 2019.

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ii. Receiving sufficient and objective information to assess whether the CMI's AML/CFT controls are adequate
and effective;
iii. Receiving information on legal and regulatory developments and the impact these have on the CMI's
AML/CFT framework; and
iv. Ensuring that processes are in place to escalate important decisions that directly impact the ability of the
CMI to address and control ML/TF risks, especially where AML/CFT controls are assessed to be inadequate
or ineffective.

The board and senior management must also have adequate oversight that AML/CFT controls are effectively
implemented, including effective reporting and escalation mechanisms that would enable the board and
senior management to be promptly apprised of AML/CFT issues. At the same time, the board and senior
management has to devote sufficient management bandwidth to oversee the implementation of AML/CFT
systems and controls, including the adequacy of training and progress of remediation efforts. Where there
are implementation issues, the board and senior management is expected to make timely interventions to
address those issues, and to ensure the continuing effectiveness of the CMI’s AML/CFT frameworks and
controls340.

8.9 Client Onboarding

When onboarding clients, it is important to obtain information from the client to assess his source of funds
and wealth, as well as his reputation. CMIs must ensure that they do not open any anonymous accounts or
accounts in fictitious names. Much time and effort would be required to be spent on:
(a) Legal due diligence by the lawyers on the legal aspects (in particular for foreign based companies, on
the legality of the ownership of assets and operating businesses, the identity of the ultimate and
beneficial shareholders and the obtaining of all necessary registrations and licences); and
(b) Audit due diligence by the accountants or external auditors on the accounting aspects (in particular,
whether the accounts have been properly drawn up, whether there are material weaknesses in the
business and accounting framework and going through the profit projections in detail).

Besides relying on publicly available information, independent private investigators may be appointed to
uncover more background information on the promoters, especially if they are politically connected, in
particular on their character and integrity and to carry out spot checks on ascertain whether the foreign based
companies are truly ongoing concerns with actual production taking place on a sustained basis.

8.9.1 Gathering Personal Information

When gathering information, it is important to obtain:

• Client’s personal details such as age, education, address / residency, identification, employment, family,
health and any other information which can be obtained in order to form any opinion of the client if he is
an individual. This information is important to assess his lifestyle and whether his wealth seems to
commensurate with his income from employment and family background.

340 For examples, please refer to Case Studies E and F of the MAS Guidance to CMIs on Enhancing AML/CFT Frameworks and Controls
dated Jan 2019.
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• If it is a legal person or legal arrangement (i.e. non-individual) then it is important to know the country
of incorporation, the country of activity and the type of business the client is in, the financials and
organisation structure of the company, shareholders and directors, and the legal form, constitution and
powers that regulate and bind the legal person or legal arrangement to determine the standing of the
legal person or the legal arrangement and the risk score and profile of the legal person or legal
arrangement for money laundering assessment purposes. It is also important to identify the connected
parties of the customer, by obtaining at least the full name and the unique identification number of the
connected party341.
• If the customer is a partnership or a limited liability partnership, it is important to also identify the
partners. An example of a natural person with executive authority in a partnership is the Managing
Partner.

• If the client is a non-individual or where the client appoints one or more natural persons to act on his
behalf in establishing business relations with a CMI, any persons with authority to act on behalf of their
client must also be identified, by obtaining at least the full name, including any aliases, the unique
identification number, residential address, date of birth and nationality of the natural person, and verify
the due authority of each natural person appointed to act on behalf of the client by obtaining at least the
appropriate documentary evidence authorising the appointment of such natural person by the client to
act on his behalf, and the specimen signature of such natural person appointed.

8.9.2 Account Opening – Know Your Client

Before opening an account for a client, it is important for a representative to:

• Investigate the client’s background, including close family members;
• Verify sources of wealth, both historical and current;
• Investigate current business and income;
• Investigate political connections, business associates and close friends;
• Learn about the client’s investments experience and knowledge;
• Determine risk appetite; and
• Establish objective for the account.

8.9.2.1 Where to get information about client?

• Internet;
• Newspapers and other news sources;
• Company reports;
• Official subscribed databases such as Factiva and Complinet;
• Intermediary introduction certificates and disclosures; and
• Others – e.g. grapevine.

341A "connected party": (i) in relation to a legal person (other than a partnership), means any director or any natural person having
executive authority in the legal person; (ii) In relation to a legal person that is a partnership (in the case of a limited liability partnership
or a limited partnership, and includes foreign partnerships), means any partner or manager; and (iii) in relation to a legal arrangement,
means any natural person having executive authority in the legal arrangement.
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8.9.2.2 Which information source is the most reliable?

Official subscribed databases and original identification records are reliable because official databases provide
indemnity and assurances of accuracy of information, although they are expensive. Original documents issued
by regulatory bodies are accepted because they are issued by regulatory bodies.

Other sources like newspapers, internet and grapevine must not be taken as accurate but can be used to make
further checks. Information which is not authenticated cannot be relied upon absolutely.

Intermediaries’ disclosures should only be relied upon if you have assessed the intermediary’s reputation
and reliability. Otherwise, it is best to carry out due diligence directly.

8.9.3 Documentation and Verification of Client Information

The identity of the client should be verified using reliable, independent source data, documents, or
information. Where the client is a legal person or legal arrangement, the legal form, proof of existence,
constitution and powers that regulate and bind the client should be verified, using reliable independent source
data, documents, or information.
Documentation which can be used to verify client information includes:
• Individuals – ID/passports, address proof.
• Corporates – business constitution documents, board resolutions, ID documents of ultimate BOs,
signatories.
• Offshore companies – as above, plus certificate of incumbency and good standing. Determine whether
shares are registered or bearer.
• Trust structures – trust deed, trustee’s resolution, letter of reference from trustee, identity documents
of ultimate BOs.
In exceptional circumstances where CMIs are unable to verify the client’s identity or obtain the original
document, the CMI should ensure documents obtained are clear and legible and in accordance with the
measures indicated under the Notice.

In exceptional circumstances where the CMI is unable to retain a copy of the documentation used to verify
the customer's identity, the CMI should record the following:
i. Information that the original documentation had served to verify;
ii. Title and description of the original documentation produced to the CMI's employee, representative or
officer for verification, including any particular or unique features or condition of that documentation (e.g.
whether it is worn out, or damaged);
iii. Reasons why a copy of that documentation could not be made; and
iv. Name of the CMI's employee, representative or officer who carried out the verification, a statement by
that employee, representative or officer certifying verification of the information against the
documentation and the date of the verification.

Where the customer is unable to produce an original document, the CMI may consider accepting a copy of the
document:

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a) That is certified to be a true copy by a suitably qualified person (e.g. a notary public, a lawyer or a
certified public of professional accountant); or
b) If a CMI's staff independent of the customer relationship has confirmed that he has sighted the original
document.

The CMI should ensure that documents obtained for performing any measures required under the Notice are
clear and legible, and where a document is in a foreign language, translate such documents to allow the CMI
to be reasonably satisfied that the document does in fact provide evidence of the customer's identity.

8.9.4 Client Acceptance Checks

The following checks should also be done to determine whether the client should be accepted:
• Checks in subscribed databases such as Factiva.com, Complinet.com or ThomsonReuters.com.
• Origin of wealth.
• Reputation risk.
• Whether it is a listed company.
• All other relevant information deemed fit and then assess accordingly.
• Sensitivity criteria.

If the CMI has reasonable grounds to suspect that the assets or funds of a customer are proceeds of drug
dealing or criminal conduct as defined in the CDSA, or are related to TL, even before a CMI establishes business
relations or undertakes any transaction without opening an account, the CMI shall:
i. Not establish business relations with, or undertake a transaction for the client; and
ii. File a Suspicious Transaction Report (STR) 342 and extend a copy to MAS for information.

8.9.5 Questions to Ask during Client Onboarding

8.9.5.1 Client’s Activities

Questions or important issues to consider include:

• Is the company’s ownership transparent?
• Is the tax corporate structure designed for tax efficiency or to hide bad business practices?
• Does the company’s trading records make sense?
• Does the company generate unusually large amounts of cash and if so, do large amounts of cash make
sense for this kind of company?
• Are there contracts that do not make financial sense?

8.9.5.2 Shareholders and Beneficial Owners

Beneficial owners (BOs) of a customer who is a legal person are:

i. Natural persons who ultimately own the legal person (i.e. owning more than 25% of the legal person);

342 Please note in particular section 48 of the CDSA on tipping-off. Please see Table 8.3.2 above for more information in this regard.
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ii. To the extent that there is doubt to sub-paragraph (i) as to whether the natural persons who ultimately
own the legal person are the beneficial owners or where no natural persons ultimately own the legal
person, the natural persons who ultimately control the legal person or have ultimate effective control of
the legal person; and
iii. Where no natural persons are identified under sub-paragraphs (i) or (ii), the natural persons having
executive authority in the legal person, or in equivalent or similar positions.
BOs of a client who is a legal arrangement (e.g. trusts) are the settlor, trustee, protector, beneficiaries
(including every beneficiary that falls within a designated characteristic or class)343, and any person exercising
ultimate ownership, ultimate control or ultimate effective control over the trust, or persons in equivalent or
similar positions.
CMIs must take reasonable measures to identify the identities of the ultimate BOs. If the client is not a natural
person, reasonable steps must be taken to understand the nature of the client’s business and the client’s
ownership and control structure.
Questions or important issues to consider include:
• Is the client or any of its shareholders, directors, BOs, authorised signatories and members of management
a politically exposed person (PEP) such as a member of government or the armed forces, or a diplomat
who might have derived unusual wealth from illicit activities?
• Does the client’s behaviour and service requests indicate a desire for an inappropriately high level of
anonymity such as hiding behind trusts and offshore companies?
• When sending or receiving funds, are the sources consistent with the client’s profile?
• What is the client’s sources of wealth?
Unless there are doubts about the veracity of the customer due diligence information, or other reasons to
suspect money laundering or terrorism financing, CMIs are not required to inquire if there exists any BO in
relation to a client that is:
i. An entity listed on SGX or any stock exchange outside of Singapore that is subject to regulatory disclosure
requirements and requirements relating to adequate transparency in respect of its BOs (imposed through
stock exchange rules, law or other enforceable means);
ii. Certain financial institutions supervised by MAS344;
iii. A financial institution incorporated or established outside Singapore that is subject to and supervised for
compliance with AML/CFT requirements consistent with standards set by the FATF; or
iv. An investment vehicle where the managers are (a) certain financial institutions supervised by MAS345; or
(b) incorporated or established outside Singapore but are subject to and supervised for compliance with
AML/CFT requirements consistent with standards set by the FATF.
For the purposes of (iii) and (iv)(b) above, the CMI shall document the basis for its determination that the
requirements in those paragraphs have been duly met.

343 In relation to a beneficiary of a trust designated by characteristics or by class, the CMI shall obtain sufficient information about
the beneficiary to satisfy itself that it will be able to establish the identity of the beneficiary (a) before making a distribution to
that beneficiary, or (b) when that beneficiary intends to exercise vested rights.
344 Please see Appendices 1 and 2 of the MAS Notice on the Prevention of Money Laundering and Countering the Financing of Terrorism

– Capital Markets Intermediaries (SFA04-N02) for the list of financial institutions supervised by MAS to which this clause applies.
345 Please see Appendices 1 and 2 of the MAS Notice on the Prevention of Money Laundering and Countering the Financing of Terrorism

– Capital Markets Intermediaries (SFA04-N02) for the list of financial institutions supervised by MAS to which this clause applies.
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8.9.5.3 Source of Funds

CMIs should assess and validate the plausibility and reasonableness of the client’s net worth against their
understanding of the client’s background by obtaining supporting documentation and/or using public sources
of information as reference points. Examples of independent corroboration measures include citing reliable
publicly available information sources such as corporate registration websites, company websites and news,
as well as obtaining documentary evidence such as companies' financial statements or management accounts,
bank statements, independent third-party professionals' (e.g. tax advisors) confirmations. CMIs are also
reminded to ascertain the legitimacy and credibility of the documents furnished by the customers in this
regard346.

Questions or important issues to consider include:

• Are you satisfied with the legitimacy of source of funds?
• Have funds come from unexpected sources?
• Can the ownership of funds be established?
• Are the transactions consistent with the client’s profile?
• Does the source of funds and the wealth of the client tally with the nature of the transaction?
• Does the flow of funds reflect the type and nature of business the client is in?
• Are the payments to and/or from jurisdictions with inadequate AML/CFT laws?

8.9.6 Risk Based Approach to Client Onboarding

CMIs must give particular attention to business relations and transactions with any customers from or in
countries and jurisdictions that are known to have inadequate AML/CFT measures. Under the risk based
approach, CMIs are allowed to accord higher or lower risk scores to different clients, and these risk scores
determine how frequently the clients’ accounts should be reviewed.

Generally financial institutions use most of the following risk rating criteria depending on each institution’s
internal policies:
i. PEP (refer to Section 8.9.17);
ii. Country;
iii. Activity (Client data base);
iv. Size of wealth;
v. Flow through (finance system);
vi. Last client visit date;
vii. Complex structure;
viii. Unusual services;
ix. Origin and destination of funds;

346 For examples, please refer to Case Study P of the MAS Guidance to CMIs on Enhancing AML/CFT Frameworks and Controls dated
Jan 2019.
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x. Any “other criteria” that may be appropriate.

These factors would enable CMIs to allocate a risk score to the client to determine the appropriate follow-up
response, i.e. whether to monitor or take immediate action on the client. An example of a risk evaluation
matrix that a CMI might use is shown in Figure 8.9.6(1):

Figure 8.9.6(1) – Example of a Risk Evaluation Matrix

Source: FATF Guidance on National Money Laundering and Terrorist Financing Risk Assessment (February 2013)

CMIs should score their ML/TF risks accordingly and ensure that they have a dynamic scoring system which
can account for changes in transaction volumes or other relevant information.

8.9.6.1 Country Risk Rating

Different countries may be accorded with different risk ratings depending on factors such as governance,
transparency, financial sector standards, etc. According to the Basel AML Index Scores and Rankings347, some
countries which are considered low risk or high risk include:
• Low risk countries – Finland, New Zealand, Sweden, Denmark
• High risk countries – Haiti, Myanmar, Nicaragua

CMIs should also take into consideration factors that contribute to country risks, such as those arising from
corruption levels and tax regimes, in addition to referring to the FATF list of jurisdictions with serious AML/CFT
deficiencies. CMIs also need to ensure that they do not omit assessments of ML/TF risks arising from their
customers, products, geographies, transactions, services, and delivery channels348.

8.9.6.2 Business Risk Rating

Examples of businesses which might be exposed to higher ML/TF risks include:

• Personal investment companies;
• Trusts, gambling, and sports-betting related enterprises;
• Alternative remittance systems and money service business;

347 The complete list of scores and rankings can be found in the Basel AML Index 2023 Report 12 edition in September 2023 ,
(https://baselgovernance.org/publications/basel-aml-index-2023).
348 For examples, please refer to Case Study C of the MAS Guidance to CMIs on Enhancing AML/CFT Frameworks and Controls dated

Jan 2019.
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• Precious metals and diamond related businesses; and

• Cash-intensive businesses (e.g. travel agencies, pawnbrokers, restaurants, convenience stores, money
changers) which may mix proceeds from genuine businesses with illegitimate income.

Example – Risk Scoring of a Potential Client

Mr A is a potential client. He operates a trading company incorporated in Myanmar. He trades with a

counterpart in Haiti who is in the precious stones industry. Mr A seems to be a reclusive person who
does not visit often and the company he is using to open the account is incorporated in Panama, and he
has asked his employee to operate the account for him with a limited power of attorney.

According to the Basel AML Index Scores and Rankings 2023 , Myanmar is a high-risk country, as is Haiti.

What would you consider this account’s risk score to be?

Myanmar - High
Haiti - High
Panama - High

His business activity of dealing in precious stones business is high risk. If you add up all the factors, it will
have a high-risk score. This should trigger Enhanced Customer Due Diligence and even after proper
validation and acceptance, he should be put on the annual review cycle.

The complexity of a client’s ownership or control structure, as well as those of his downstream
asset/investment holding structures should be one of the key indicators in a CMI's risk assessment measure.
Considerations that CMIs can use for assessing the risks posed by the complexity of a customer's structure
include:
i. The number of layers involved in the structure;
ii. The extent to which the layers increases the structure's opacity and impedes the CMI's ability to effectively
monitor for suspicious behaviours and transactions;
iii. Whether the CMI is able to satisfactorily understand and explain the rationale for the layers; and the
structure is consistent with the nature of the client’s profile and his intended purpose for setting up the
account;
iv. Whether the CMI is impeded in understand the corporate entities due to the control structure and nature
of business of the corporate entities, e.g. operating companies held as trust assets controlled by settlors
and the licensed trust company does not have adequate sight over the operating companies, through for
example, obtaining their annual financial statements.

Additional due diligence measures that CMIs can consider adopting to mitigate the risk(s) include:
i. reviewing the financial statements and/or management accounts of all entities within the structure on a
regular basis;
ii. reviewing the entities’ transaction activities regularly to detect unusual or suspicious patterns and
behaviours;
iii. obtaining independent legal or other expert advice (e.g. tax advice) to help the CMI make informed risk
assessments of such structures;
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iv. performing the following due diligence measures before accepting operating companies (OpCos) as
injections into their client’s accounts e.g. trust accounts, bespoke investment funds:
a. Understand the profile and operations of the OpCos via meetings with customers and publicly
available sources of information;
b. Obtain the OpCos’ constitutional documents and audited financial statements to ascertain the
legitimacy of the OpCos’ business;
c. Perform site visits to the OpCos’ business premises to detect shell operations; conduct screenings
and/or internet searches for adverse ML/TF news on directors and shareholders of the OpCos;
v. reviewing periodically (at least annually) the activities of the corporate entities/OpCos using financial
statements and bank statements to ascertain whether the transactions are in line with the CMI’s
knowledge of the client’s profile and business, or whenever there is any change in the customer’s structure
or OpCo’s business, whichever is earlier349.

8.9.6.3 Other Business Activities Exposed to Risk

Accountants, Lawyers, Notaries, Trustees, Offshore Trustees – As these professions set up accounts for third
parties, there is a risk that they may become conduits for ML (whereby the beneficiary of the account makes
use of the credibility attached to the accountant, lawyer, notary or trustee’s name as a front).

Import/ Export of Retail items, Shipping Companies - These business activities can be used for trade-based
ML through false trade pricing, multiple invoicing or fabricating shipments.

Example - Kiting

A company set up by a reputable law firm may be used for a scam to defraud banks via “kiting”. Kiting is a
process whereby a person deposits an overseas bank’s cheque for a certain sum into his account which
usually is a very large sum (despite there being no funds upon presentation for clearing). Knowing that
there will be no funds upon presentation for clearing and that it takes longer for foreign cheques to be
cleared and notification of funds availability to be made, the person then takes advantage of the time gap,
and arranges for withdrawal of the amount against the uncleared cheques. Once the withdrawal is done,
the ultimate BO disappears with the funds. By the time the bank is notified of the non-clearance of the
cheque deposited, he would have fled. It is only then that the bank discovers that the company is merely a
shell.

As the company was set up by a reputable firm, it was assumed that the persons behind the company were
good for the credit. Financial institutions should not make such assumptions but should have policies in
place for independent checks to be done on the client. This can happen to CMIs too when payments are
made by cheques for securities purchases. They should have policies in place not to allow release of
securities until the cheques have been cleared.

It is important therefore to look at the country’s risk, the business activity of the client, whether it came
through intermediaries and whether its shareholders and ultimate beneficiary can be clearly traced so that
the assigned risk rating provides guidance to the need to focus attention when onboarding or monitoring the
account.

349For examples, please refer to Case Study R of the MAS Guidance to CMIs on Enhancing AML/CFT Frameworks and Controls dated
Jan 2019.
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8.9.7 Non-Face-to-Face Business Relations or Clients

CMIs should develop and implement policies and procedures to address specific risks related with business
relationships or transactions where there is no face-to-face verification. Such policies and procedures should
be implemented when establishing business relations with a client and when conducting ongoing due
diligence.

One reliable and independent source for the purposes of verifying the client’s name, unique identification
number, date of birth, nationality and residential address is MyInfo, which MAS has stated is a verified source
of identification information. MAS will not require CMIs to obtain additional identification documents to
identify a client’s identity and will also not expect CMIs to separately obtain a photograph of the client where
MyInfo is used.350

CMIs should also keep abreast with the ML/TF risks associated with new technological and cross-border
developments, as it may create specific risks associated with non-face-to-face business relations with a client
or transactions for a client. For example, CMIs must be able to distinguish specific risks and develop policies
and procedures to mitigate these risks that arise from mobile or online trading, as ML/TF risks may be
aggravated due to the ease of unauthorized access, absence of physical documents, and so on.

The policies and procedures for establishing new client relationships or conducting ongoing due diligence
should ensure that the due diligence measures carried out for such non-face-to-face business relations are as
stringent as those that would be performed if there was face-to-face contact. CMIs should also perform
additional checks if there is no face-to-face contact with the business or the client, such as robust anti-fraud
checks, such as through telephone contact with the client at a residential or business number that can be
verified independently, or confirmation of the customer's salary details by requiring the presentation of recent
bank statements from a bank. Where identity is obtained through non-face-to-face means, CMIs should also
apply additional checks to mitigate the risk of impersonation, such as by holding real-time video conference,
verifying the identity of a client with a secure digital signature, or new technology solutions such as biometric
technologies351 .

CMIs which rely on new technology solutions to perform such checks should ensure that these solutions
continue to facilitate customer due diligence measures that are at least as robust as those performed with
face-to-face contact. This should include a once-off independent assessment352 from a suitably qualified
professional to certify, at the first-year mark after implementation, the effectiveness of the new technology
solution in managing impersonation risk.

8.9.8 Verification of Client

CMIs must complete verification of the identity of a client, natural persons appointed to act on behalf of the
client and BOs of the client:
i. before the CMI establishes business relations with the client; or
ii. before the CMI undertakes any transaction of a value exceeding S$20,000 for the client, where the client
has not otherwise established business relations with the CMI.

350 MAS Circular on the Use of MyInfo and CDD Measures for Non-Face-to-Face Business Relations [Circular No.: AMLD 01/2018].
351
MAS Circular on the Use of MyInfo and CDD Measures for Non-Face-to-Face Business Relations [Circular No.: AMLD 01/2018].
352 This independent assessment should be retained by the financial institution for as long as that technology solution is in use, and for

a minimum period of 5 years after it ceases to be in use. MAS may request to review the independent assessment as part of MAS'
supervisory process.
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However, there are some circumstances where CMIs may establish business relations with a client before
verifying its identity, if it is essential in order not to interrupt the normal conduct of business operations is
securities trades, where timely execution of trades is critical given changing market conditions and provided
the risks of ML/TF can be effectively managed by the CMIs.

A technique which CMIs may apply to effectively manage the ML/TF risks arising from the deferral of
completion of verification is to put in place appropriate limits on the financial services available to the client
(e.g. limits on the number, type and value of transactions that can be effected) and employ closer monitoring
procedures, until the verification has been completed. CMIs should develop and implement internal risk
management policies and procedures concerning the conditions under which such business relations may be
established prior to verification. They should also ensure that:
(a) verification is completed as soon as is reasonably practicable;
(b) completion of verification should not exceed 30 business days after the establishment of business
relations;
(c) if verification remains uncompleted 30 business days after the establishment of business relations, the
CMI should suspend business relations with the client and refrain from carrying out further transactions
(except to return funds to their sources, to the extent that this is possible);
(d) if verification remains uncompleted 120 business days after the establishment of business relations, the
CMI should terminate business relations with the client; and
(e) these time limitations are factored into the CMI’s policies, procedures and controls.

Where the CMI is unable to complete the verification (i.e. where the CMI has obtained, screened and verified
all necessary CDD information and received satisfactory responses to all inquiries in relation to such necessary
CDD information), it shall not commence or continue business relations with any client, or undertake any
transaction for the client. In addition, the CMI shall consider if the circumstances are suspicious as to warrant
the filing of a STR.

8.9.9 Screening of Clients

CMIs must conduct screening of their clients, natural persons appointed to act on their behalf, and their
connected parties and BOs before establishing business relationships, irrespective of the clients’ risk profiles.
If the screening results in a positive hit against sanctions lists, they are obligated to freeze the funds or assets
of designated persons and entities that it has control over, in order to comply with applicable laws and
regulations in Singapore. Such assets should be reported promptly to the relevant authorities and a STR should
be filed (refer to Section 7.9.20 for details).

Screening is normally conducted as an automated process against available databases, so CMIs should
consider the nature, size and risk profile of their business and should be aware of any shortcomings in their
automated screening systems (e.g. when using “fuzzy matching” to identify non-exact matches).

Screening must be performed by the CMI:

i. when, or as soon as reasonably practicable after, the CMI establishes business relations with a client;

ii. when the CMI undertakes any transaction of a value exceeding S$20,000 for any client who has not
otherwise established business relations with the CMI;

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iii. on a periodic basis after the CMI establishes business relations with the client; and

iv. where there are any changes or updates to:

a. the lists and information provided by MAS or other relevant authorities in Singapore to the CMI; or

b. the natural persons appointed to act on behalf of a client, connected parties of a client or BOs of a
client.

The results of screening and assessment by the CMI shall be documented.

Periodic screening should also be conducted to monitor any changes in clients’ status or risks, or to assess
whether to impose additional ML/TF risk mitigation measures (e.g. enhanced CDD measures). CMIs should
also ensure that there are adequate arrangements to perform screening of their client database when there
are changes to the lists of sanctioned individuals and entities. CMIs should implement “four-eye checks” or
quality assurance checks on alerts from sanctions reviews before closing an alert.

8.9.10 Simplified Customer Due Diligence (CDD)

As CMIs are allowed to do risk based CDD, simplified CDD can be considered if the ML risks are low, or if the
client is a specified type of financial institution under MAS’ supervision. The following could be considered as
‘’low-risk’’:
a) For companies listed on the stock exchange and subject to regulatory disclosure requirements (relating to
adequate transparency in respect of BOs (imposed through stock exchange rules, law or other enforceable
means);
b) Where reliance can be placed on another regulated financial intermediary incorporated or established
outside Singapore that is subject to and supervised for compliance with AML/CFT requirement consistent
with standards set by the FATF but with a confirmation that due diligence has indeed been carried out and
is satisfactory;
c) The client is a specified financial institution under MAS supervision353; and
d) The client is a Singapore government entity. In this regard, the CMI shall only be required to obtain such
information as may be required to confirm that the client is a Singapore government entity as asserted.
The assessment of low risks shall be supported by an adequate analysis of risks by the CMI, and the simplified
CDD measures shall be commensurate with the level of risk, based on the risk factors identified by the CMI.

However, if there are reasons to believe there may be questionable information on a potential client then full
due diligence should be conducted. For example, when an intermediary is on MAS sanctioned list or warning
list, or when intermediary is unwilling to provide information or document. Simplified CDD should not be
performed (a) if the CMI suspects that money laundering or terrorist financing is involved, (b) where a
customer or any beneficial owner of the client is from or in a country or jurisdiction in relation to which the
FATF has called for countermeasures, or (c) where a client or any BO of the client is from or in a country or
jurisdiction known to have inadequate AML/CFT measures, as determined by the CMI for itself or notified to
the CMI generally by MAS, or other foreign regulatory authorities.

353
Please see Appendix 2 of the MAS Notice on the Prevention of Money Laundering and Countering the Financing of Terrorism –
Capital Markets Intermediaries (SFA04-N02) for the list of financial institutions supervised by MAS to which this clause applies.
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Where a CMI performs simplified CDD measures, it shall document the details of its risk assessment and the
nature of the simplified CDD measures.

Where a CMI applies simplified CDD measures, it is still required to perform ongoing monitoring of business
relations under the Notice.

Reliance on Third Parties - There is a separate provision permitting a CMI to rely on a third party to perform
the CDD measures (namely, specific types of financial institutions), subject to certain conditions354. However,
CMIs should satisfy themselves that the third party's CDD standards meet regulatory requirements as well as
their own internal policies. CMIs should also assess that the third parties used are licensed and supervised for
compliance with AML/CFT requirements that are consistent with FATF standards and have adequate measures
to comply with those requirements (i) before placing reliance on third parties for CDD and (ii) on a periodic
basis355. Reliance on such a third party does not diminish the responsibility of the CMI in fulfilling its obligations
to the regulations and regulator. In instances where CMI or financial institutions rely on intermediaries to
perform CDD, the CMI or financial institutions would need to immediately obtain the CDD information from
the intermediaries. If this is not done, the CMI should carry out its own due diligence.

A CMI may not rely on a third party to conduct ongoing monitoring of business relations with clients.

The “Reliance on Third Parties” scenario is different from an outsourcing arrangement or agreement. In an
outsourcing scenario, the outsourced service provider performs the CDD measures on behalf of the CMI, in
accordance with the CMI’s AML/CFT policies, procedures and standards, and is subject to the CMI’s control
measures to effectively implement the CMI’s AML/CFT procedures. A CMI may also outsource a part of the
ongoing monitoring processes. For example, the first-level review of alerts from the transaction monitoring
systems, or sanctions reviews, to another party. However, the CMI remains responsible for complying with
ongoing monitoring requirements.356

8.9.11 CDD Measures for Joint Account Holder and Related Transactions

In the case of a joint account, a CMI shall perform CDD measures on all the joint account holders as if each of
them was individually clients of the CMI.

Where a CMI suspects that two or more transactions are or may be related, linked or the result of a deliberate
restructuring of an otherwise single transaction into smaller transactions in order to evade the CDD measures
(i.e. to ensure that each transaction does not exceed S$20,000), the CMI shall treat the transactions as a single
transaction and aggregate their values for the purpose of AML/CFT and CDD.

8.9.12 CDD Measures for Existing Clients

A CMI shall also perform the CDD measures in relation to its existing clients, based on its own assessment of
materiality and risk, considering any previous measures applied, the time when the measures were last applied
to such existing customers and the adequacy of date, documents or information obtained.

354 Please see Paragraph 9 of the MAS Notice on the Prevention of Money Laundering and Countering the Financing of Terrorism –
Capital Markets Intermediaries (SFA04-N02) for the list of third parties to which a CMI can rely on to perform the CDD measures,
and the criteria for relying on such third party, and Paragraph 9 of the Guidelines to SFA04-N02.
355 For examples, please refer to Case Study O of the MAS Guidance to CMIs on Enhancing AML/CFT Frameworks and Controls dated

Jan 2019.
356 Guidelines to Notice SFA04-N02 on Prevention of Money Laundering and Countering the Financing of Terrorism.

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8.9.13 CDD Measures for Non-Account Holders

Where the CMI undertakes any transaction of a value exceeding S$20,000 for any client who does not
otherwise have business relations with the CMI, the CMI shall:

(i) Perform CDD measures as if the client had applied to the CMI to establish business relations; and

(ii) Record adequate details of the transaction to permit the reconstruction of the transaction, including the
nature and date of the transaction, the type and amount of currency involved, the value date, and the
details of the payee or beneficiary.

8.9.14 Enhanced Due Diligence (EDD)

When the Risk Score is high, a CMI must carry out EDD. EDD is conducted on potentially high-risk clients,
geographic risk and product/service/transaction or delivery channel risk as well as local and foreign politically
exposed persons. Examples of “high risk” clients include clients who:
• conduct business in higher risk businesses activities/sectors identified by the CMI or in Singapore’s
National ML/TF Risk Assessment (NRA);
• have an ownership structure that appears unusual or excessively complex given the nature of the legal
person’s or legal arrangement’s business;
• are legal persons or legal arrangements that are personal asset holding vehicles;
• conduct their business relationships under unusual circumstances (e.g., significant unexplained
geographic distance between the CMI and the client);
• are companies that have nominee shareholders or shares in bearer form;
• are cash intensive businesses; or
• are from or in, or where any BO of the client is from or in a country or jurisdiction in relation to which the
FATF has called for countermeasures, or known to have inadequate AML/CFT measures, as determined
by the CMI for itself or notified to the CMI generally by MAS or other foreign regulatory authorities.

Examples of higher geographic risk include countries or jurisdictions which have been identified by the FATF
or other credible international bodies such as Transparency International as having significant levels of
corruption, TL, inadequate ML/TF mitigating measures or other criminal activity.

Examples of product/service/transaction or delivery risk include:

• anonymous transactions (which may involve cash); or
• frequent payments received from unknown or associated third parties.
• when processing the application to establish business relations, the CMI shall understand and as
appropriate, obtain from the customer information as to the purpose and intended nature of business
relations.

For higher risk clients, CMIs should take reasonable means to establish and corroborate their source of wealth
and source of funds. Where it is not possible to obtain reliable supporting documents from the clients (e.g.
audited financial statements, salary slips, documentary evidence of sale of property), CMIs should, at
minimum, validate clients’ representations against independent sources of information (e.g. salary
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benchmarking reports from Human Resource consultancy firms, publicly available financial performance data
for businesses of similar scale and nature), and document their assessment of the plausibility of the clients’
wealth. Where necessary, CMIs should consider obtaining more stringent independent verification options
such as obtaining clients’ tax returns filed with the relevant tax authorities or commissioning external
intelligence reports.

8.9.15 Red Flags in Account Opening

Examples of red flags to watch out for include:

• Prospective client is evasive about source of funds;
• Business activity is inconsistent with business profile;
• Client’s background and profile do not match the size of account relationship and conduct of account;
• Windfall or lump sum payments that are unexplained;
• Unclear purpose of account; or
• Non-transparent ownership.

8.9.16 Escalation

Due diligence is an on-going process, so for those accounts with “higher risk”, an annual review is necessary.
Representatives must determine whether the client’s background and profile match the size of the account
relationship and conduct of the account.

As a representative, if you identify any red flags or potential AML/CFT issues when managing the client
relationship, these should be highlighted to your supervisor or compliance immediately. You can recommend
ending the business relationship with the client for AML/CFT reasons. The decision and reason to close the
account must be recorded and filed.

8.9.17 Politically Exposed Person

8.9.17.1 Who is a Politically Exposed Person (PEP)?

• A person who has a prominent public function, in Singapore or overseas;
• Immediate family members of such a person; or
• Close associate of such a person.

“Prominent public functions” includes the roles held by heads of state, heads of government, government
ministers, senior civil servants, senior judicial or military officials, senior executives of state-owned
corporations, senior political party officials, members of the legislature and senior management of
international organizations. The MAS has clarified that the definition of PEPs also include Singapore PEPs.

There are different sensitivities for PEPs and PEPs should be classified based on such sensitivities, for example:
• Whether the person is a current PEP, a high ranking official or an active PEP who has retired;
• Subscription to databases for checking PEP names;
• System scanning of PEPs through the client database even after the relationship has commenced. The
client may not be a PEP when the account was opened but may have become a PEP subsequently; or
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• Higher Risk Score to be accorded to PEPs.

In addition to performing CDD measures specified above, a CMI should also put in place proper policies and
procedures for EDD including but not limited to the following:
i. Implementing appropriate internal risk management systems, policies, procedures and controls to
identify and determine if a client, any natural person appointed to act on behalf of the client, any
connected party of the client or BO of the client is a PEP, i.e. a PEP policy;
ii. Obtaining the approval from the CMI’s senior management to establish or continue business relations
where the client or BO of the client is a PEP or subsequently a PEP;
iii. Establishing the source of wealth and source of funds of any client or BO by appropriate and reasonable
means; and
iv. Conducting, during the course of business relations with the client, enhanced monitoring of business
relations with the client. In particular, the CMI shall increase the degree and nature of monitoring of the
business relations with and transactions for the client, in order to determine whether they appear unusual
or suspicious.

8.9.18 Personal Data Protection Act

The PDPA governs the collection, use, disclosure and care of personal data. Therefore, PDPA has implications
for CMIs. It is important for CMIs not to share information without consent or release information to third
parties. Any unauthorised release of information may result in legal action taken against it. It is important that
CMIs incorporate disclosure clauses related to PDPA in the terms and conditions for account opening to
provide for such situations. In the absence of such provisions, the CMI may breach the PDPA which serves to
maintain the confidentiality of clients’ information. It should be noted that express consent from the client is
needed and should be obtained. CMIs should add disclosure clauses or update their Terms and Conditions in
account opening documents and check the “Do Not Call Registry” (DNC) if marketing calls are intended.

However, for the purposes of complying with the Notice, a CMI may, whether directly or through a third party,
collect, use and disclose personal data of an individual357 client, an individual beneficiary of a life insurance
policy, an individual appointed to act on behalf of a client, an individual connected party of a client or an
individual BO of a client, without the respective individual's consent.

CMIs may only under limited circumstances358 provide an individual client, an individual beneficiary of a life
insurance policy, an individual appointed to act on behalf of a client, an individual connected party of a client
or an individual BO of a client with:

i. any access to personal data about the individual that is in the possession or under the control of the CMI,

ii. any information about the ways in which the personal data of the individual under subparagraph (i) has
been or may have been used or disclosed by the CMI, or

iii. any right to correct an error or omission of the personal data about the individual that is in the possession
or under the control of the CMI.

357 For the purposes of this section 8.9.15, "individual" means a natural person, whether living or deceased.
358 Please see Paragraph 12.3 of the MAS Notice on the Prevention of Money Laundering and Countering the Financing of Terrorism –
Capital Markets Intermediaries (SFA04-N02) for the circumstances under which the CMI may do so.
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8.9.19 Record Keeping

All documents of checks and transactions with the client (which are required to be obtained or produced to
meet the requirements under the Notice) have to be kept for audit trail purposes and the retention period is
for 5 years after termination of business with a client for client information and 5 years after the completion
of each transaction.

Data, documents and information may be retained as originals or copies, in paper or electronic form or on
microfilm, provided they are admissible as evidence in a Singapore court of law.

Records of data, documents and information on all business relations with or transactions for a client
pertaining to a matter which in under investigation or which has been the subject of a STR should be retained,
in accordance with any request or order from Suspicious Transaction Reporting Office (STRO) or other relevant
authorities in Singapore.

8.9.20 Reporting Suspicious Transactions

CMIs shall keep in mind the provisions in the CDSA359 and in the TSOFA that provide for the reporting to the
authorities of transactions suspected of being connected with money laundering or terrorism financing. CMIs
shall report any suspicious transactions to STRO, Commercial Affairs Department (CAD) of the Singapore Police
Force, as well as extend a copy of the report to MAS for information. Such reports on suspicious transactions
(including attempted transactions) should be submitted regardless of the amount of the transaction. When a
suspicion arises, an investigation should be conducted by Compliance and management, and a STR should be
filed as soon as is reasonably practicable but no later than 15 business days after the case is referred by the
relevant employee, officer or representative, unless the circumstances are exceptional or extraordinary.

As long as there are reasonable grounds for suspicion that funds are/were connected to criminal conduct or
TL, CMIs have an obligation to lodge a STR with STRO and extend a copy to MAS. The CMI does not have to
prove beyond doubt that a client was involved in criminal activity before a STR is filed.

Examples of suspicious transactions or circumstances that may warrant the filing of a STR to the relevant
authorities include the client:
• being unable to complete CDD measures;
• being reluctant, unable, or unwilling to provide any information requested by the CMI; or
• deciding to withdraw a pending application to establish business relations or a pending transaction or to
terminate existing business relations.

Additional reporting requirements are set out in the MAS Notice on Reporting of Suspicious Activities and
Incidents of Fraud (CMG-N01). A CMI must lodge a report to the MAS, upon discovery of any suspicious
activities and incidents of fraud where such activities or incidents are material to the safety, soundness or
reputation of the CMI360. Examples of suspicious transactions are set out in Appendix B of the Guidelines. This
can also be found in Appendix C of this Study Guide.

359 Please note in particular section 57 of the CDSA on tipping-off.

360 The report shall be in Form F1 – Suspicious Activities and Incidents of Fraud Report of the MAS Notice on Reporting of Suspicious
Activities and Incidents of Fraud (CMG-N01) and shall be lodged not later than 5 working days after the discovery of the activity or
incident by the CMI.
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STRs should be filed to the STRO, as required under the CDSA and the Notice. For incidents of fraud, the CMI
should lodge a police report and submit to the MAS a copy of the report. Where the CMI has not lodged a
police report, it should notify the MAS of the reasons for its decision361.

CMIs should also implement appropriate internal policies, procedures, and controls for meeting their
obligations under the law, including the following:
(i) Establish a single reference point within the organisation to whom all employees, officers and
representatives are instructed to promptly refer all transactions suspected of being connected with ML or
TF, for possible referral to STRO via STRs, and
(ii) Keep records of all transactions referred to STRO, together with all internal findings and analysis done in
relation to them.

8.9.21 Policies and Procedures for Ongoing Monitoring

CMIs must establish appropriate policies and procedures to combat financial crimes and appoint a central
contact point or liaison for regulators. The CMI shall put in place and implement adequate systems and
processes, commensurate with the size and complexity of the CMI.

During the course of business relations, CMIs and representatives should observe the conduct of the client’s
account and transactions undertaken to ensure that the client’s behavior is consistent with their knowledge
of the client, its business and risk profile and where appropriate, the source of funds. Complex or unusually
large transactions or unusual patterns of transactions that have no apparent or visible economic or lawful
purpose should be given further scrutiny and attention.

CMIs need to ensure that their ongoing monitoring is conducted meaningfully based on patterns of
transactions and aggregated positions (e.g. for client with multiple accounts, and accounts of related client)
to: (a) better understand the risks associated with their client; (b) identify potential ML/TF risks; and (c) report
suspicious transactions362.

CMIs and representatives should make further inquiries into the background and purpose of any unusual
transactions and document their findings with a view to making this information available to the relevant
authorities should the need arise.

Periodic review of client identification and beneficial ownership information should be conducted to ensure
the information is kept up to date, particularly for higher-risk categories of clients. The frequency of CDD
review may vary depending on each client’s risk profile. Higher-risk clients should be subject to more frequent
periodic reviews.

Where there are reasonable grounds for suspicion that existing business relations with a client are connected
with ML or TF, and where the CMI considers it appropriate to retain the client: (a) the CMI shall substantiate
and document the reasons for retaining the client; and (b) the client’s business relations with the CMI shall be
subject to commensurate risk mitigation measures, including enhanced ongoing monitoring. Where the CMI
assesses the client or the business relations with the client to be of higher risk, the CMI shall perform enhanced
CDD measures, which shall include obtaining the approval of the CMI's senior management to retain the client.

361MAS Notice on Reporting of Suspicious Activities and Incidents of Fraud (CMG N01).
362For examples, please refer to Case Study Q of the MAS Guidance to CMIs on Enhancing AML/CFT Frameworks and Controls dated
Jan 2019.
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For higher-risk categories of clients, a CMI should obtain CDD information as part of its periodic CDD review,
or upon the occurrence of a trigger event as deemed necessary by the CMI, whichever is earlier, and for all
other risk categories of clients, obtain updated CDD information upon the occurrence of a trigger event.
Trigger events include:

(i) when a significant transaction takes place,

(ii) a material change occurs in the way a client’s account is operated,

(iii) the CMI’s policies, procedures or standards relating to the documentation of CDD information change
substantially, and

(iv) the CMI becomes aware that it lacks sufficient information about the client concerned.

8.9.21.1 Tax-Related ML risk

CMIs should exercise vigilance and avoid having a complacent mindset when assessing tax-related ML risks of
their clients. In this regard, a CMI could consider in its assessment of tax-related ML risks, factors such as the
relevant countries’363 compliance with the Exchange of Information on Request standard as well as
commitment to adopt Common Reporting Standard (CRS)/Automatic Exchange of Information, level of
AML/CFT compliance in relation to CDD, and the client’s participation in a tax amnesty programme.

Tax arbitrage opportunities remain despite the Foreign Account Tax Compliance Act (FATCA) and CRS
implementation, as not all countries have signed agreements to automatically exchange information with one
another. For instance, a client may choose to change his tax residency to a country without an arrangement
with Singapore to exchange information. Although he may have good reasons for the change in tax residency,
the CMI should enquire further into this change and request for corroborative evidence of the tax legitimacy
of his funds, where relevant. CMIs should be alert to the possibility that the client may be trying to circumvent
CRS requirements to countries where he is a tax resident.

Likewise, tax-related ML risk remains a relevant AML/CFT consideration for client in spite of their participation
in tax amnesty programme. CMIs should not assume that the tax affairs of these clients are fully regularized
and should continue to monitor for tax-related red flags364.

8.9.22 Summary of a “Know Your Client” (KYC) Framework

A KYC framework can be summarized as follows:

• Know Your Customers / customer selection;
• Maintain KYC documentation;
• Monitor Transactions;
• Report suspicious transaction to Management as well as to Compliance;
• Work with Compliance and Management to determine if transaction should be reported to the police/
relevant authorities;
• Avoid tipping off.

363 These could include the customers’ countries of incorporation/origin as well as countries where the customers’ sources of funds
originate from.
364 For examples, please refer to Case Study N of the MAS Guidance to CMIs on Enhancing AML/CFT Frameworks and Controls dated

Jan 2019.
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A flowchart of the KYC process is shown in Figure 8.9.22.

Figure 8.9.22 : Workflow of the KYC Process

KYC, Client Onboarding and

Customer Due Diligence

• CMI / Representative gathers

information about client
(E.g. age, investment
experience, source of funds).
• Ask questions, perform
identification and verification
checks for red flags and
simulate risk.
•

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8.10 Enterprise-Wide Risk Assessment

In addition to assessing the ML/TF risks presented by an individual client, a CMI shall identify and assess ML/TF
risks on an enterprise-wide level. This will include a consolidated assessment of its ML/TF risks that exist across
all its business units, product lines and delivery channels.

In conducting an enterprise-wide risk assessment, the broad ML/TF risk factors that the CMI should consider
include target customer markets and segments (i.e. its clients, and the countries or jurisdictions its clients are
from or in); countries or jurisdictions the CMI is exposed to, especially countries or jurisdictions with relatively
higher levels of corruption, organised crimes or inadequate AML/CFT measures, as identified by the FATF as
well as the nature, scale, diversity and complexity of the business activities undertaken by the CMI (i.e. the
products, services, transactions and delivery channels of the CMI).

CMIs should analyse and get a proper understanding of the risk factors that they have included in their
enterprise-wide risk assessment methodologies and ensure that the calibration of the risk scores is aligned
with the degree of ML/TF risks365.

The scale and scope of the enterprise-wide ML/TF risk assessment should be commensurate with the nature
and complexity of the CMI’s business. As far as possible, a CMI’s enterprise-wide ML/TF risk assessment should
entail both qualitative and quantitative analyses to ensure that it accurately understands its exposure to ML/TF
risks. A quantitative analysis of the CMI’s exposure to ML/TF risks should involve evaluating data on its
activities using the applicable broad risk factors set out in the above paragraph.

A CMI shall consider all its existing products, services, transactions and delivery channels offered as part of its
enterprise-wide ML/TF risk assessment and make its own determination as to the risk weights to be given to
the individual factor or combination of factors.

To ensure its enterprise-wide assessments are up to date, a CMI should review its risk assessment at least once
every 2 years or when material trigger events occur, whichever is earlier. Material events may include the
acquisition of new client segments or delivery channels, or the launch of new products and services by the
CMI. The results of these reviews should be documented and approved by the senior management even if
there are no significant changes to the CMI’s enterprise-wide risk assessment.

Risk Mitigation

A CMI shall also develop and implement policies, procedures and controls, which are approved by senior
management, to enable the CMI to effectively manage and mitigate the risks that have been identified by the
CMI or notified to it by MAS or other relevant authorities in Singapore. In addition, the CMI should also monitor
the implementation of those policies, procedures and controls and enhance them if necessary.

Further, the CMI should perform enhanced measures where higher risks are identified, to effectively manage
and mitigate those higher risks, and ensure that the performance of measures or enhanced measures to
effectively manage and mitigate the identified risks address the risk assessment and guidance from MAS or
other relevant authorities in Singapore.

365For examples, please refer to Case Study D of the MAS Guidance to CMIs on Enhancing AML/CFT Frameworks and Controls dated
Jan 2019.
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8.11 Risk Controls for New Products, Practices and Technologies

A CMI shall identify and assess the money laundering and terrorism financing risk that may arise in relation to
the development of new products and new business practices, including new delivery mechanisms, and the
use of new or developing technologies for both new and pre-existing products. This assessment of ML/TF risks
in relation to new products, practices and technologies is separate from, and in addition to, the CMI's
assessment of other risks such as credit risks, operational risks or market risks, and should be approved by
senior management and heads of business, risk and compliance.

A CMI shall undertake the risk assessments, prior to the launch or use of such products, practices and
technologies, and shall take appropriate measures to manage and mitigate the risks. The CMI shall pay special
attention to any new product, new business practice (including new delivery mechanisms) or new or
developing technologies that favors anonymity.

8.12 Operational Risk Controls to Prevent Financial Crimes

8.12.1 Prevention and Operational Control - “A Risk Management Framework”

In the Technology Risk Management Guidelines issued in January 2021366, MAS had outlined its expectations
of controls that have to be implemented to prevent fraud and other security breaches.
These include:
• Physical security controls through access to premises and controlled areas
• Access control over systems and control of data integrity.

Breaches of security will impact:

• Banking Secrecy provisions in the Banking Act;
• PDPA;
• Civil action;
• Fines;
• Imprisonment terms; and
• Reputation.

8.12.2 Responsibilities of Board of Directors and Senior Management

Board of Directors and senior management are responsible for instilling the following controls:
• People selection (staff, vendors, contractors etc.);
• Password access to premises and controlled areas;
• Password access to systems and information on a “Need to Know” or “Need to Have” basis;
• Requirement for periodic change of password;
• No sharing of password to “sensitive” systems;
• Clean Desk Policy;

366 MAS Guidelines on Risk Management Practices - Technology Risk (January 2021).
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• Dual or Independent Control of Payment Instructions;

• Hold-mail Control;
• Training on IT awareness and Fraud; and
• Audit.

8.12.3 FRAUD – Prevention and Detection in Summary

• F – Follow Policies and Procedures. If you do not know what these are, ask Compliance where to find
them.
• R – Report any suspicious transactions or inconsistencies to Compliance and Management through a
whistle blowing process.
• A – Act if you have any suspicion and investigate.
• U – Unite with Management, Compliance and Enforcement Agencies to bring perpetrators to justice.
• D – Disciplinary action to be taken and criminal charges imposed.

8.13 Reporting and Filing Requirements

A CMI shall have policies and procedures in place for the reporting of any suspicious transaction367 or client as
well as an appropriate escalation process. It should have a single reference point to whom all staff are
instructed to promptly refer all transactions which are suspected of ML or used for terrorist activities. This is
to enable quick investigations to take place so that a decision can be taken to file a STR.

Once a decision is made to file an STR, such filing must be done as soon as is reasonably practicable but no
later than 15 business days after the case is referred by the relevant employee, officer or representative,
unless the circumstances are exceptional or extraordinary. Such reports are to be filed with the CAD, with a
copy to MAS. The report should include the investigation report and analysis with the reason to conclude why
an STR is to be filed.

The CMI must maintain proper records of all transactions leading to the filing of the STR and these should be
retained for the minimum retention period required of 5 years. A proper register of all STRs filed and the
supporting documents must similarly be maintained and retained for the minimum period.

(For examples of suspicious transactions, please refer to Appendix B of the Guidelines368 which can also be
found in Appendix F of this Study Guide.)

367 Guidelines to MAS Notice SFA 04-N02 on Prevention of Money Laundering and Countering the Financing of Terrorism, Appendix B
– Examples of Suspicious Transactions.
368
Guidelines to MAS Notice SFA 04-N02 on Prevention of Money Laundering and Countering the Financing of Terrorism, Appendix B
– Examples of Suspicious Transactions.
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8.14 Penalties and Risks for Non- Compliance

There are severe penalties for non-compliance with laws and regulations governing AML/CFT and sanctions
and embargoes. It is also important to note that tipping-off offences carry with it both fines and imprisonment
terms.

What is Tipping-off?

A person who knows or has reasonable grounds to suspect that:

(a) An authorised officer is acting or is proposing to act, in connection with an investigation which is being or
is about to be conducted under or for the purposes of the CDSA; and

(b) Discloses to any other person information or any matter which is likely to prejudice any investigation which
might be conducted following the disclosure,

shall be guilty of an offence.

8.15 Internal Policies, Compliance, Audit and Training

8.15.1 Group Policy

A CMI must have internal policies, procedures and an internal control framework to prevent financial crimes.
These policies and procedures must be properly communicated to all staff. Such policies and procedures must
include the naming of a central point of referral, reporting and filing of STR.

A CMI incorporated in Singapore shall develop a group policy on AML/CFT to meet all requirements of the
Notice and extend this to all its branches and subsidiaries in its financial groups. Such group policy should
include procedures for sharing information between its branches and subsidiaries required for the purposes
of CDD and for ML/TF risk management, and for the provision of client, account, and transaction information
from its branches and subsidiaries to the CMI's group-level compliance, audit and AML/CFT functions, when
necessary, for ML/TF risk management purposes.

Where the AML/CFT requirements in the host country or jurisdiction differ from those in Singapore, the CMI
shall require that the overseas branch or subsidiary apply the higher of the two standards, to the extent that
the law of the host country or jurisdictions so permits. In cases of conflict between the law of the host country
and Singapore law such that the overseas branch or subsidiary is unable to fully observe the higher standard,
the CMI shall apply additional appropriate measures to manage the ML and TF risks, report this to MAS and
comply with such further directions as may be given by MAS.

8.15.2 Compliance

Compliance control programmes should include key performance indicators as well as control tests and
procedures to check on PEPs and that transactions and documentation requirements are in place after CDD
or EDD. The Compliance function must be staffed by appropriately qualified staff and senior head of
department. At the minimum, an AML/CFT compliance officer at the management level must be appointed,
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and all compliance staff must be suitably qualified and has adequate resources and timely access to all client
records and other relevant information which they require to discharge their functions.

8.15.3 Audit

A CMI must have an internal audit function that is adequately resourced and independent and is able to
regularly assess the effectiveness of its controls and compliance with regulatory requirements.

8.15.4 Training

A training programme should be in place to ensure that staff are regularly and appropriately trained on
AML/CFT, fraud and other financial crimes prevention. It is important that such training be refreshed at least
once every two years. Training can be in the form of e-learning, face-to-face training (whether internal or
externally provided training, etc.) and such training received should be recorded for audit purposes and
monitored for effectiveness.

To ensure that staff can fulfil their respective AML/CFT responsibilities, tailored training should be provided
for staff performing different AML/CFT functions. CMI should also consider expounding learning points from
specific real-life case studies, e.g. sharing with front office and other relevant staff suspicious transactions and
client behaviours which could lead or led to filing of STRs that have been encountered by other staff of the
CMI369.

8.15.5 Employee and Representative Hiring370

In addition, there must be proper policies and procedures in place for the proper selection of employees,
appointing officers and representatives and their screening when hiring. The screening procedures applied
should include:

(a) Background checks with past employers,

(b) Screening against ML/TF information sources, and

(c) Bankruptcy searches.

In addition, credit history checks, on a risk-based approach, should be conducted, when hiring employees, and
appointing officers and representatives.

8.16 Effectiveness of AML/CFT Framework

Following a series of AML/CFT inspections by MAS that examined the effectiveness of the AML/CFT
frameworks and controls of CMIs, MAS has published a guidance paper setting out MAS' supervisory
expectations of sound practices for CMIs (Guidance).

369 For examples, please refer to Case Studies L and M of the MAS Guidance to CMIs on Enhancing AML/CFT Frameworks and Controls
dated Jan 2019.
370 Guidelines to MAS Notice SFA04-N02 on Prevention of Money Laundering and Countering the Financing of Terrorism, paragraph

14-5.
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In determining whether a CMI's AML/CFT framework and control is effective, MAS applies the following three-
pillar framework in its AML/CFT inspections:

(a) Governance: The board and senior management of a CMI plays an important role to maintain sound
governance frameworks for active management of ML/TF risks. Setting a firm tone from the top with
adequate oversight for effective AML/CFT controls should be a priority. There should be clear lines of
responsibility and active involvement in the deliberation and resolution of AML/CFT issues.

(b) Risk awareness: Strong risk awareness across the CMI is needed to enhance the assessment of the nature
and level of ML/TF risks faced by the firm and strengthen the CMI's ability to properly identify and escalate
risk issues as well as determine appropriate risk mitigation measures. There should be a clear
understanding of individual ownership and accountability for managing ML/TF risks.

(c) Execution: Effective execution of controls within the organization is necessary to achieve desired
outcomes of detecting, preventing and deterring ML/TF risks. There should be proper implementation of
policies, procedures and controls that comply with the requirements in the Notice, effective risk
assessment and mitigation measures, timely escalation and resolution of red flags, and timely and
effective resolution of past issues.

8.16.1 Governance

To build a robust AML/CFT governance framework, the board and senior management should have adequate
oversight of the effectiveness of AML/CFT systems, processes and controls, and put in place competent and
adequately resourced compliance and independent audit arrangements. There should also be adequate and
timely reporting to the board and senior management on key ML/TF risks issues and concerns. CMIs should
also:

i. Put in place a review process to periodically assess the adequacy and effectiveness of the firm's
AML/CFT compliance frameworks, systems and processes. The enterprise-wide risk assessment
framework should be one of the key areas prioritized for the initial review.

ii. Clearly define the roles and responsibilities of compliance and independent audit functions, and
periodically review their effectiveness in acting as the second and third lines of defence respectively.

iii. Review and enhance AML/CFT reporting processes to ensure that (a) the board and senior management
receives enough and timely updates on key ML/TF risks and challenges so that ML/TF concerns are
actively monitored, decisions on mitigation measures are taken and guidance for effective execution
are provided where necessary; and (b) the remediation of audit findings is timely, effective and
sustainable.

8.16.2 Risk Awareness

To strengthen risk awareness of the board and senior management and staff, CMIs should:

i. Formalize individual ownership and accountability over AML/CFT controls, so that the board and senior
management and staff are aware of and understand their respective AML/CFT responsibilities.

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ii. Develop and communicate clear guidance tailored for the various AML/CFT functions. Guidance should
include the nature of ML/TF risks that arises from the firm's business, red flags based on customer
behaviours and account activities, and appropriate escalation and risk mitigation measures.

iii. Review periodically and enhance training programmes and curriculum (e.g. by including new relevant
typologies as and when they arise) to ensure that specialized training is provided for the various
AML/CFT functions and a framework for continuous learning is developed within the CMI. To help staff
obtain a better understanding of the AML/CFT issues they might encounter in their daily work, case
studies and/or role plays should be incorporated, where appropriate, in AML/CFT trainings.

8.16.3 Execution

To support effective execution of AML/CFT frameworks, systems and controls, CMIs should:

i. Periodically review and enhance policies and procedures to ensure that they are aligned with regulatory
requirements and supervisory expectations, as well as any audit recommendations. In this regard, the
corroboration of source of wealth and source of funds of higher risk client and timeliness of periodic
review assessments should be amongst the key focus areas.

ii. Implement an ongoing risk-based monitoring framework which ensures that enhanced CDD measures
are adequately applied on clients that pose higher ML/TF risks.

iii. Put in place systems and processes for the identification, assessment, and escalation of ML/TF red flags,
as well as the implementation of risk mitigation measures, including filing of STRs, where required.

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Appendix A:
Guidelines on Fit and Proper
Criteria371
1. The criteria for considering whether a relevant person is fit and proper include but are not limited to the
following
a) Honesty, integrity and reputation;
b) Competence and capability; and
c) Financial soundness.
2. The failure by a relevant person to meet any one of the criteria set out above may not lead to an automatic
refusal of an application; refusal to enter his name or any additional regulated activity or financial advisory
services in the public register of representatives; revocation of an authorisation; revocation of the status
of an appointed, provisional or temporary representative; or withdrawal of an exemption or other
regulatory action by MAS. The significance and relevance of a relevant person failing to satisfy MAS that
it or he meets a specific criterion depends on:
a) The seriousness of, and surrounding circumstances resulting in, the relevant person not meeting the
specific criteria;
b) The relevance of the failure by the relevant person to meet the specific criteria to the duties that are,
or are to be, performed and the responsibilities that are, or are to be, assumed by the relevant person;
and
c) The passage of time since the failure by the relevant person to meet the specific criteria.
3. In the case where the relevant person is an institution, to establish that it is fit and proper, an institution
should satisfy MAS that:
a) All of its substantial shareholders meet the fit and proper criteria of these Guidelines;
b) Each of its directors and chief executive officer, or equivalent persons, meet the fit and proper criteria
of these Guidelines; and
c) It has in place appropriate recruitment policies, adequate internal control systems and procedures
that would reasonably ensure that the persons that it employs, authorises or appoints to act on its
behalf, in relation to its conduct of the activity regulated under the relevant legislation, meet the fit
and proper criteria of these Guidelines.

371 MAS FSG-G01 Guidelines on Fit and Proper Criteria.

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4. In the case where the relevant person is an exempt financial institution, to establish that it is fit and
proper, the exempt financial institution should have in place appropriate recruitment policies, adequate
internal control systems and procedures that would reasonably ensure that the persons that it employs,
authorises or appoints to act on its behalf, in relation to its conduct of the activity regulated under the
relevant legislation, meet the fit and proper criteria of these Guidelines.

5. In the case where the relevant person is an exempt entity, or a fund management company registered
under paragraph 5(1)(i) of the Second Schedule to the SFR(LCB), to establish that it is fit and proper, an
exempt entity or a registered fund management company should satisfy MAS that:
a) All of its substantial shareholders or equivalent persons and persons who:
(i) control, directly or indirectly, not less than 20% of the voting power or such equivalent decision-
making power in the exempt entity; or
(ii) acquire or hold, directly or indirectly, not less than 20% of the issued shares or such equivalent
share of ownership of the exempt entity;
(iii) meet the fit and proper criteria of these Guidelines;
b) Each of its key officers meet the fit and proper criteria of these Guidelines; and
c) It has in place appropriate recruitment policies, adequate internal control systems and procedures
that would reasonably ensure that the persons that it employs, authorises or appoints to act on its
behalf, in relation to its conduct of the activity regulated under the relevant legislation, meet the
relevant fit and proper criteria of these Guidelines.
Honesty, Integrity and Reputation

6. The factors set out in the following paragraphs are relevant to the assessment of the honesty, integrity
and reputation of a relevant person. The factors include but are not limited to whether the relevant
person:
a) Has been refused the right or restricted in its or his right to carry on any trade, business or profession
for which a specific license, registration or other authorisation is required by law in any jurisdiction;
b) Has been issued a prohibition order under any Act administered by MAS or has been prohibited from
operating in any jurisdiction by any financial services regulatory authority;
c) Has been censured, disciplined, suspended or refused membership or registration by MAS, any other
regulatory authority, an operator of a market, trade repository or clearing facility, any professional
body or government agency, whether in Singapore or elsewhere;
d) Has been the subject of any complaint made reasonably and in good faith, relating to activities that
are regulated by MAS or under any law in any jurisdiction;
e) Has been the subject of any proceedings of a disciplinary or criminal nature or has been notified of
any potential proceedings or of any investigation which might lead to those proceedings, under any
law in any jurisdiction;
f) Has been convicted of any offence, or is being subject to any pending proceedings which may lead to
such a conviction, under any law in any jurisdiction;
g) Has had any judgment (in particular, that associated with a finding of fraud, misrepresentation or
dishonesty) entered against the relevant person in any civil proceedings or is a party to any pending
proceedings which may lead to such a judgment, under any law in any jurisdiction;
h) Has accepted civil liability for fraud or misrepresentation under any law in any jurisdiction;
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i) Has had any civil penalty enforcement action taken against it or him by MAS or any other regulatory
authority under any law in any jurisdiction;
j) Has contravened or abetted another person in breach of any laws or regulations, business rules or
codes of conduct, whether in Singapore or elsewhere;
k) Has been the subject of any investigations or disciplinary proceedings or been issued a warning or
reprimand by MAS, any other regulatory authority, an operator of a market, trade repository or
clearing facility, any professional body or government agency, whether in Singapore or elsewhere;
l) Has been refused a fidelity or surety bond, whether in Singapore or elsewhere;
m) Has demonstrated an unwillingness to comply with any regulatory requirement or to uphold any
professional and ethical standards, whether in Singapore or elsewhere;
n) Has been untruthful or provided false or misleading information to MAS or been uncooperative in
any dealings with MAS or any other regulatory authority in any jurisdiction;
o) In addition to sub-paragraphs (a) to (n), where the relevant person is an individual:
(i) Is or has been a director, partner, substantial shareholder or concerned in the management of a
business that has been censured, disciplined, prosecuted or convicted of a criminal offence, or
been the subject of any disciplinary or criminal investigation or proceeding, in Singapore or
elsewhere, in relation to any matter that took place while the person was a director, partner,
substantial shareholder or concerned in the management of the business;
(ii) Is or has been a director, partner, substantial shareholder or concerned in the management of a
business that has been suspended or refused membership or registration by MAS, any other
regulatory authority, an operator of a market, trade repository or clearing facility, any
professional body or government agency, whether in Singapore or elsewhere;
(iii) Has been a director, partner, substantial shareholder or concerned in the management of a
business that has gone into insolvency, liquidation or administration during the period when, or
within a period of one year after, the relevant person was a director, partner, substantial
shareholder or concerned in the management of the business, whether in Singapore or
elsewhere;
(iv) Has been dismissed or asked to resign from —
(A) Office;

(B) Employment;

(C) A position of trust; or;

(D) A fiduciary appointment or similar position,

whether in Singapore or elsewhere;
(v) Is or has been subject to disciplinary proceedings by his current or former employer(s), whether
in Singapore or elsewhere;
(vi) Has been disqualified from acting as a director or disqualified from acting in any managerial
capacity, whether in Singapore or elsewhere; and

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(vii) Has been an officer found liable for an offence committed by a body corporate as a result of the
offence having proved to have been committed with the consent or connivance of, or neglect
attributable to, the officer, whether in Singapore or elsewhere; or
p) In addition to sub-paragraphs a) to o), where the relevant person is carrying on business in, or is acting
as a representative in respect of, providing credit rating services, is or has been in observance of the
Code of Conduct for Credit Rating Agencies.
Competence and Capability

7. The factors set out in the following paragraphs are relevant to the assessment of the competence and
capability of a relevant person. The factors include but are not limited to:
a) Whether the relevant person has satisfactory past performance or expertise, having regard to the
nature of the relevant person’s business or duties, as the case may be, whether in Singapore or
elsewhere;
b) Where the relevant person is an individual who is assuming concurrent responsibilities, whether such
responsibilities would give rise to a conflict of interest or otherwise impair his ability to discharge his
duties in relation to any activity regulated by MAS under the relevant legislation;
c) In relation to a relevant person whose activity is regulated by MAS under the FAA, the IA, the Payment
Services Act, SFA or the Trust Companies Act and where the relevant person is an institution, exempt
financial institution or exempt entity, whether its directors or equivalent persons, chief executive
officer or equivalent person, the persons that it employs, authorises or appoints to act on its behalf,
in relation to its conduct of the activity regulated under the relevant legislation, where applicable,
have satisfactory educational qualification or experience, whether in Singapore or elsewhere;
d) In relation to a relevant person whose activity is regulated by MAS under the FAA or the SFA, whether
the representative of the relevant person has:
(i) Satisfactory educational qualification or experience, relevant skills and knowledge, whether in
Singapore or elsewhere, having regard to the nature of the duties they are required to perform;
and
(ii) Satisfied the requirements stipulated in the Notice on Competency Requirements for Holders of
Capital Markets Services Licence and Exempt Financial Institutions under the Securities and
Futures Act [SFA 04-N22] or Notice on Competency Requirements for Representatives of Financial
Advisers under the Financial Advisers Act [FAA-N26], as the case may be and as may be applicable
to the representative;
e) In relation to a relevant person whose activity is regulated by MAS under the IA, whether the broking
staff of the relevant person has:
(i) Satisfactory qualification or experience, whether in Singapore or elsewhere, having regard to the
nature of the duties he is to perform; and
(ii) Satisfied the requirements stipulated in the Notice on Minimum Standards and Continuing
Professional Development Requirements for Insurance Brokers and their Broking Staff [Notice
No. MAS 502], as may be applicable to the broking staff;
f) In relation to an Appointed Actuary or a Certifying Actuary:

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(i) whether the actuary has satisfactory past performance or expertise indicating knowledge of the
local life or general insurance market;
(ii) whether an Appointed Actuary is a Fellow of Singapore Actuarial Society (SAS);
(iii) Whether a Certifying Actuary is a member of the SAS and is a Fellow of an association recognised
by the International Actuarial Association.
Financial Soundness

8. The factors set out in the following paragraphs are relevant to the assessment of the financial soundness
of a relevant person. The factors include but are not limited to, whether the relevant person:
a) Is or has been unable to fulfil any of its or his financial obligations, whether in Singapore or elsewhere;
b) Has entered into a compromise or scheme of arrangement with its or his creditors or made an
assignment for the benefit of its or his creditors, being a compromise or scheme of arrangement or
assignment that is still in operation, whether in Singapore or elsewhere;
c) Is subject to a judgment debt which is unsatisfied, either in whole or in part, whether in Singapore or
elsewhere;
d) In addition to sub-paragraphs (a) to (c), in the case where the relevant person is an individual:
(i) Is or has been the subject of a bankruptcy petition, whether in Singapore or elsewhere;
(ii) Has been adjudicated a bankrupt and the bankruptcy is undischarged, whether in Singapore or
elsewhere; or
(iii) Is or has been subject to any other process outside Singapore that is similar to those referred to
in sub-paragraph (i) and (ii); and
e) In addition to sub-paragraphs (a) to (c), in the case where the relevant person is a corporation:
(i) Is or has been the subject of a winding up petition, whether in Singapore or elsewhere;
(ii) Is in the course of being wound-up or otherwise dissolved, whether in Singapore or elsewhere;
(iii) Is or has been a corporation where a receiver, receiver and manager, judicial manager, or such
other person having the powers and duties of a receiver, receiver and manager, or judicial
manager, has been appointed, in relation to, or in respect of any property of, the corporation,
whether in Singapore or elsewhere; or
(iv) Is or has been subject to any other process outside Singapore that is similar to those referred to
in sub-paragraphs (i) to (iii).

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233 | Appendix B – Criteria for the Assessment of a Customer Account Review

Appendix B:
Criteria for the Assessment of a
Customer Account Review372
1. A Customer who satisfies any of the following may be assessed as possessing the knowledge or experience
in derivatives for the purpose of opening of a listed Specified Investment Product trading account:
a) The customer holds a diploma or has higher qualifications in accountancy, actuarial science, business,
business administration, business management, business studies, capital markets, commerce,
economics, finance, financial engineering, financial planning, computational finance and insurance;
b) The customer has a professional finance-related qualification (e.g. Chartered Financial Analyst
Examination conducted by CFA Institute, USA; Association of Chartered Certified Accountants (ACCA)
Qualifications; Associate Wealth Planner or Certified Financial Planner by the Certified Financial
Planners Board of Standards, USA; Certified Financial Risk Manager Programme by the Global
Association of Risk Professionals, USA; Chartered Alternative Investment Analyst Examination
conducted by the Chartered Alternative Investment Analyst Association, USA; or Chartered Financial
Consultant by the American College, USA);
c) The customer has transacted in a Listed Specified Investment Products (i.e. a Specified Investment
Product which is approved in-principle for listing and quotation on, or listed for quotation and quoted
on, an organised market) at least 6 times in the preceding 3 years; or
d) The customer has a minimum of 3 consecutive years of working experience in the past 10 years, in
the development of, structuring of, management of, sale of, trading of, research on or analysis of
investment products; or the provision of training in investment products. Work experience in
accountancy, actuarial science, treasury or financial risk management activities will also be
considered relevant experience.

2. Where a customer is assessed to not possess knowledge or experience in derivatives, but subsequently
demonstrates sufficient understanding of the features and risks of derivatives through a learning module
provided by an independent body as set out in the Practice Note on the Sale of Investment Products [SFA
PN-01], the customer may be deemed to possess the knowledge to transact in Listed Specified Investment
Products.

372 SFA04-N12 Notice on the Sale of Investment Products.

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Appendix C:
Criteria for the Satisfaction of the
Customer Knowledge
Assessment373
1. A Customer who satisfies any of the following may be assessed as possessing the knowledge or experience
in the unlisted Specified Investment Product for the purpose of the satisfaction of the Customer
Knowledge Assessment in the Specified Investment Product concerned:
i. The customer holds a diploma or has higher qualifications in accountancy, actuarial science,
business/business administration/business management/business studies, capital markets, commerce,
economics, finance, financial engineering, financial planning, computational finance and insurance;
ii. The customer has a professional finance-related qualification (e.g. Chartered Financial Analyst
Examination conducted by CFA Institute, USA; Association of Chartered Certified Accountants (ACCA)
Qualifications; Associate Wealth Planner or Certified Financial Planner by the Certified Financial Planners
Board of Standards, USA; Certified Financial Risk Manager Programme by the Global Association of Risk
Professionals, USA; Chartered Alternative Investment Analyst Examination conducted by the Chartered
Alternative Investment Analyst Association, USA; or Chartered Financial Consultant by the American
College, USA);
iii. The customer has invested in the following unlisted Specified Investment Products:
a) For transactions in collective investment schemes (referred to as CIS) and investment-linked life
insurance policies (referred to as ILPs), the customer has transacted in CIS or ILPs at least 6 times in
the preceding three years; or
b) For transactions in unlisted specified investment products (other than CIS and ILPs), the customer has
transacted in any unlisted specified investment products (other than CIS and ILPs) at least 6 times in
the preceding 3 years; or
iv. The customer has a minimum of 3 consecutive years of working experience in the past 10 years in the
development of, structuring of, management of, sale of, trading of, research on and analysis of
investment products or the provision of training in investment products. Work experience in accountancy,
actuarial science, treasury or financial risk management activities will also be considered relevant
experience.

2. Where a customer is assessed to not possess knowledge or experience to understand an unlisted

Specified Investment Product, but subsequently demonstrates sufficient understanding of the features

373 SFA04-N12 Notice on the Sale of Investment Products.

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and risks of that unlisted Specified Investment Product through a learning module provided by an
independent body as set out in the Practice Note on Recommendations on Investment Product [FAA PN-
02], the customer may be deemed to possess the knowledge to trade in that unlisted Specified
Investment Product.

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 Appendix D – Risk Warning Statement for Overseas-Listed Investment Products | 236

Appendix D:
Risk Warning Statement for
Overseas-Listed Investment
Products
RISK WARNING

An overseas-listed investment product* is subject to the laws and regulations of the jurisdiction it is listed
in. Before you trade in an overseas-listed investment product or authorise someone else to trade for you,
you should be aware of:
• The level of investor protection and safeguards that you are afforded in the relevant foreign jurisdiction
as the overseas-listed investment product would operate under a different regulatory regime.

• The differences between the legal systems in the foreign jurisdiction and Singapore that may affect your
ability to recover your funds.
• The tax implications, currency risks, and additional transaction costs that you may have to incur.
• The counterparty and correspondent broker risks that you are exposed to.
• The political, economic and social developments that influence the overseas markets you are investing
in.
These and other risks may affect the value of your investment. You should not invest in the product if you
do not understand or are not comfortable with such risks.

*An “overseas-listed investment product” in this statement refers to a capital markets product that is
approved in-principle for listing and quotation only on, or listed for quotation or only quoted on, one or more
overseas exchanges.

1. This statement is provided to you in accordance with paragraph 29D of the Notice on the Sale of
Investment Products [SFA04-N12].

2. This statement does not disclose all the risks and other significant aspects of trading in an overseas-listed
investment product. You should undertake such transactions only if you understand and are comfortable
with the extent of your exposure to the risks.

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3. You should carefully consider whether such trading is suitable for you in light of your experience,
objectives, risk appetite, financial resources and other relevant circumstances. In considering whether to
trade or to authorise someone else to trade for you, you should be aware of the following:

Differences in Regulatory Regimes

a) Overseas markets may be subject to different regulations and may operate differently from approved
exchanges in Singapore. For example, there may be different rules providing for the safekeeping of
securities and monies held by custodian banks or depositories. This may affect the level of safeguards in
place to ensure proper segregation and safekeeping of your investment products or monies held overseas.
There is also the risk of your investment products or monies not being protected if the custodian has credit
problems or fails. Overseas markets may also have different periods for clearing and settling transactions.
These may affect the information available to you regarding transaction prices and the time you must
settle your trade on such overseas markets.
b) Overseas markets may be subject to rules which may offer different investor protection as compared to
Singapore. Before you start to trade, you should be fully aware of the types of redress available to you in
Singapore and other relevant jurisdictions, if any.
c) Overseas-listed investment products may not be subject to the same disclosure standards that apply to
investment products listed for quotation or quoted on an approved exchange in Singapore. Where
disclosure is made, differences in accounting, auditing and financial reporting standards may also affect
the quality and comparability of information provided. It may also be more difficult to locate up-to-date
information, and the information published may only be available in a foreign language.

Differences in legal systems

d) In some countries, legal concepts which are practised in mature legal systems may not be in place or may
have yet to be tested in courts. This would make it more difficult to predict with a degree of certainty the
outcome of judicial proceedings or even the quantum of damages which may be awarded following a
successful claim.
e) The Monetary Authority of Singapore will be unable to compel the enforcement of the rules of the
regulatory authorities or markets in other jurisdictions where your transactions will be effected.
f) The laws of some jurisdictions may prohibit or restrict the repatriation of funds from such jurisdictions
including capital, divestment proceeds, profits, dividends and interest arising from investment in such
countries. Therefore, there is no guarantee that the funds you have invested and the funds arising from
your investment will be capable of being remitted.
g) Some jurisdictions may also restrict the amount or type of investment products that foreign investors may
trade. This can affect the liquidity and prices of the overseas-listed investment products that you invest
in.

Different costs involved

h) There may be tax implications of investing in an overseas-listed investment product. For example, sale
proceeds or the receipt of any dividends and other income may be subject to tax levies, duties or charges
in the foreign country, in Singapore, or in both countries.
i) Your investment return on foreign currency-denominated investment products will be affected by
exchange rate fluctuations where there is a need to convert from the currency of denomination of the
investment products to another currency or may be affected by exchange controls.

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j) You may have to pay additional costs such as fees and broker’s commissions for transactions in overseas
exchanges. In some jurisdictions, you may also have to pay a premium to trade certain listed investment
products. Therefore, before you begin to trade, you should obtain a clear explanation of all commissions,
fees and other charges for which you will be liable. These charges will affect your net profit (if any) or
increase your loss.

Counterparty and correspondent broker risks

k) Transactions on overseas exchanges or overseas markets are generally effected by your Singapore broker
through the use of foreign brokers who have trading and/or clearing rights on those exchanges. All
transactions that are executed upon your instructions with such counterparties and correspondent
brokers are dependent on their respective due performance of their obligations. The insolvency or default
of such counterparties and correspondent brokers may lead to positions being liquidated or closed out
without your consent and/or may result in difficulties in recovering your monies and assets held overseas.

Political, Economic and Social Developments

l) Overseas markets are influenced by the political, economic and social developments in the foreign
jurisdiction, which may be uncertain and may increase the risk of investing in overseas-listed investment
products.

ACKNOWLEDGEMENT OF RECEIPT OF THIS RISK WARNING STATEMENT

I acknowledge that I have received a copy of the Risk Warning Statement and understand its contents.

Signature of customer: ______________________

Name of customer: _______________________

Date: ______________________

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239 | Appendix E – Excluded Investment Products

Appendix E:
Excluded Investment Products374
Unless otherwise provided here, the terms used or referred to in this Appendix shall have the same meanings
assigned to them in section 2 of the SFA or section 2 of the Financial Advisers Act 2001, where applicable.

“Excluded Investment Product” means:

i. any stocks or shares issued or proposed to be issued by a corporation or body unincorporate, other than
where such corporation or body unincorporate is a collective investment scheme;
ii. any unit of a share which represents ownership of the underlying share, where –
(a) the underlying share is held on trust for the unit-holder by a custodian; and
(b) no additional consideration (other than administrative fees) is payable by the unit-holder in the event
that he converts the unit of share into the underlying share;
iii. any right, option or derivative issued or proposed to be issued by a corporation or body unincorporate in
respect of its own stocks or shares;
iv. any unit in a business trust;
v. any derivative of units in a business trust;
vi. any unit in a collective investment scheme, such collective investment scheme being an arrangement:
a) that is a trust;
b) that invests primarily in real estate and real estate-related assets specified by the Authority in the
Code on Collective Investment Schemes; and
c) all or any units of which are listed for quotation on a securities exchange;
vii. any unit in a collective investment scheme where all of the matters below apply:
a) the CIS documents of the collective investment scheme require that the manager of the scheme must
not engage in any securities lending transaction or securities repurchase transaction in relation to the
scheme, except where —
(i) the securities lending transaction or securities repurchase transaction (as the case may be) is
carried out for the sole purpose of efficient portfolio management; and
(ii) the total value of securities subject to all the securities lending transactions and securities
repurchase transactions entered into by the manager does not exceed 50% of the net asset
value of the scheme at any time,
and the manager complies with the requirement;
c) the CIS documents of the collective investment scheme require the manager of the scheme —

374 Class of capital markets products listed in the Schedule to the Securities and Futures (Capital Markets Products) Regulations 2018.

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(i) to invest the property of the scheme only in one or more of the following:
A) deposits as defined in section 4B (4) of the Banking Act 1970;
B) gold certificates, gold savings accounts or physical gold;
C) any capital markets products belonging to a class of excluded investment products;
D) any product, instrument, contract or arrangement if the investment is solely for the
purpose of hedging or efficient portfolio management; or
(ii) to invest the property of the scheme as follows:
A) except where sub‑paragraph (B) applies, the manager must invest only in one or more
products, instruments, contracts or arrangements mentioned in sub‑paragraph (i);
B) the manager may invest in some other product, instrument, contract or arrangement
if:
BA) there is any change in any written law, regulation, direction, rule or
non‑statutory instrument of the jurisdiction where the scheme is constituted,
operating or investing; and

BB) following such change, the manager is restricted or prohibited from investing
in any of the products, instruments, contracts or arrangements mentioned in
sub-paragraph (i),

and, in the case of either sub‑paragraph (i) or (ii), the manager invests the property of the scheme
only in one or more of the products, instruments, contracts or arrangements mentioned in
sub‑paragraph (i).

viii. any debenture other than:

(i) asset-backed securities as defined in section 262(3) of the SFA; or
(ii) structured notes as defined in regulation 2(1) of the Securities and Futures (Offers of Investments)
(Shares and Debentures) Regulations 2005;
ix. any contract or arrangement the effect of which is that one party agrees to exchange currency at an agreed
rate of exchange with another party, where such currency exchange is effected immediately; or
x. two or more products specified in in this Appendix that are linked together in a stapled manner such that
one product may not be transferred or otherwise dealt without any of the other product(s).

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 241 | Appendix F – Examples of Suspicious Transactions

Appendix F:
Examples of Suspicious
Transactions375
1. General Comments
The list of situations given below is intended to highlight some basic ways in which money may be laundered
or used for TF purposes. While each individual situation may not be sufficient to suggest that ML/TF is taking
place, a combination of such situations may be indicative of a suspicious transaction. The list is intended solely
as an aid and must not be applied as a routine instrument in place of common sense.

The list is not exhaustive and may be updated due to changing circumstances and new methods of laundering
money of financing terrorism. CMS licence holders are to refer to STRO’s website for the latest list of red
flags376.

A customer's declarations regarding the background of such transactions should be checked for plausibility.
Not every explanation offered by the customer can be accepted without scrutiny.

It is reasonable to be suspicious of any customer who is reluctant to provide normal information and
documents required routinely by the CMS licence holder in the course of the business relations. CMS licence
holders should pay attention to customers who provide minimal, false or misleading information or, when
applying to open an account, provide information that is difficult or expensive for the CMS licence holders to
verify.

2. Transactions Which Do Not Make Economic Sense

(i) Transactions that cannot be reconciled with the usual activities of the customer, for example switching
from trading only penny stocks to predominantly blue chips.

(ii) A customer relationship with the CMS licence holder where a customer has a large number of accounts
with the same CMS licence holder and has frequent transfers between different accounts.

(iii) Transactions in which assets are withdrawn immediately after being deposited377, unless the customer’s
business activities furnish a plausible reason for immediate withdrawal.

375 Guidelines to MAS Notice SFA04-N02 on Prevention of Money Laundering and Countering the Financing of Terrorism, Appendix B.
376The website address for a list of red flag indicators: https://www.police.gov.sg/~/media/Spf/Files/cad/stro/2015-may/industry-
layout/capital-markets-intermediaries/capital-markets-intermediaries---red-flag-indicators.
377 For CMIs, this could mean depositing of funds into trust accounts, margin accounts, as collaterals or for fund management purposes.

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(iv) Transactions which, without plausible reason, result in the intensive use of what was previously a
relatively inactive account, such as a customer’s account which shows virtually no normal personal or
business-related activities but is used to receive or disburse unusually large sums which have no obvious
purpose or relationship to the customer or his business.

(v) Unexpected repayment of a delinquent account without any plausible explanation.

(vi) Corporate finance transactions under consideration that do not make economic sense in respect of the
business operations of the customer, particularly if the customer is not a listed company.

(vii) Request by a customer for investment management services where the source of funds is unclear or
not consistent with the customer’s apparent standing.

(viii) Buying and selling of security with no discernible purpose or in circumstances which appear unusual.

(ix) Large amounts of funds deposited into an account, which is inconsistent with the salary of the customer.

3. Transactions Involving Large Amounts of Cash

(i) Frequent withdrawal of large cash amounts that do not appear to be justified by the customer’s business
activity.

(ii) Provision of funds for investment and fund management purposes in the form of large cash amounts.

(iii) Customers making large and frequent cash deposits but cheques drawn on the accounts are mostly to
individuals and firms not normally associated with their business.

(iv) Large cash withdrawals from a previously dormant/inactive account, or from an account which has just
received an unexpected large credit from abroad.

(v) A large amount of cash is withdrawn and immediately deposited into another account.

(vi) Provision of margin collaterals in the form of large cash amounts.

(vii) Payments made via large amounts of cash. A guideline to what constitutes a large or substantial cash
amount would be a cash amount exceeding S$20,000 (or its equivalent in any currency).

(viii) Company transactions, both deposits and withdrawals, that are denominated by unusually large
amounts of cash, rather than by way of debits and credits normally associated with the normal
commercial operations of the company (e.g. cheques, letters of credit, bills of exchange).

(ix) Crediting of customer trust or margin accounts using cash and by means of numerous credit slips by a
customer such that the amount of each deposit is not substantial, but the total of which is substantial.

(x) Payments or deposits containing counterfeit notes or forged instruments.

(xi) Unusual settlements of securities transactions in cash form.

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4. Transactions Involving CMIs (or CMS Licence Holders’) Accounts

(i) Substantial increases in deposits of cash or negotiable instruments by a professional firm or company,
using customer accounts or in-house company or trust accounts, especially if the deposits are promptly
transferred between other customer company and trust accounts.

(ii) Transfers of funds from a company’s account to an individual account of an employee or persons related
to the employee and vice-versa.

(iii) Multiple depositors using a single account.

(iv) Paying in large third-party cheques endorsed in favour of the customer in settlement for securities
purchased, or for other financial services provided.

(v) Frequent deposits of a company’s cheques into an employee’s account.

(vi) An account operated in the name of an offshore company with structured movement of funds.

(vii) Purchase of securities to be held by the CMS licence holder in safe custody, where this does not appear
appropriate given the customer’s apparent standing.

(viii) Requests for refunds of unaccountable “erroneous” payments to CMS licence holders or customers’
trust accounts by unknown persons.

(ix) Transfers of funds from various third parties into an account, which is inconsistent with the nature of the
customer’s business.

5. Transactions Involving Transfers Abroad

(i) Large and regular payments that cannot be clearly identified as bona fide transactions, from and to
countries or jurisdictions associated with (a) the production, processing or marketing of narcotics or
other illegal drugs or (b) other criminal conduct.

(ii) Cross border transactions involving acquisition or disposal of high value assets that cannot be clearly
identified as bona fide transactions.

(iii) Substantial increase in injection of funds by a customer without apparent cause, especially if such
injections are subsequently transferred within a short period of time out of the account or to a
destination not normally associated with the customer.

(iv) Repeated transfers of large amounts of money abroad accompanied by the instruction to pay the
beneficiary in cash.

6. Transactions Involving Unidentified Parties

(i) Transfer of money to another CMS licence holder without indication of the beneficiary.

(ii) Payment orders with inaccurate information concerning the person placing the orders.

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(iii) Use of pseudonyms or numbered accounts for effecting commercial transactions by enterprises active in
trade and industry.

(iv) Holding in trust of shares in an unlisted company whose activities cannot be ascertained by the CMS
licence holder.

(v) Provision of collateral by way of pledge or guarantee without any discernible plausible reason by third
parties unknown to the CMS licence holder and who have no identifiable close relationship with the
customer.

(vi) Customers who wish to maintain a number of trustee or customers’ accounts that do not appear
consistent with their type of business, including transactions that involve nominee names.

(vii) Requests by a customer for investment management services where the source of funds is unclear.

7. Tax Crimes Related Transactions

(i) Negative tax-related reports from the media or other credible information sources.

(ii) Unconvincing or unclear purpose or motivation for having accounts opened in Singapore.

(iii) Originating sources of multiple or significant deposits/withdrawals are not consistent with the declared
purpose of the account.

(iv) Inability to reasonably justify frequent and large fund transfers from or to a country or jurisdiction that
presents higher risk of tax evasion.

(v) Reinvestment of funds back into the original country or jurisdiction after being transferred to another
country or jurisdiction, often a tax haven with poor track record on CDD or record keeping requirements.

(vi) Accounts managed by external asset managers who may not be adequately regulated and supervised.

(vii) Purchase or sale of large amounts of precious metals by a customer which is not in line with his business
or background.

(viii) Purchase of bank cheques on a large scale by a customer.

8. Other Types of Transactions

(i) Account activity is not commensurate with the customer’s known profile (e.g. age, occupation, income).

(ii) The customer fails to reasonably justify the purpose of a transaction when queried by the CMS licence
holder.

(iii) Transactions with countries or entities that are reported to be associated with terrorism activities or
with persons that have been designated as terrorists.

(iv) Frequent changes to the address or authorised signatories.

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(v) A large amount of funds is received and immediately used as collateral for margining or financing
facilities.

(vi) When a young person (aged about 17-26) opens an account and either withdraws or transfers the funds
within a short period, which could be an indication of terrorism financing.

(vii) When a person receives funds from a religious or charitable organisation and utilises the funds for
purchase of assets or transfers out the funds within a relatively short period.

(viii) The customer uses intermediaries which are not subject to adequate AML/CFT laws.

(ix) Transactions that are suspected to be in violation of another country’s or jurisdiction’s foreign exchange
laws and regulations.

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Appendix G:
Review Questions
Candidates should note that the sole purpose of the Review Questions is to familiarise candidates with the
scope and general nature of the examinations, and the format of the examination questions.

The Review Questions are not intended to be used as preparatory study material for the examinations, nor do
the questions cover all the materials tested in the examination.

The correct answer for each question is in bold.

Chapter 2 – Licensing and Business Operations

1. Under the SFA, a CMS licence holder must inform MAS if there is a change in its records relating to:

a. The name of the CMS licence under which the business is carried on.
b. The back-office settlement infrastructure used by the CMS licence holder.
c. The address of the principal place of business in respect of the licensed activity.
d. The contact numbers of the CMS licence holder’s client pool.

▪ (a) and (c).

▪ (b) and (c).
▪ (a) and (d).
▪ (a) and (b).

2. Mr Kor is a long-time client of Tim, an appointed representative of Boom Securities Pte Ltd (Boom
Securities). He is looking to sell 10,000 shares in Xera-Tech Ltd (Xera-Tech) urgently. Tim is of the view
that Xera-Tech is a high performing security and has good growth potential, and he intends to purchase
the said number of shares from Mr Kor. Which of the following statements are CORRECT?

a. Tim must inform Mr Kor beforehand that he will be trading as principal with Mr Kor.
b. Tim must not inform Mr Kor of the current best bid and offer prices as this is a married trade.
c. Tim should waive the brokerage commission on Mr Kor’s trade on goodwill basis.
d. Tim should issue a contract note informing Mr Kor that Boom Securities is dealing as principal to him.

▪ (a) and (d).

▪ (b) and (c).
▪ (c) and (d).
▪ (a) and (b).

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3. What is the required timeframe for a Representative to notify SGX-ST prior to being appointed as a non-
executive director of an SGX-ST listed company?
a. 7 days before the proposed engagement.
b. 14 days before the proposed engagement.
c. 21 days before the proposed engagement.
d. 30 days before the proposed engagement.

4. What document must a CMS licence holder obtain from a retail investor, before accepting any
transactions in overseas-listed investment products?
a. A signed acknowledgement that the investor has received verbal explanations about the key risks of
trading in overseas-listed investment products.
b. A signed acknowledgement that the investor has received a Risk Warning Statement that had been
mailed to his home.
c. A signed acknowledgement of the Risk Warning Statement which highlights the key risks of trading
in overseas-listed investment products.
d. A signed acknowledgement that the investor has been given a verbal explanation of the product key
features and potential returns.

5. Under which circumstances may a CMS licence holder advance its own moneys to a customer’s trust
account?
a. To facilitate positions and transacting in capital markets products traded through the customer’s trust
account.
b. To prevent the customer’s trust account from being under-funded.
c. For designation of the customer’s trust account maintained with specified financial institutions.
d. When the moneys are received in the course of business conducted by the CMS licence holder.

Chapter 3 – The Trading Systems and Infrastructure

6. Which of the following is a pre-execution risk control function in the Trading System?

a. Instituting an internal policy of record-keeping of trades.

b. Having the ability to adjust credit limits on a real time basis during trading session.
c. Controlling all funds flow into and out of accounts on a real time basis.
d. Granting access to representatives and customers without interruption.

7. Donnie is a remisier and licensed representative. At 12.08 pm during a half-day trading session on SGX-
ST, a client contacted Donnie to cancel his earlier buy orders. Assuming the orders have yet to expire, can
Donnie proceed to execute his client's instructions?

a. No, as it is at the Trade at Close phase which allows only for carry forward of unmatched orders.
b. Yes, as it is at the Adjust phase, which allows the entry, modification and withdrawal of orders.
c. Yes, as it is at the Pre-Close phase which allows only for the withdrawal, modification and matching
of orders.
d. No, as it is at the Non-Cancel phase which allows only for the matching of orders.

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8. Which of the following orders is most useful to short sellers who want to limit their potential losses?

a. Limit Order.
b. Session State Order.
c. Discretionary Order.
d. Stop Order.

9. Under which of the following scenarios may SGX-ST suspend or impose restrictions on the activities of a
Trading Representative?
a. The Representative has not been conducting the regulated activity for the last 6 months as he was
on hospitalisation leave.
b. The Representative has been charged with an offence involving fraud in Indonesia.
c. The Representative breaches any term or condition imposed by SGX-ST.
d. The Representative fails to continuously satisfy any admission criteria required for membership.

▪ (a), (c) and (d).

▪ (b), (c) and (d).
▪ and (c).
▪ and (d).

10. Which of the following is an appropriate course of action when a selling customer fails to deliver securities
as due on the settlement date?
a. The selling customer may appeal to its Trading Member for an extension of time.
b. The selling customer may seek to directly settle with the buying customer.
c. The CDP will perform buying-in pursuant to the Clearing Rules.
d. The trade is to be re-set and no moneys will be paid.

Chapter 4 – Market Conduct

11. Jeremy, a representative, traded in some Singapore-listed securities on the Stock Exchange of Thailand
(SET) with material non-public information. He placed large buy orders through a foreign broker on SET.
Would Jeremy’s action be in breach of market conduct rules under the SFA and SGX-ST?

a. As the transaction was executed outside Singapore, Jeremy was not in breach of SFA and SGX-ST
market conduct rules.
b. As the SFA and SGX-ST rules have extra-territorial reach, Jeremy was in breach of the insider trading
rules.
c. As the trade was executed by a foreign broker, the trade was not subjected to the Singapore market
conduct rules.
d. As payment for the trade was in a foreign currency, Jeremy was in breach of employment of deceptive
devices.

12. Which of the following are typical techniques used in the circulation of false or misleading statements
and information?

a. Using electronic means or media to spread rumours about a security.

b. Passing around ‘hot tips’ by word of mouth.
c. Circulating the audited accounts of a company.
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d. Passing out unverified information about a particular security.

▪ (a), (b) and (d).

▪ (b), (c) and (d).
▪ (b) and (c).
▪ (c) and (d).

13. What would be a concern when a transaction involves connected persons?

a. There will be effective change in beneficial ownership.

b. There is knowledge of generally unavailable information with material effect on security prices.
c. There is a need for approval to be sought for such transactions.
d. The market will react to the change in ownership of the affected securities.

14. Which of the following are TRUE in relation to churning?

a. It refers to intentional trading for the sole purpose of generating commissions for the broker.
b. It is done to create commissions by entering into many trades without a bona fide purpose.
c. It is permissible if the representative properly records the trades.
d. It is prohibited under the SGX-ST Rules.

▪ (a), (b) and (d).

▪ (b), (c) and (d).
▪ (b) and (c).
▪ (c) and (d).

15. Due diligence that a Trading Member or Representative may undertake to prevent market misconduct
include considering:

a. The individual placement of small orders at market prices.

b. The consistency of historical trading patterns of the security.
c. The transactions that were executed with the intention of creating false or misleading appearances
relating to security prices.
d. The frequency of trades placed at intra-day high or low security prices which indicates marking the
close.

▪ (a), (b) and (d).

▪ (b), (c) and (d).
▪ (b) and (c).
▪ (c) and (d).

Chapter 5 – Ethics, Codes and Standards of Professional Conduct for Securities Dealing

16. Which of the following best describes an external factor that could affect one’s judgement in ethical
decisions?

a. Authority figures.
b. Moral values.
c. Overconfidence.
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d. Rationalisation.

17. Gaston, an appointed representative, manages large cap equity portfolios for his clients. However,
recently due to the economic recession, the performance of large cap equity markets is lacklustre.
Considering the situation, Gaston reduces the equity exposure of his clients and invests in low-risk
fixed income investments without consulting his clients. By doing so, he averts a fall in his commission
fees for the month.

Which is the most likely ethical threat leading to Gaston’s action?

a. Need for self-actualisation.

b. Need for self-review.
c. Need for self-interest.
d. Need for peer recognition.

18. During a conversation with a prospective client, a remisier stated “I can guarantee that you will make
a 20% return on equity investments this year by applying my financial investment models and
methods. My investment methodologies are extremely popular among my clients and I have a solid
track record for the past 15 years. Each year, I develop flexible trading models using business network
information, financial news, economic forecasts and public reports.”

By making such statements, what standard of professional conduct has the remisier violated?

a. Misconduct.
b. Confidentiality.
c. Suitability.
d. Misrepresentation.

19. Which of the following circumstances would result in a breach of the professional standards relating
to conflicts of interest?

a. After receiving a large sell order from a client, a broker executes a personal sell order to avert
potential losses from plummeting market prices caused by the client’s large sell order.
b. An analyst, using a research report prepared under his former employment, submits the report as
his own research at his new employment.
c. An equity analyst fails to disclose her additional compensation agreement with a firm that she is
conducting research on.
d. A full-time portfolio manager at an investment bank offers Mathematics tuitions at his home
regularly, without informing the investment bank.

▪ (a) and (c).

▪ (b) and (c).
▪ (a) and (d).
▪ (a) and (b).

20. When applying the ethical framework to resolve ethical dilemmas, which of the following are factors
to be taken into consideration?

a. Ensuring that your judgement hold personal bias.

b. Executing the best course of action and tracking its progress.
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c. Considering the ethical issues involved.

d. Identifying the enemies who are likely to create a drift.

▪ (a) and (c).

▪ (b) and (c).
▪ (a) and (d).
▪ (a) and (b).

Chapter 6 – Securities Dealing Practice and Skills

21. What is the recommended internal control practice to enhance objectiveness during client risk
profiling?

a. Clean-desk principle.
b. Continuity principle.
c. 4-eyes principle.
d. 6-steps principle.

22. A designated market maker, as prescribed by MAS, with net assets of S$50 million and whose entire
share capital is owned by 3 corporations, is classified as a/an

a. Expert Investor.
b. Institutional Investor.
c. Corporate Investor.
d. Accredited Investor.

23. Which of the following statements on product recommendations during the client on-boarding
process are TRUE?

a. There is no need to formally include the client’s investment objective in the account opening
documents prior to trade execution.
b. The onus is on the client to ensure the suitability of the product.
c. The client is legally bound to retain all investment account opening documents.
d. The need to obtain relevant client information at the time of establishing the relationship.

▪ (a) and (c).

▪ (b) and (c).
▪ (b) and (d).
▪ (a) and (b).

24. What constitute best execution practices by a securities dealer?

a. The establishment of sound customer due diligence policies and procedures.

b. The execution of client orders with speed to mitigate possible price volatility.
c. The disclosure to clients must be in written form with the client's consent.
d. The responsibility to adhere to the specific considerations of different order types.

▪ (a), (b) and (d).

▪ (b), (c) and (d).

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▪ (b) and (c).

▪ (c) and (d).

25. Which of the following are typically undertaken by appointed representatives to develop a strong
client-representative relationship?

a. Ensuring that all risk disclosures are communicated to the clients for them to make informed
decisions.
b. Ensuring the priority of execution for clients’ orders.
c. Ensuring a clear distinction of the roles and capacities in managing and executing trades for their
clients.
d. Ensuring the continual professional development of the appointed representatives on product
knowledge and processes.

▪ (a), (b) and (d).

▪ (b), (c) and (d).
▪ (b) and (c).
▪ (c) and (d).

Chapter 7 – Central Provident Fund Investment Scheme (CPFIS)

26. Out of the CPFIS-Ordinary Account savings, only 35% of the savings can be invested in which products?

a. Fixed deposits.
b. Singapore Government bonds.
c. Corporate bonds.
d. Endowment insurance policies.

27. Which of the following banks is an agent bank included under CPFIS?

a. OCBC Bank.
b. Maybank.
c. HSBC Bank.
d. ICICI Bank.

28. Athena is 45 years old with balances of S$18,000 and S$20,000 in her CPF-Ordinary Account and CPF-
Special Account accounts respectively. She is currently a homemaker with no liabilities. Is Athena
eligible to invest her CPF savings?

a. Yes, as she is not declared an undischarged bankrupt.

b. No, as her CPF balances did not meet the stipulated requirement.
c. No, as she is unemployed.
d. Yes, as she is above 18 years of age.

29. For Exchange-Traded Funds to be included under the CPFIS Scheme, they must:

a. Be traded in Singapore dollars.

b. Not be placed on an SGX-ST watch-list.
c. Be listed on SGX-ST.
d. Comply with CPF Investment Guidelines.
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▪ (a) and (c).

▪ (b) and (c).
▪ (b) and (d).
▪ (c) and (d).

30. Which document must be produced in order to entitle a claim of any residual CPFIS investments from
the agent bank or product provider, upon the death of a CPFIS member?

a. Option to Administer.
b. Letter of Entitlement.
c. Entitlement of Nominee.
d. Grant of Probate.

Chapter 8 – Prevention of Financial Crimes

31. Zenia buys luxury goods and resells them to unrelated clients. She then deposits the sales proceeds
into multiple bank accounts. Which stage of money laundering does this relate to?

a. Initiation.
b. Integration.
c. Layering.
d. Placement.

32. Which of the following statutes governs money laundering in Singapore?

a. Banking Act.
b. Securities and Futures Act.
c. Suppression of Financing of Terrorism Act.
d. Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act.

33. Harrison is a business development officer of Cosmos Brokerages. He is currently applying Know Your
Customer (KYC) procedures for the opening of a new brokerage account. Which of the following would
be considered critical steps to undertake?

a. Properly identifying and verifying the client’s identity.

b. Identifying the client’s source of funds.
c. Determining the marital status of the client opening the account.
d. Determining the types of business activity of the client.

▪ (a), (b) and (d).

▪ (b), (c) and (d).
▪ (b) and (c).
▪ (c) and (d).

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34. Upon learning that a client is on a money laundering sanctions list, what action must a trading
representative take?

a. Immediately freeze the account and report this to the authorities.

b. Immediately freeze the account and delete all relevant records and particulars.
c. Continue to closely monitor transactions on the affected account.
d. Transfer the client’s account to another trading representative or trading firm.

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Appendix H: Essential Readings

1. Securities and Futures Act
Available online on Attorney-General’s Chambers website - Singapore Statutes Online
(https://sso.agc.gov.sg)

2. Securities and Futures (Licensing and Conduct of Business) Regulations

Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(https://sso.agc.gov.sg)

3. Securities and Futures (Financial and Margin Requirements for Holders of Capital Markets Services
Licences) Regulations
Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(https://sso.agc.gov.sg)

4. Guidelines on Criteria for the Grant of a CMS Licence

(Guideline No. SFA 04-G01)
Available online on Monetary Authority of Singapore website (https://www.mas.gov.sg/)

5. Guidelines on Fit and Proper Criteria

(Guideline No. FSG-01)
Available online on Monetary Authority of Singapore website (https://www.mas.gov.sg/ )

6. Notice on Reporting of Misconduct of Representatives by Holders of CMS Licence and Exempt Financial
Institutions
(Notice No. SFA 04-N11)
Available online on Monetary Authority of Singapore website (https://www.mas.gov.sg/)

7. Notice on Competency Requirements for Representatives of Holders of CMS Licence and Exempt
Financial Institutions
(Notice No. SFA 04-N22)
Available online on Monetary Authority of Singapore website (https://www.mas.gov.sg/ )

8. Circular on Due Diligence Checks and Documentation in Respect of the Appointment of Appointed,
Provisional and Temporary Representatives
(CMI 01/2011)
Available online on Monetary Authority of Singapore website ( https://www.mas.gov.sg/)

9. Notice on Sale of Investment Products

(Notice No. SFA 04-N12)
Available online on Monetary Authority of Singapore website ( https://www.mas.gov.sg/ )

10. SGX-ST Rules

Available online on SGX website – Rule Books (https://rulebook.sgx.com/rulebook/sgx-st-rules-0)

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11. Banking Act

Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(https://sso.agc.gov.sg)

12. Personal Data Protection Act

Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(https://sso.agc.gov.sg)

13. Central Provident Fund Investment Scheme

Available online on Central Provident Fund website (https://www.cpf.gov.sg)

14. Corruption, Drug Trafficking and Other Serious Crime (Confiscation of Benefits) Act
Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(https://sso.agc.gov.sg)

15. Mutual Assistance in Criminal Matters Act

Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(https://sso.agc.gov.sg)

16. Terrorism (Suppression of Financing) Act

Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(https://sso.agc.gov.sg)

17. Notice to Capital Markets Intermediaries on Prevention of Money Laundering and Countering the
Financing of Terrorism
(Notice No. SFA 04-N02)
Available online on Monetary Authority of Singapore website (https://www.mas.gov.sg)

18. Guidelines to MAS Notice SFA 04-N02 on Prevention of Money Laundering and Countering the Financing
of Terrorism
Available online on Monetary Authority of Singapore website (https://www.mas.gov.sg)

19. MAS Notice on Prevention of Money Laundering and Countering the Financing of Terrorism – Banks
(Notice No. 626)
Available online on Monetary Authority of Singapore website (https://www.mas.gov.sg)

20. Income Tax Act

Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(https://sso.agc.gov.sg)

21. Goods and Services Tax (GST) Act

Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(https://sso.agc.gov.sg)

22. Notice SFA 04-N16 on Execution of Customers’ Orders

Available online on Monetary Authority of Singapore website (https://www.mas.gov.sg)

23. Guidelines to Notice SFA 04-N16 on Execution of Customers’ Orders

Available online on Monetary Authority of Singapore website (https://www.mas.gov.sg)

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The Institute of Banking & Finance IBF Assessment Centre
10 Shenton Way 20 Anson Road
MAS Building #13-07/08 Twenty Anson #05-01
Singapore 079117 Singapore 079912
www.ibf.org.sg