RES 2B – Rules, Ethics and Skills for Derivatives Dealers of Non-Exchange Members Set Two

Correct: As the frontline regulator, SGX RegCo (Singapore Exchange Regulation) is responsible for monitoring the market and enforcing Listing Rules. Under the continuous disclosure framework, listed issuers must promptly disclose any information that may have a material effect on the price or value of its securities. If a breach is suspected or if there is unexplained price movement, SGX RegCo has the authority to issue public queries, require the issuer to release a clarifying announcement (Notice of Compliance), and suspend trading to prevent an uninformed or disorderly market.

Incorrect: Transferring the case immediately to MAS for criminal investigation ignores SGX’s primary role in administrative market surveillance and its immediate duty to maintain an orderly market through listing rule enforcement. Prioritizing confidentiality over disclosure contradicts the fundamental principle of a transparent market where material information must be released promptly. Issuing only private warnings and being prohibited from public announcements is incorrect, as SGX RegCo uses public transparency and enforcement actions as key tools to maintain market integrity and investor confidence.

Takeaway: SGX RegCo maintains market integrity by enforcing continuous disclosure requirements and using tools like trading halts and public queries to ensure all investors have access to material information simultaneously.

Correct: According to MAS Notice SFA 04-N12 and FAA-N16, the responsibility for classifying a product as an EIP or SIP lies with the issuer. An Excluded Investment Product (EIP) is generally a product that is established or managed on a plain vanilla basis. If a product contains complex features like embedded derivatives, it does not meet the EIP definition and must be classified as a Specified Investment Product (SIP), regardless of capital protection features.

Incorrect: Classifying a product as an EIP based on capital protection or listing status is incorrect because the presence of an embedded derivative automatically disqualifies it from being an EIP under MAS guidelines. Deferring classification to distributors is incorrect because the issuer is legally mandated to determine the EIP/SIP status so that distributors know whether to apply CKA/CSA. Self-certification via a Product Highlights Sheet does not override the regulatory definitions of EIP and SIP; disclosure quality does not change the product’s regulatory classification.

Takeaway: The product issuer is responsible for classifying an instrument as an SIP if it does not strictly meet the MAS definition of an EIP, particularly when derivatives are involved.

Correct: The Institute of Banking and Finance (IBF) is the national accreditation body for Singapore’s financial industry. The IBF Standards represent a comprehensive set of competency and ethical benchmarks. By ensuring representatives achieve IBF Certification, a firm ensures that its staff has met independent, industry-wide standards for skills and knowledge, which is critical for the complex nature of Specified Investment Products (SIPs). This alignment with the IBF framework directly mitigates the risk of representatives lacking the necessary proficiency to provide sound financial advice.

Incorrect: Relying solely on internal sales briefings is insufficient because these may lack the independent rigor and ethical focus of the IBF Standards. Restricting sales to institutional investors does not address the core requirement for representative competency and ignores the regulatory framework for retail and accredited investors in Singapore. Using sales targets as a proxy for competency is a flawed approach that prioritizes volume over professional skill and ethics, potentially increasing the risk of mis-selling and regulatory breaches under MAS guidelines.

Takeaway: Adherence to IBF Standards and achieving IBF Certification are the primary mechanisms for ensuring representatives in Singapore meet the necessary competency and ethical benchmarks to advise on complex products like SIPs.

Correct: Under the Securities and Futures (Financial and Margin Requirements for Holders of Capital Markets Services Licences) Regulations, a CMS licensee is required to maintain a minimum base capital. To allow the MAS to monitor solvency effectively, the licensee must notify the MAS immediately if its base capital falls below the prescribed minimum or hits an ‘early warning’ level of 120% of that minimum. This ensures the MAS can intervene or monitor the situation before actual insolvency occurs.

Incorrect: Waiting until the annual audited financial statements are submitted is incorrect because the MAS requires immediate notification of capital breaches to manage systemic risk. While aggregate indebtedness is a monitored metric, the 120% base capital threshold is the primary early warning trigger for solvency monitoring. Relying solely on internal audit timelines is insufficient as statutory reporting requirements are triggered by specific financial thresholds regardless of internal review cycles.

Takeaway: CMS licensees must immediately notify the MAS if their base capital falls below the prescribed minimum or the 120% early warning threshold to ensure proactive solvency monitoring.

Correct: In accordance with MAS guidelines and the Securities and Futures Act (SFA) framework for Specified Investment Products (SIPs), financial institutions must ensure the integrity of the Customer Account Review (CAR) or Customer Knowledge Assessment (CKA). If a customer fails, allowing an immediate retake without a cooling-off period or objective evidence of new learning (like the SGX online education module) would undermine the assessment, as it might encourage ‘trial and error’ guessing rather than actual knowledge verification.

Incorrect: Allowing an immediate retake based on a simple declaration is insufficient because it does not provide an objective basis to believe the customer’s knowledge level has changed. Experience in non-SIPs (standard shares) is not a substitute for the specific knowledge required for SIPs, which often involve derivatives or complex structures. Increasing account funding or meeting a high deposit threshold relates to financial standing but does not satisfy the regulatory requirement to assess a retail investor’s specific knowledge and experience for SIP trading.

Takeaway: To maintain the integrity of the SIP assessment process in Singapore, firms should require objective proof of learning, such as the SGX education module, or a cooling-off period before a customer retakes a failed assessment.

Correct: Under the MAS framework and the Financial Advisers Act (FAA), Dual Currency Investments (DCIs) are structured products that incorporate an embedded derivative (typically a put option on a currency). Because they are complex and not listed on an exchange, they are classified as Unlisted Specified Investment Products (SIPs). Consequently, financial advisers must perform a Customer Knowledge Assessment (CKA) to ensure a retail client has the requisite knowledge or experience to understand the risks associated with the product before they are allowed to invest.

Incorrect: Classifying DCIs as Excluded Investment Products (EIPs) is incorrect because EIPs are restricted to non-complex products like plain vanilla bonds or shares without embedded derivatives. DCIs do not qualify as Listed SIPs because they are typically over-the-counter (OTC) structured notes or deposits rather than exchange-traded instruments. Furthermore, DCIs are not Collective Investment Schemes (CIS) as they do not involve the pooling of investor funds into a managed portfolio; therefore, the specific disclosure and assessment rules for CIS do not apply here.

Takeaway: Dual Currency Investments are classified as Unlisted Specified Investment Products (SIPs) in Singapore, necessitating a mandatory Customer Knowledge Assessment (CKA) for retail investors due to their embedded derivative components.

Correct: According to Appendix 1 of the Code on Collective Investment Schemes (CIS Code) issued by the Monetary Authority of Singapore (MAS), a retail scheme should not invest more than 20% of its NAV in entities within the same group. This group limit is designed to ensure sufficient diversification and prevent over-concentration of risk within a single corporate structure.

Incorrect: The 10% limit is incorrect because that is the standard limit for investment in a single entity (single issuer limit), not the aggregate group limit. The 35% limit is incorrect as it typically applies to specific exceptions such as government-linked securities or highly rated sovereign debt under certain conditions. The 50% limit is incorrect as it far exceeds the diversification thresholds permitted for retail collective investment schemes under the CIS Code, regardless of whether the entities are listed on the SGX.

Takeaway: Under the MAS Code on Collective Investment Schemes, retail unit trusts are restricted to an aggregate investment limit of 20% of NAV in any single group of companies to manage concentration risk.

Correct: According to MAS guidelines, Excluded Investment Products (EIPs) are generally those with simple structures that are easily understood by retail investors, such as plain vanilla shares or bonds. If a product contains embedded derivatives or features a complex, non-linear payoff structure (where the return is not a simple function of the underlying asset’s price), it does not meet the EIP criteria. Consequently, it is classified as a Specified Investment Product (SIP), which requires financial institutions to perform a Customer Knowledge Assessment (CKA) or Customer Account Review (CAR) before allowing retail clients to trade them.

Incorrect: Option b is incorrect because the Singapore Exchange (SGX) lists both EIPs and SIPs; listing status does not determine the classification. Option c is incorrect because while credit risk is a significant factor in investment risk, the SIP/EIP classification is primarily based on the structural complexity and the investor’s ability to understand the product’s mechanism, not the issuer’s credit rating. Option d is incorrect because many MAS-authorized Collective Investment Schemes are classified as SIPs, particularly if they use derivatives for purposes other than efficient portfolio management or hedging.

Takeaway: A product is classified as a Specified Investment Product (SIP) if its structure involves complexity, such as embedded derivatives, that prevents it from being classified as a simpler Excluded Investment Product (EIP).

Correct: In accordance with MAS requirements for the sale of unlisted Specified Investment Products (SIPs), if a client fails the CKA, the financial adviser must inform the client of the result and provide a prescribed warning. If the client still chooses to proceed, the adviser must document that the client was informed of the assessment outcome, received the warning, and explicitly confirmed the decision to proceed. This documentation is a critical compliance record for demonstrating that the firm met its conduct of business obligations.

Incorrect: Recording only the transaction approval is insufficient because MAS regulations specifically require the CKA process and subsequent warnings to be documented for auditability. Legal waivers from counsel do not replace the regulatory obligation to follow the CKA framework and document the prescribed warnings. A senior manager override is not a standard regulatory procedure for CKA; the focus is on the client’s informed decision after receiving the mandatory warnings, which must be documented regardless of internal management reviews.

Takeaway: Financial advisers must maintain robust records of CKA outcomes and the specific warnings provided to clients who fail the assessment but choose to proceed with unlisted SIP transactions to ensure compliance with MAS requirements.

Correct: Under the Securities and Futures Act (SFA), a Capital Markets Services (CMS) license is granted to a corporation (not an individual) by the Monetary Authority of Singapore (MAS). This license allows the entity to conduct specific regulated activities listed in the Second Schedule of the SFA, such as dealing in capital markets products, fund management, and providing custodial services.

Incorrect: Individual professionals are classified as appointed or provisional representatives rather than CMS license holders. Banks, merchant banks, and finance companies are typically ‘exempt’ from holding a CMS license under Section 99 of the SFA because they are regulated under other specific statutes, though they are still subject to certain SFA conduct requirements. A CMS license is not restricted to custodial services; it covers a broad range of regulated activities including derivatives and collective investment schemes.

Takeaway: A Capital Markets Services license is a corporate-level authorization issued by MAS under the Securities and Futures Act to perform regulated activities in the Singapore capital markets.

Correct: According to the MAS Notice on the Sale of Investment Products and the Financial Advisers Act (FAA), for unlisted SIPs, a financial institution must conduct a Customer Knowledge Assessment (CKA). If a retail client is assessed not to have the relevant knowledge or experience, the institution must provide advice to the client. If the client still wishes to proceed with the transaction despite the advice, the institution must provide a written warning to the client about the risks and the fact that it is the client’s responsibility to ensure the product is suitable, and then obtain the client’s written acknowledgment.

Incorrect: Allowing an execution-only transaction for an unlisted SIP after a CKA failure without providing formal advice is a breach of MAS regulations. Re-classifying a client as an Accredited Investor requires meeting specific wealth or income thresholds (such as net personal assets exceeding SGD 2 million, not 1 million) and requires an ‘opt-in’ process; it cannot be done automatically to bypass SIP protections. While educational modules can help a client pass a CKA, they do not ‘waive’ the requirement for the assessment itself, and the SGX module is typically associated with listed SIPs (Customer Account Review) rather than unlisted ones.

Takeaway: For unlisted SIPs, if a retail client fails the Customer Knowledge Assessment (CKA), the financial adviser must provide advice and issue a formal written warning before the client can proceed with the investment.

Correct: Under the Securities and Futures (Licensing and Conduct of Business) Regulations, a Registered Fund Management Company (RFMC) is restricted to managing assets for not more than 30 qualified investors. Of these 30 qualified investors, no more than 15 can be collective investment schemes, closed-end funds, or limited partnerships. Additionally, the total assets under management (AUM) must not exceed S$250 million. These limits are strict requirements for maintaining the registration status without a full Capital Markets Services (CMS) license.

Incorrect: The suggestion that there is a six-month grace period for exceeding AUM limits is incorrect; an RFMC must notify MAS and apply for a CMS license if it intends to exceed the S$250 million threshold. The claim that RFMCs are exempt from base capital requirements is false, as they must maintain a minimum base capital of S$250,000. Finally, the 30-investor limit applies to all ‘qualified investors,’ which includes both accredited and institutional investors; it is not restricted only to institutional investors.

Takeaway: Registered Fund Management Companies in Singapore are strictly limited to an AUM of S$250 million and a maximum of 30 qualified investors to operate without a full CMS license.

Correct: Under the MAS guidelines and the Securities and Futures Act (SFA) in Singapore, the Product Highlights Sheet (PHS) is designed to be a concise summary of the key features and risks of the investment product. It is a mandatory disclosure document for certain products like Collective Investment Schemes (CIS). However, it is not a substitute for the prospectus; it must be consistent with the prospectus and include a prominent statement advising investors to read the PHS in conjunction with the full prospectus, which remains the primary legal disclosure document.

Incorrect: The suggestion that the PHS replaces the prospectus is incorrect because the prospectus remains the definitive legal disclosure document under the SFA. The claim that the PHS takes precedence in a conflict is false; the prospectus is the comprehensive document that governs the terms of the offer. The idea that the PHS is only required based on the page count of the prospectus is incorrect, as the requirement for a PHS is based on the type of product being offered to retail investors, not the length of the main document.

Takeaway: The Product Highlights Sheet is a mandatory summary that must be consistent with and read alongside the full prospectus, which remains the primary legal disclosure document for the investment.

Correct: Under the guidelines issued by the Monetary Authority of Singapore (MAS), capital markets intermediaries are strictly prohibited from offering any form of incentive, whether monetary or non-monetary, to retail investors. This includes gifts, credits, or rebates intended to entice individuals to open a CFD trading account or to engage in CFD transactions, as these products carry high leverage and significant risk.

Incorrect: The suggestion that non-monetary incentives are allowed if they are below a certain value threshold is incorrect because the MAS prohibition covers all forms of incentives regardless of their nature or value. The claim that aggressive marketing is allowed based on the outcome of a Customer Knowledge Assessment (CKA) is false, as marketing conduct rules apply independently of the client’s assessed knowledge. Referral programs that offer commission discounts to existing clients for bringing in new retail CFD accounts are also restricted because they function as an incentive to open accounts, which violates the core principle of preventing retail investors from being lured into high-risk derivatives through promotional rewards.

Takeaway: MAS prohibits the use of incentives like gifts or rebates to prevent retail investors from being inappropriately drawn into the high-risk CFD market.

Correct: In Singapore, the Monetary Authority of Singapore (MAS) distinguishes between Excluded Investment Products (EIPs) and Specified Investment Products (SIPs). Under the MAS Notice on the Sale of Investment Products (SFA 04-N12), shares and depositary receipts (including ADRs) that are listed for quotation on the SGX-ST are generally classified as EIPs. EIPs are considered to be more straightforward and are products that the retail public is already familiar with. Therefore, for EIPs, financial institutions are not required to conduct a CKA (for execution-only services) or a CAR (for account opening) to assess the client’s knowledge or experience.

Incorrect: Classifying all ADRs as SIPs is incorrect because the listing on the SGX-ST specifically qualifies them as EIPs under current MAS definitions, unless they contain embedded derivatives or complex features. Requiring a legal opinion for every trade is not a standard regulatory requirement and would be an unnecessary barrier to trade. ADRs are not classified as unlisted derivatives; they are listed securities representing underlying shares, and the rules for unlisted derivatives (which are typically SIPs) do not apply to standard ADRs listed on the local exchange.

Takeaway: ADRs listed on the SGX-ST are generally classified as Excluded Investment Products (EIPs), which exempts investors from the CKA and CAR requirements typically reserved for more complex Specified Investment Products (SIPs).

Correct: According to Section 2 of the Securities and Futures Act (SFA) of Singapore, a key element of a Collective Investment Scheme (CIS) is that the participants do not have day-to-day control over the management of the property. Furthermore, the property must be managed as a whole by or on behalf of the manager, or the contributions and profits/income must be pooled. This definition applies regardless of whether the property is financial or physical in nature.

Incorrect: The number of participants is relevant for determining if a prospectus is required for an offer, but it does not change the fundamental legal definition of what constitutes a CIS. The definition of property under the SFA is broad and includes physical assets like real estate, not just transferable securities. While many CIS structures involve trustees, the legal definition of a CIS focuses on the arrangement’s characteristics (control and pooling) rather than the specific licensing status of the manager as a trust company.

Takeaway: The legal definition of a CIS under the SFA hinges on the participants’ lack of day-to-day control and the centralized management or pooling of the property and its returns.

Correct: In Singapore, the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA) are distinct but complementary. The SFA provides the framework for the regulation of activities in the securities and futures industry, including the licensing of Capital Markets Services (CMS) licensees for ‘dealing in capital markets products’. The FAA, however, regulates the provision of financial advisory services. When a representative provides advice on Specified Investment Products (SIPs) like derivatives, they must comply with FAA requirements, such as conducting a Customer Knowledge Assessment (CKA) or ensuring the client understands the product’s risks, as mandated by MAS under the FAA framework.

Incorrect: The approach suggesting the SFA is the sole governing legislation is incorrect because the FAA specifically targets the conduct of providing advice, regardless of whether the product is a capital markets product under the SFA. The approach limiting the FAA to insurance and CIS is incorrect because the FAA’s scope includes advising on a wide range of investment products, including derivatives. The approach suggesting the FAA licenses all capital market activities is incorrect because the licensing for activities like dealing, fund management, and corporate finance advice falls under the SFA, not the FAA.

Takeaway: The SFA regulates the licensing and market conduct for dealing in products, while the FAA regulates the conduct and suitability obligations for providing financial advice on those products.

Correct: In accordance with MAS Notice SFA 04-N12, if a retail customer fails the Customer Account Review (CAR) for listed Specified Investment Products (SIPs), the broker must inform the customer of the assessment result, provide a risk warning, and advise the customer to seek professional advice. If the customer still intends to proceed without advice, the broker must ensure that a designated senior management staff member (who is not involved in the customer’s account opening or trade) confirms that the customer has been properly warned and understands the risks involved before allowing the account to be used for SIP trading.

Incorrect: Rejecting the application immediately is not a regulatory requirement; the customer is allowed to proceed if specific warning and senior management confirmation steps are followed. While the SGX Online Education Module is a way for customers to gain knowledge, it is not the only path forward after a CAR failure. Indemnity waivers and 14-day cooling-off periods are not the prescribed regulatory procedures for handling CAR failures in the context of listed SIPs. Conducting a secondary review with different criteria to bypass a failure would undermine the integrity of the Customer Account Review process and violate MAS guidelines.

Takeaway: If a customer fails the CAR for listed SIPs, the broker must provide a risk warning and obtain senior management confirmation before the customer is permitted to trade.

Correct: In Singapore, for Specified Investment Products (SIPs) such as Collective Investment Schemes offered to retail investors, the Product Highlights Sheet (PHS) is a mandatory disclosure document. According to MAS requirements, the PHS must be a standalone document, distinct from the prospectus, and must be provided to the investor at the same time the prospectus or profile statement is provided. This ensures that the investor has access to a concise, easy-to-understand summary of key risks and features before making an investment decision.

Incorrect: Integrating the PHS into the prospectus is incorrect because MAS requires it to be a standalone document to prevent key information from being buried in a lengthy legal text. Making the PHS optional based on a client request is incorrect as it is a mandatory disclosure for all retail offers of such products. Providing the PHS after the transaction is incorrect because the purpose of the document is to inform the investor’s decision-making process prior to the point of sale.

Takeaway: The Product Highlights Sheet must be a standalone document provided to retail investors concurrently with the prospectus for all applicable Specified Investment Products in Singapore.

Correct: In Singapore, under the Code on Collective Investment Schemes (CIS Code) issued by the Monetary Authority of Singapore (MAS), a fund’s net exposure to a counterparty of an over-the-counter derivative should not exceed 10% of its Net Asset Value (NAV). Additionally, because synthetic ETFs are complex products, they are classified as Specified Investment Products (SIPs), requiring a Product Highlights Sheet (PHS) to ensure retail investors are informed of the specific risks, such as counterparty risk and derivative complexity.

Incorrect: Classifying a synthetic ETF as an Excluded Investment Product (EIP) is incorrect because products using derivatives for replication are generally classified as SIPs due to their complexity. Bypassing collateral requirements based solely on credit ratings is not permitted as MAS guidelines mandate strict counterparty exposure limits. Withholding the identity of swap counterparties is inappropriate as transparency regarding counterparty risk is a key regulatory expectation for synthetic products to ensure investors can evaluate the credit risk involved.

Takeaway: Synthetic ETFs in Singapore must comply with the 10% counterparty exposure limit under the CIS Code and are treated as Specified Investment Products requiring enhanced disclosure and suitability checks.

Correct: According to MAS Notice SFA 04-N12 and FAA-N16, Excluded Investment Products (EIPs) are defined as investment products that are established and well-understood by retail investors. Standard common shares are classified as EIPs because they are ‘plain vanilla’ instruments without complex structures, features, or embedded derivatives that would otherwise make them Specified Investment Products (SIPs). Because they are EIPs, financial advisers are not required to conduct a Customer Knowledge Assessment (CKA) or Customer Suitability Assessment (CSA) before a client transacts in them.

Incorrect: The suggestion that SGX guarantees the principal amount is incorrect as equity investments inherently carry market risk and no such exchange guarantee exists. The idea that MAS pre-approves financial performance or dividends is false, as MAS regulates the conduct and disclosure requirements rather than the commercial merits or returns of a listing. The claim that common shares are only for Institutional Investors is incorrect; EIP classification is specifically designed to identify products that are accessible to retail investors without the additional hurdles required for more complex SIPs.

Takeaway: Standard common shares are classified as EIPs in Singapore because their straightforward structure lacks the complexity or embedded derivatives that characterize Specified Investment Products (SIPs).

Correct: Under the MAS regulatory framework, Excluded Investment Products (EIPs) are those that are established and well-understood by the retail public. Plain vanilla bonds, which are standard debt securities with no embedded derivatives or complex features, fall under the EIP category. In contrast, structured bonds (such as credit-linked notes or bonds with payouts tied to underlying assets) are classified as Specified Investment Products (SIPs) because their complexity and risk profiles require intermediaries to conduct a Customer Knowledge Assessment (CKA) or Customer Suitability Assessment (CSA) to ensure the retail client has the necessary knowledge or experience.

Incorrect: The classification of a bond as an EIP or SIP is based on the complexity of the product’s structure and terms, not the jurisdiction of the issuer; therefore, foreign vanilla bonds can still be EIPs. Principal protection does not change the status of a structured bond to an EIP, as the underlying mechanism remains complex. Furthermore, credit rating downgrades do not transform an EIP vanilla bond into an SIP. Finally, MAS maintains the EIP/SIP distinction to allow retail investors to access simpler products without mandatory assessments, so not all bonds are classified as SIPs.

Takeaway: Plain vanilla bonds are classified as EIPs due to their straightforward nature, whereas structured bonds are categorized as SIPs due to embedded complexities that necessitate additional investor safeguards.

Correct: According to MAS regulations (SFA 04-N12 and FAA-N16), if a retail client fails the CKA for an unlisted SIP, the financial institution is generally required to provide advice. However, if the client still wishes to proceed without advice (execution-only), the institution must provide a written warning to the client about the lack of knowledge/experience and the risks involved. The transaction can only proceed once the client has provided a written acknowledgment of these warnings.

Incorrect: Mandatory cooling-off periods for CKA failures are not a regulatory requirement under the MAS framework. While firms are encouraged to offer advice, they cannot legally force a client to undergo a suitability assessment or face-to-face briefing if the client insists on execution-only after receiving the required warnings. Checking transaction history is part of the criteria used to determine if a client passes the CKA initially, but it does not serve as a post-failure override mechanism.

Takeaway: For execution-only transactions of unlisted SIPs where a client fails the CKA, the financial institution must issue a formal warning and obtain a written acknowledgment from the client before proceeding with the trade.

Correct: According to MAS guidelines regarding the sale of Specified Investment Products (SIPs), a Customer Knowledge Assessment (CKA) for unlisted SIPs is not permanent. If a customer has not transacted in a particular SIP category for a continuous period of three years, the financial institution is required to conduct a fresh CKA to ensure the customer still possesses the necessary knowledge or experience before allowing them to trade in that category again.

Incorrect: The suggestion that assessments must be re-evaluated every twelve months is incorrect as the MAS standard for inactivity-based reassessment is three years. The idea that a CKA remains valid indefinitely is a misconception that ignores the three-year inactivity rule designed to protect investors whose knowledge may have become outdated. Finally, Accredited Investors are generally exempt from the CKA/CSA requirements, so stating that ongoing monitoring is only mandatory for them is a reversal of the actual regulatory framework which prioritizes retail investor protection.

Takeaway: For unlisted SIPs in Singapore, a Customer Knowledge Assessment (CKA) must be refreshed if the customer has not transacted in that product category for three consecutive years.

Correct: Under the MAS Code on Collective Investment Schemes (CIS Code), the standard requirement for retail unit trusts is forward pricing. This means that the price at which units are issued or redeemed is not known at the time the order is placed; instead, it is based on the NAV calculated at the next valuation point after the dealing deadline. This prevents market timing and ensures that all investors transacting on the same day are treated equitably based on the current market value of the fund’s assets.

Incorrect: Historical pricing is generally not permitted for retail funds in Singapore because it allows investors to trade on ‘stale’ prices, potentially disadvantaging other unitholders. Giving the manager daily discretion to switch between pricing methods would create a conflict of interest and lack of transparency. Using a forty-eight-hour volume-weighted average price is not a recognized valuation standard under the MAS CIS Code for standard unit trust subscriptions and redemptions.

Takeaway: The MAS Code on Collective Investment Schemes mandates forward pricing for retail unit trusts to maintain market integrity and prevent arbitrage opportunities associated with historical price knowledge.

Correct: Under MAS regulations, investment products are divided into Excluded Investment Products (EIPs) and Specified Investment Products (SIPs). EIPs are generally simpler products that are well-understood by retail investors. SIPs, which include many derivatives and complex collective investment schemes, have more intricate structures and risk-reward profiles. Because of this complexity, MAS requires financial institutions to perform a Customer Knowledge Assessment (CKA) for unlisted SIPs or a Customer Account Review (CAR) for listed SIPs to ensure retail clients have the necessary competence to understand the risks involved.

Incorrect: The suggestion that SIPs are defined by higher guaranteed returns or fee caps is incorrect, as SIPs often carry higher risks and MAS does not mandate specific fee caps based on SIP status. The claim that SIPs are only for Accredited Investors is false; the SIP framework is specifically designed to protect retail investors, whereas Accredited Investors are generally exempt from these assessments. Finally, currency denomination is not the criteria for SIP classification; the classification depends on whether the product meets the definition of an EIP based on its structure and complexity.

Takeaway: The SIP framework ensures that retail investors are assessed for their knowledge and experience before being allowed to invest in complex financial products that do not qualify as Excluded Investment Products.

Correct: Under the Securities and Futures (Capital Markets Products) Regulations 2018 and MAS Notice SFA 04-N12, any unit in a real estate investment trust (REIT) that is listed for quotation on a securities exchange (such as the SGX) is defined as an Excluded Investment Product (EIP). This classification recognizes that listed REITs have sufficient disclosure requirements and market oversight, making them accessible to retail investors without the mandatory Customer Knowledge Assessment (CKA) required for Specified Investment Products (SIPs).

Incorrect: While the Property Funds Appendix of the Code on Collective Investment Schemes sets aggregate leverage limits (such as 45% or 50%), these are operational requirements for the REIT’s management and do not determine its EIP status. The restriction on derivatives (excluding hedging) applies to other types of Collective Investment Schemes (CIS) to qualify as EIPs, but listed REITs are classified as EIPs by virtue of their listing status alone. Inclusion in a market index like the Straits Times Index (STI) is a measure of market capitalization but is not a regulatory requirement for EIP classification.

Takeaway: Real Estate Investment Trusts (REITs) listed on a securities exchange like the SGX are classified as Excluded Investment Products (EIPs) in Singapore.

Correct: Under the MAS guidelines for the sale of Specified Investment Products (SIPs), financial institutions must ensure the integrity of the Customer Knowledge Assessment (CKA) and Customer Account Review (CAR). To prevent ‘gaming’ the system or trial-and-error attempts, firms should not allow immediate retakes. A robust control involves requiring the customer to undergo a cooling-off period or demonstrate a material improvement in their knowledge, such as by completing recognized educational modules provided by the Institute of Banking and Finance (IBF) or the Singapore Exchange (SGX).

Incorrect: Allowing immediate retakes with indemnity forms or waivers (option b) fails to address the core regulatory objective of ensuring the client possesses the necessary knowledge to understand the risks of SIPs. Providing the correct answers to the assessment (option c) constitutes ‘coaching’ and is a serious compliance breach that undermines the validity of the assessment. While Accredited Investors (option d) are exempt from certain suitability assessments, the process of re-classifying a client is separate from the integrity of the assessment process itself; a failed assessment for a retail client cannot be ignored simply because of asset levels without a formal change in the client’s regulatory status.

Takeaway: To comply with MAS requirements, firms must prevent the gaming of suitability assessments by requiring objective evidence of improved knowledge, such as educational modules, before allowing a retake.

Correct: Under Section 286 of the Securities and Futures Act (SFA), for a collective investment scheme constituted in Singapore to be authorized by MAS, several criteria must be met. This includes the requirement that the manager is fit and proper and holds a Capital Markets Services (CMS) license for fund management (or is an exempt entity like a bank). Furthermore, for unit trusts, the trustee must be an approved trustee under the SFA to ensure independent oversight of the scheme’s assets.

Incorrect: The requirement for a scheme to be operated in a foreign jurisdiction applies to ‘Recognized’ schemes under Section 287, not ‘Authorized’ schemes which are typically constituted in Singapore. While capital guarantees may be offered in some products, they are not a mandatory requirement for MAS authorization. The Variable Capital Company (VCC) is a flexible corporate structure available in Singapore, but it is not the only structure permitted; authorized schemes can also be structured as unit trusts or business trusts.

Takeaway: To be authorized by MAS for retail offer, a Singapore-constituted CIS must have a licensed or exempt manager and an approved trustee as prescribed by the Securities and Futures Act.

Correct: Under the SGX Listing Rules and the framework for market integrity, the primary tool for managing unusual market activity is the ‘Query Regarding Unusual Price Movements.’ This mechanism forces the issuer to publicly clarify whether there is any undisclosed material information. SGX aims to keep the market open and liquid; a suspension is typically reserved for situations where a company is unable to make an immediate announcement or where a fair and informed market cannot be maintained. This aligns with the principle of transparency in the Singapore capital markets.

Incorrect: The suggestion that SGX mandates an automatic suspension for a 10% price swing is incorrect; while there are ‘circuit breakers’ for the wider market or specific price limits, an automatic suspension for every 10% move is not a standard Listing Rule. The claim that SGX requires MAS authorization for every suspension is false, as SGX, as a Self-Regulatory Organization (SRO), has the delegated authority to manage trading halts and suspensions. The idea that SGX would suspend trading to allow for a ‘private investigation’ without public disclosure contradicts the fundamental listing requirement of continuous disclosure and market transparency.

Takeaway: SGX maintains market integrity by prioritizing continuous disclosure and transparency, using queries to force information into the public domain rather than prematurely halting market liquidity.