CM EIP – Capital Markets – Excluded Investment Products – Securities, Collective Investment Schemes (EIP) and Foreign Exchange Set Two

Correct: According to the Securities and Futures Act (SFA) and the MAS requirements for authorized Collective Investment Schemes, the manager must be a company incorporated in Singapore. Furthermore, the manager must maintain a physical presence in Singapore, which implies having sufficient substance, including having a physical office and employing a sufficient number of fit and proper personnel who are resident in Singapore to conduct the management of the scheme.

Incorrect: The suggestion that a representative office is sufficient is incorrect because representative offices are not permitted to carry out regulated activities such as fund management. The idea that only a registered address is required is insufficient as the regulatory framework requires ‘substance’ and active management within the jurisdiction. Allowing a manager to have no resident licensed representatives based on foreign regulation is incorrect, as MAS requires local accountability and oversight for authorized schemes offered to the Singapore retail public.

Takeaway: A manager of an authorized CIS must be a Singapore-incorporated company with a substantive physical presence and resident personnel to ensure effective local regulatory oversight.

Correct: According to Appendix 2 of the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore (MAS), a Money Market Fund (MMF) must maintain a Weighted Average Maturity (WAM) of no more than 60 days. The WAM is a measure of the sensitivity of the MMF to changes in interest rates, and this strict limit ensures the fund maintains high liquidity and low interest rate risk.

Incorrect: The option of 120 days is incorrect because this is the limit for the Weighted Average Life (WAL) of the portfolio, not the Weighted Average Maturity (WAM). The options for 90 days and 180 days are incorrect as they do not align with the specific regulatory thresholds established by MAS for Money Market Funds in Singapore; 180 days would represent a significantly higher interest rate risk than permitted for this fund type.

Takeaway: Under the MAS Code on Collective Investment Schemes, a Money Market Fund must strictly adhere to a maximum Weighted Average Maturity (WAM) of 60 days to limit interest rate sensitivity and ensure liquidity for investors.

Correct: Under the Business Trusts Act of Singapore, a Business Trust is managed by a single company known as the trustee-manager. This entity holds the trust assets on trust for the beneficiaries and also manages the business of the trust. In contrast, a Collective Investment Scheme (CIS) structured as a unit trust under the Securities and Futures Act (SFA) requires a ‘dual-party’ structure. This involves an independent trustee, who is responsible for safeguarding the assets and overseeing the manager, and a separate investment manager responsible for the day-to-day investment decisions.

Incorrect: The suggestion that both structures require an independent trustee is incorrect because the Business Trust model specifically utilizes a unified trustee-manager. While it is true that Business Trusts can pay distributions out of cash flow, this is not the primary structural governance distinction. Describing a Business Trust as an incorporated company is legally inaccurate; it is a trust structure that operates like a business, not a company incorporated under the Companies Act. Finally, unit holders in a unit trust generally enjoy limited liability through the trust deed and regulatory protections, so claiming they have unlimited liability is incorrect.

Takeaway: The fundamental structural difference in Singapore is that a Business Trust uses a unified trustee-manager model, while a unit trust requires a separate trustee and manager to ensure checks and balances.

Correct: According to the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore (MAS), a prospectus must contain the information that investors and their professional advisers would reasonably require to make an informed assessment of the scheme. This includes a clear description of the investment objective, focus, and approach. When a manager outsources the investment function, they remain responsible for ensuring that the specific strategy used by the delegate and the attendant risks (such as the technical or liquidity risks of an algorithmic strategy) are transparently disclosed to investors.

Incorrect: The suggestion that strategies are trade secrets is incorrect because regulatory transparency for investor protection overrides proprietary concerns in a retail prospectus. The idea that legal liability waives disclosure is false; disclosure is about informed consent, not just liability. There is no 75% threshold for risk disclosure; any material strategy or risk factor that could impact the investor’s decision must be disclosed regardless of the percentage of assets managed by a sub-manager.

Takeaway: Under Singapore’s CIS Code, fund managers must provide full disclosure of investment strategies and risks in the prospectus, even when those functions are outsourced to a third party managed sub-manager.

Correct: According to the Code on Collective Investment Schemes (CIS Code) in Singapore, if the market price of an investment is unavailable or does not represent the fair value, the manager must value the investment at fair value. This fair value must be determined in good faith and in accordance with the constitutive documents (like the trust deed) of the scheme. The manager is also expected to consult with the trustee regarding the valuation methodology to ensure the interests of the participants are protected.

Incorrect: Maintaining the last traded price when it is no longer representative of the current value is a failure of the manager’s duty to provide a fair NAV and can lead to stale-price arbitrage. Suspending the fund is a measure of last resort and is not automatically required simply because one asset lacks a market price, provided a fair value can be determined. Using historical cost or amortized cost is generally not an acceptable substitute for fair value pricing under the CIS Code when market conditions have changed significantly.

Takeaway: Under Singapore’s CIS Code, managers must use fair value pricing determined in good faith and in consultation with the trustee whenever market prices are unavailable or unreliable to ensure a fair NAV calculation.

Correct: In accordance with the MAS Guidelines on Risk Management Practices and the expectations for holders of a Capital Markets Services (CMS) license in Singapore, fund managers must maintain an internal audit function that is independent of the day-to-day operations. If a gap in the audit cycle is identified, the manager must proactively arrange for an independent review—either through an internal team with no operational involvement or an outsourced provider—and ensure the Board of Directors is informed to maintain proper corporate governance and oversight.

Incorrect: Instructing the compliance officer to perform the audit is incorrect because the internal audit function must remain independent of the compliance function to provide objective assurance. Using the external statutory auditor for internal audit tasks can lead to conflicts of interest and may not satisfy the specific operational requirements of an internal audit under Singapore’s regulatory framework. Retroactively changing internal policies to hide a failure in the audit cycle is a breach of ethical standards and does not address the underlying risk management failure.

Takeaway: Fund managers in Singapore must ensure an independent internal audit function regularly reviews all key operational areas and reports directly to the Board or Audit Committee to comply with MAS expectations.

Correct: According to the Code on Collective Investment Schemes (Appendix 6 on Property Funds) issued by the Monetary Authority of Singapore (MAS), the aggregate leverage of a property fund should not exceed 45% of its deposited property. However, this limit may be increased to a maximum of 50% if the property fund has a minimum interest coverage ratio (ICR) of 2.5 times. Since the projected ICR is 2.2 times, the REIT no longer qualifies for the higher 50% limit and must adhere to the 45% limit.

Incorrect: The suggestion that a credit rating allows for higher leverage is based on an outdated regulatory framework that was replaced by the ICR requirement. The claim that leverage must be reduced to 35% is incorrect as the base regulatory limit is 45%, not 35%. The assertion that the ICR is merely a disclosure recommendation is false, as it is a binding requirement under the Code on Collective Investment Schemes to justify leverage between 45% and 50%.

Takeaway: In Singapore, an S-REIT can only exceed the 45% gearing limit (up to 50%) if it maintains a minimum interest coverage ratio of 2.5 times as per the MAS Code on Collective Investment Schemes.

Correct: Under the MAS Guidelines on Marketing and Advertising of Collective Investment Schemes, advertisements must include a statement that a prospectus or profile statement is available and can be obtained from the manager or its distributors. It must also advise potential investors to read the prospectus before deciding whether to invest. Furthermore, it must state that the value of units and the income from them may fall as well as rise.

Incorrect: The suggestion that MAS regulation implies a low risk of capital loss is misleading and prohibited, as MAS does not guarantee the performance or safety of any CIS. Guaranteeing historical returns for future periods is a violation of the principle that past performance is not indicative of future results. The SGX and SIC do not pre-approve the content of CIS advertisements for accuracy; the responsibility for compliance and accuracy rests with the fund manager and the person responsible for the advertisement.

Takeaway: All CIS advertisements in Singapore must direct investors to the prospectus and clearly warn that investment values and income can fluctuate.

Correct: Under the Code on Collective Investment Schemes (Code on CIS) issued by the Monetary Authority of Singapore (MAS), a manager may suspend dealings in exceptional circumstances if it is in the best interests of the participants. The manager is required to immediately notify the MAS of the suspension and must consult the trustee (or the depositary) before making the decision to suspend.

Incorrect: The suggestion that a manager can wait 48 hours before notifying the MAS is incorrect as the Code requires immediate notification. The requirement for prior written approval from the MAS is incorrect because the manager and trustee are responsible for the decision-making process in the first instance, followed by immediate notification. Fixed numerical thresholds like 10% of NAV or the closure of the SGX are not the primary regulatory criteria for suspension; the overarching principle is the best interests of the participants.

Takeaway: Suspension of dealings in a Singapore-authorized CIS must be in the best interests of participants, involve consultation with the trustee, and require immediate notification to the MAS.

Correct: According to the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore (MAS), the manager is responsible for the valuation of the scheme’s assets. While the manager may delegate the calculation of the Net Asset Value (NAV) to a third-party service provider or fund administrator, the manager retains ultimate responsibility for ensuring that the assets are valued fairly and in accordance with the trust deed and the prospectus.

Incorrect: The approach suggesting the Trustee takes over valuation is incorrect because the Trustee’s role is primarily one of oversight and safekeeping, not the primary valuation of the portfolio. The approach suggesting that outsourcing to a licensed administrator exempts the manager from liability is incorrect because regulatory responsibility for valuation remains with the manager regardless of outsourcing arrangements. The approach suggesting the use of historical cost for unquoted securities is incorrect because the CIS Code requires assets to be valued at fair value using the best available estimates when market prices are unavailable.

Takeaway: Under Singapore’s regulatory framework, the manager of a collective investment scheme bears the ultimate responsibility for ensuring fair and accurate asset valuation, even when administrative tasks are outsourced.

Correct: In Singapore’s capital markets, the clearing house (such as SGX-DC) performs the role of a Central Counterparty (CCP) through a legal process known as novation. Novation occurs when the original contract between a buyer and a seller is discharged and replaced by two new contracts: one between the buyer and the CCP, and another between the seller and the CCP. This effectively centralizes credit risk, as participants no longer face the credit risk of their original trading partner but instead face the credit risk of the clearing house, which is managed through rigorous margin requirements and a clearing fund.

Incorrect: The suggestion that the clearing house acts as a legal agent is incorrect because the CCP becomes a principal to the trades through novation, not just an intermediary or agent for the original parties. The idea that it provides a secondary layer of credit insurance is inaccurate because the CCP is the direct counterparty to the trade from the moment of clearing, not a backstop insurer that waits for a multi-day default. Facilitating bilateral netting between original participants is incorrect because the CCP enables multilateral netting, where all obligations are netted against the CCP itself rather than between individual trading pairs.

Takeaway: The clearing house uses novation to become the central counterparty, effectively centralizing and managing counterparty credit risk for all market participants in Singapore.

Correct: According to the MAS Technology Risk Management Guidelines and relevant circulars, financial institutions in Singapore are required to notify MAS of any relevant incident (such as a critical system failure, disruption, or cyber-attack) that has a severe impact on the institution’s operations or service to customers. This notification must be made as soon as possible, but no later than 3 hours from the discovery of the incident. The absence of direct financial loss does not exempt the firm from this reporting timeline.

Incorrect: The suggestion that reporting is only required after 24 hours or based on recovery time objective percentages is incorrect as the 3-hour window is a strict regulatory expectation for critical systems. The claim that notification depends on base capital breaches or a specific percentage of the client base is a misconception; any severe impact on customer service triggers the requirement. Deferring the report until a full root cause analysis is completed is also incorrect, as the initial notification must be timely, with the detailed investigation report following later.

Takeaway: In Singapore, critical system disruptions must be reported to MAS within 3 hours of discovery to ensure operational transparency and regulatory oversight of technology risk.

Correct: According to the Securities and Futures (Licensing and Conduct of Business) Regulations (SFR) in Singapore, specifically Regulation 16, a Capital Markets Services (CMS) license holder is required to deposit client money into a trust account maintained with a specified financial institution (such as a bank licensed under the Banking Act) no later than the business day following the day on which the money was received. This strict timeline is designed to ensure that client assets are promptly segregated from the firm’s own assets, protecting them from the firm’s creditors in the event of insolvency.

Incorrect: The suggestion that funds can be held for three business days if tagged in a ledger is incorrect because the SFR requires physical segregation into a trust account, not just accounting entries. The idea of a seven-day window with a risk disclosure waiver is false as the ‘next business day’ rule is a mandatory regulatory requirement that cannot be waived by client consent. Waiting until trade execution or SGX confirmation is also incorrect; the obligation to protect client money begins upon receipt of the funds, regardless of the trade status.

Takeaway: CMS license holders in Singapore must deposit all client money into a designated trust account by the next business day to ensure immediate asset protection and regulatory compliance.

Correct: In Singapore, a bonus issue involves the capitalization of a company’s reserves (such as retained earnings) to issue additional shares to existing shareholders. According to SGX Listing Rules and the Singapore Companies Act, while the number of shares increases, the total net assets and equity of the company remain the same. The most effective control to prevent market misunderstanding is transparent communication via SGXNet, clarifying that the share price will adjust downwards (ex-bonus) to reflect the increased share count, thereby maintaining the same aggregate market capitalization and fundamental value.

Incorrect: Requiring cash reserves is incorrect because a bonus issue is a non-cash accounting entry that capitalizes existing reserves rather than utilizing cash. Treating a bonus issue as a taxable dividend is incorrect as bonus shares are generally not taxable as income in Singapore and represent a change in capital structure rather than a cash distribution. Setting arbitrary share price performance hurdles is not a regulatory requirement under the SGX framework and does not address the risk of investor confusion regarding the mechanics of capital capitalization.

Takeaway: A bonus issue is a capitalization of reserves that increases the share count and reduces the per-share price proportionally without changing the company’s total equity or fundamental value.

Correct: According to the Code on Collective Investment Schemes (CIS Code) and the Securities and Futures Act (SFA), when an authorized unit trust is terminated in accordance with the trust deed (such as when the NAV falls below a certain level), the manager must notify both the unitholders and the Monetary Authority of Singapore (MAS). The trustee plays a crucial fiduciary role in the winding-up process, ensuring that assets are sold at a fair price, all outstanding debts and liabilities of the trust are settled, and the remaining proceeds are distributed equitably to the unitholders.

Incorrect: Notifying only the unitholders is insufficient because the MAS must be informed of the termination of any authorized scheme. A High Court order is generally associated with compulsory winding up due to insolvency or regulatory intervention, rather than a voluntary termination triggered by a trust deed provision. While some unit trusts may be listed, the primary regulatory framework for the termination of authorized unit trusts is the CIS Code and the SFA, not the SGX listing rules, and the MAS is the primary authority to be notified rather than the SGX for the termination process itself.

Takeaway: The termination of a Singapore-authorized unit trust must follow the trust deed’s provisions, involve notification to the MAS, and require the trustee to ensure an orderly liquidation and distribution of assets.

Correct: In Singapore’s capital markets, when a client’s equity falls below the maintenance margin, the broker (a Capital Markets Services license holder) issues a margin call. The client is typically required to restore the account to the initial margin level. Under the standard terms of the Securities and Futures Act (SFA) and SGX rules, if the client fails to meet the call within the stipulated period, the broker has the right to liquidate the positions to protect the firm and the clearing system from further financial exposure.

Incorrect: Allowing a client to maintain a position based only on a written commitment without collateral violates risk management principles and regulatory expectations for margin trading. Brokers do not need a court order or MAS authorization to liquidate positions; these rights are established in the contractual customer agreement and supported by industry regulations. Converting margin debt into an unsecured personal loan is not a standard or regulatory-compliant method for handling a margin call in a securities or derivatives trading context.

Takeaway: Failure to meet a margin call in Singapore allows the broker to exercise its contractual right to liquidate positions to ensure the financial integrity of the trading participant and the exchange.

Correct: Under the Financial Advisers Act (FAA), ‘advising others’ concerning investment products (which include capital markets products like securities and derivatives) is a regulated activity. There is no provision in the FAA that waives the requirement for individuals to be appointed representatives simply because a business continuity plan (BCP) has been activated. Any individual providing financial advisory services on behalf of a licensed or exempt financial adviser must be an appointed or provisional representative, ensuring they meet the necessary fit and proper criteria and educational requirements set by the Monetary Authority of Singapore (MAS).

Incorrect: The suggestion that administrative staff can provide advice during a 14-day emergency period is incorrect because the FAA does not grant time-based exemptions for unlicensed individuals to perform regulated activities. Notification to MAS regarding BCP activation does not waive the legal requirement for individuals to be authorized representatives before providing advice. The ‘Execution-Only’ concept refers to transactions where no advice is given; if an employee provides specific product recommendations, they are performing an advisory service, which triggers the full regulatory requirements of the FAA regardless of whether a separate fee is charged.

Takeaway: Regulatory requirements for the provision of investment advice under the Financial Advisers Act remain strictly in force during business continuity events, requiring all advisory activities to be performed by authorized representatives.

Correct: The Singapore Exchange (SGX) moved from a T+3 to a T+2 settlement cycle in December 2018 to align with international standards and reduce counterparty risk. For a trade executed on Monday (T), the settlement date is two market days later, which is Wednesday (T+2). The Central Depository (CDP) utilizes a Delivery versus Payment (DVP) mechanism, which ensures that the transfer of securities only occurs if the corresponding payment is received, thereby finalizing both components on the same day.

Incorrect: The suggestion of Thursday is incorrect because it reflects the outdated T+3 settlement cycle. The suggestion of Tuesday is incorrect because it reflects a T+1 cycle, which is not the standard for SGX-ST equities. The suggestion that securities are delivered on Wednesday while payment is deferred to T+3 is incorrect because the DVP system requires the simultaneous exchange of cash and securities to mitigate settlement risk.

Takeaway: The SGX-ST operates on a T+2 settlement cycle where both securities and funds are exchanged simultaneously two market days after the trade date via the CDP.

Correct: According to the Code on Collective Investment Schemes (Code on CIS) issued by the Monetary Authority of Singapore (MAS), when a market price is not available or does not represent fair value (such as during a suspension), the manager must value the asset at fair value. This fair value must be determined in good faith by the manager, approved by the trustee, and the valuation process must be subject to verification by the fund’s auditor to ensure all investors are treated equitably.

Incorrect: Using the last traded price is incorrect because it may no longer reflect the actual value of the asset following a suspension event, leading to an inaccurate NAV. Writing off the asset entirely without a valuation basis is arbitrary and unfairly penalizes existing investors while potentially providing a windfall to new investors. Switching to historical pricing is not a standard remedy for asset suspension; Singapore CIS typically use forward pricing to ensure investors deal at a price that reflects the most current valuation of the fund’s underlying assets.

Takeaway: In the event of asset illiquidity or suspension, Singapore fund managers must use a fair value approach approved by the trustee to maintain the integrity of the NAV calculation.

Correct: Reverse stress testing is a risk management tool that starts from a defined outcome of business failure (such as insolvency or a breach of regulatory capital) and works backward to identify the scenarios that could cause such an event. This approach helps Singapore financial institutions identify hidden vulnerabilities and ‘tail risks’ that standard historical stress tests might miss, which is a key expectation under MAS risk management frameworks.

Incorrect: Calibrating VaR models based on historical SGX data is a standard risk measurement practice but does not constitute reverse stress testing, which is forward-looking and starts from a failure point. Maintaining a capital buffer based only on historical downturns is insufficient because stress testing must account for ‘extreme but plausible’ events that may not have occurred yet. Providing a quantitative guarantee of limited drawdowns is unrealistic and misrepresents the purpose of stress testing, which is for risk assessment and planning rather than providing performance guarantees.

Takeaway: Reverse stress testing is designed to identify the specific breaking points of a financial institution by working backward from a state of business non-viability.

Correct: The Securities Industry Council (SIC) is the body empowered under the Securities and Futures Act (SFA) to administer and enforce the Singapore Code on Take-overs and Mergers. One of its primary roles is to provide rulings and interpretations of the Code. In cases of uncertainty, especially regarding mandatory offers, the Code encourages early consultation with the SIC Secretariat to ensure compliance and maintain an orderly market.

Incorrect: Relying solely on private legal advice without consulting the SIC is risky because the SIC is the final arbiter of the Code’s interpretation. The SIC is not merely an advisory body; it has the authority to grant waivers and its rulings are central to take-over proceedings, making a direct application to MAS for Code-specific waivers inappropriate. While the SGX oversees listing rules, the SIC specifically administers the Take-over Code, and waiting for SGX intervention would ignore the proactive consultation requirements of the Code.

Takeaway: The Securities Industry Council (SIC) is the central authority for interpreting and administering the Singapore Code on Take-overs and Mergers, and proactive consultation is the standard procedure for resolving uncertainties.

Correct: Under the Representative Notification Framework (RNF) in Singapore, an individual is only permitted to commence regulated activities under the Securities and Futures Act (SFA) or Financial Advisers Act (FAA) once their name is officially published on the MAS Register of Representatives. If an individual starts early, it constitutes a regulatory breach. The immediate priority is to stop the unauthorized activity to prevent further non-compliance and investigate the breakdown in the firm’s onboarding and compliance controls.

Incorrect: Supervision by a senior representative does not waive the legal requirement for an individual’s name to appear on the public register before performing regulated activities. The Singapore Exchange (SGX) is not the authority responsible for the Register of Representatives; that is the purview of the Monetary Authority of Singapore (MAS). Backdating commencement dates or using provisional dates in the CoRe system is not permitted and would involve providing false or misleading information to the regulator.

Takeaway: An individual must not perform any regulated activities until their name is successfully published on the MAS Register of Representatives, as notification alone does not grant the right to practice.

Correct: Under MAS Notice 626, capital markets intermediaries are required to conduct a comprehensive risk assessment to identify and understand their ML/TF risks. This assessment must consider various factors including customers, countries or jurisdictions, products, services, transactions, and delivery channels. Crucially, this assessment must be documented, approved by senior management, and regularly updated to reflect changes in the intermediary’s risk profile or operating environment, such as during business continuity scenarios.

Incorrect: Deferring documentation during a business continuity event is not permitted, as the Notice requires the assessment to be current and documented to guide risk mitigation. Adopting a standardized template without customization is insufficient because the intermediary must assess risks specific to its own business nature and complexity. Classifying all Singapore residents as low risk by default is incorrect; the risk-based approach requires an individualized assessment of various risk factors regardless of residency.

Takeaway: MAS Notice 626 mandates that capital markets intermediaries maintain a documented, enterprise-wide risk assessment that is regularly updated to reflect their specific ML/TF risk exposure across all business conditions.

Correct: Under the Payment and Settlement Systems (Finality and Netting) Act (PSS(FN)A) of Singapore, once a system is designated by the Monetary Authority of Singapore (MAS), transfer orders and netting are protected. Specifically, the Act provides that transfer orders and netting are valid and enforceable even if the participant becomes insolvent. This statutory protection overrides general insolvency laws that might otherwise allow a liquidator to reverse or ‘claw back’ transactions, thereby ensuring the stability and finality of the Singaporean financial system.

Incorrect: The suggestion that the IRDA clawback provisions apply is incorrect because the PSS(FN)A specifically provides a legal carve-out to protect designated systems from such insolvency rules. The idea that MAS must provide transaction-specific confirmation is incorrect as the finality is a statutory right granted to the system upon designation, not a case-by-case approval. The claim that the clearing house’s knowledge of insolvency affects finality is also incorrect; the Act is designed to provide absolute certainty to the settlement process to prevent systemic contagion, regardless of the clearing house’s awareness of a member’s financial state.

Takeaway: The Payment and Settlement Systems (Finality and Netting) Act ensures that settlements in designated Singaporean systems are irrevocable and protected from reversal under insolvency laws to maintain systemic stability.

Correct: Under the MAS Balanced Scorecard (BSC) framework, a representative’s remuneration is tied to non-sales KPIs, including conduct and compliance. A substantiated breach, such as failing to disclose conflicts of interest, directly impacts the representative’s BSC grade. Depending on the severity (e.g., Grade C, D, or E), the framework mandates a specific percentage of the variable remuneration to be withheld or forfeited, ensuring that financial incentives are aligned with ethical conduct and regulatory compliance.

Incorrect: The suggestion that high sales can offset compliance failures is incorrect because the BSC framework is specifically designed to prevent ‘sales-at-all-costs’ cultures by making non-sales KPIs independent hurdles. The claim that the BSC only applies to external complaints is false; any substantiated breach of conduct, whether discovered internally or externally, must be factored into the BSC grading. Finally, while remedial training is often required, it does not replace the mandatory financial adjustments to variable remuneration required by the BSC framework for conduct breaches.

Takeaway: The Balanced Scorecard framework ensures that conduct breaches lead to mandatory reductions in variable remuneration, regardless of a representative’s sales performance.

Correct: Under the Securities and Futures (Licensing and Conduct of Business) Regulations in Singapore, a CMS license holder must ensure that client moneys are paid into a trust account maintained with a specified financial institution (such as a bank licensed in Singapore) no later than the business day following the receipt of the money. Strict segregation is required to protect client assets from the firm’s creditors in the event of insolvency, and commingling client money with the firm’s own operating funds is a regulatory violation.

Incorrect: The suggestion that there is a three-day netting period or grace period for commingling funds in an operating account is incorrect and violates the fundamental principle of segregation. While internal ledgers are required for record-keeping, they do not substitute for the legal requirement to hold funds in a separate trust account. Furthermore, the Monetary Authority of Singapore (MAS) does not provide trust account services for private clients of CMS licensees; these accounts must be held with commercial banks or prescribed financial institutions.

Takeaway: CMS license holders must deposit client moneys into a separate trust account by the next business day to ensure strict segregation from the firm’s own assets.

Correct: For an out-of-the-money (OTM) option, the intrinsic value is zero because the strike price is not favorable relative to the current market price. Therefore, the entire premium paid by the investor is composed of time value (extrinsic value). This value represents the probability that the option will move into-the-money before expiration and is influenced by the time remaining and the volatility of the underlying SGX-listed security. Under MAS fair dealing principles, representatives must ensure clients understand that this time value will decay as the option approaches its expiry date.

Incorrect: The suggestion that the premium represents intrinsic value adjusted for SORA is incorrect because OTM options by definition have zero intrinsic value, and while interest rates affect pricing, they do not create intrinsic value for OTM options. The claim that the premium is a fixed MAS-mandated administrative fee is incorrect as option premiums are market-determined prices based on risk and time factors, not regulatory fees. The statement that time value only applies to deep-in-the-money options is a fundamental misunderstanding; time value exists for all options with time remaining and is the only component of the premium for OTM and at-the-money options.

Takeaway: The premium of an out-of-the-money option consists entirely of time value, which accounts for the potential of the underlying asset to reach a profitable price level before the expiration date.

Correct: According to SGX-ST rules and CDP settlement procedures, if a seller fails to deliver the required securities by the 12:00 PM deadline on T+2, the CDP will initiate a buy-in on the afternoon of the same day (T+2). This is a standard procedure to ensure market integrity and settlement finality. The defaulting broker is responsible for the costs, including the buy-in premium (the price at which the exchange buys the shares to fulfill the trade) and administrative fees.

Incorrect: The settlement cycle is strictly T+2, and there is no automatic extension to T+3 for institutional participants to avoid buy-in. Brokers do not have the authority to unilaterally cancel trades to bypass settlement obligations, as this would disrupt market certainty. Furthermore, the buy-in process is an automated regulatory mechanism managed by the exchange and depository; it does not rely on the buyer filing a manual claim or complaint with MAS or the Clearing Fund.

Takeaway: On the SGX, failed deliveries trigger an automated buy-in process starting on the afternoon of T+2 to maintain settlement certainty and market discipline.

Correct: In Singapore, the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) governs the tipping-off offense. Section 48 of the CDSA stipulates that it is an offense for any person who knows or has reasonable grounds to believe that an STR has been filed or an investigation is being conducted to disclose to any other person any information which is likely to prejudice that investigation.

Incorrect: The assertion that tipping off only applies after a formal CAD investigation is incorrect because the prohibition begins as soon as an STR is contemplated or filed to prevent the destruction of evidence. The claim regarding the PDPA is incorrect because the PDPA contains specific exemptions for disclosures required by other laws or for the purpose of an investigation, and the CDSA’s criminal provisions regarding tipping off take precedence. The idea that disclosure is permitted to help a client correct compliance failures is incorrect, as any disclosure that alerts the subject of an STR is considered tipping off and is a serious criminal offense regardless of the representative’s perceived ‘helpful’ intent.

Takeaway: The CDSA strictly prohibits disclosing any information to a client that might alert them to a Suspicious Transaction Report (STR) or an ongoing investigation, as this constitutes the criminal offense of tipping off.

Correct: Under MAS guidelines and the Code of Conduct, soft dollar arrangements are only permitted if the goods or services received (such as research or analytical software) provide a demonstrable benefit to the clients by assisting in the investment decision-making process. Furthermore, the manager must ensure that the receipt of such benefits does not interfere with the duty to obtain the best execution for the client’s trades.

Incorrect: The hospitality package is considered a ‘prohibited’ soft dollar benefit because it does not assist in the investment decision-making process for the client. Disclosure alone does not make an impermissible benefit (like a luxury hotel stay) acceptable. While soft dollars are regulated, they are not strictly prohibited in their entirety; research-related services are a recognized exception provided they meet specific criteria.

Takeaway: Soft dollar benefits in Singapore are only allowed if they consist of research or advisory services that directly benefit the client’s investment process and do not compromise best execution duties.