CM CMP – Capital Markets – Securities, Derivatives, Collective Investment Schemes and Foreign Exchange Set Two

Correct: The Securities and Futures Act (SFA) adopts an ‘information-connected’ approach rather than a ‘person-connected’ approach for insider trading. Sections 218 and 219 of the SFA stipulate that the core of the offense is the possession of material, price-sensitive information that is not generally available. This means both ‘connected persons’ (like officers) and ‘non-connected persons’ (like tippees) can be held liable if they trade while in possession of such information.

Incorrect: The statement regarding beneficial ownership is incorrect because Section 197 of the SFA prohibits any conduct that creates a false or misleading appearance of active trading, which includes but is not limited to wash sales. The statement regarding dissemination of information is incorrect because Section 199 of the SFA also covers situations where a person ‘ought reasonably to have known’ that the information was false or misleading, encompassing negligence. The statement regarding intent is incorrect because the SFA focuses on the possession of the information and the act of trading; proving a specific subjective intent to use the information for profit is not a prerequisite for establishing liability.

Takeaway: Under Singapore’s SFA, market misconduct liability is broad, focusing on the possession of non-public material information for insider trading and the creation of false market appearances for market rigging.

Correct: According to MAS Notice 626, while a financial institution (FI) is permitted to rely on a third party to perform CDD measures, the FI remains ultimately responsible for the CDD. The FI must also satisfy itself that the third party is able to provide copies of the relevant CDD documents and information without delay upon request. This ensures that the broker-dealer can verify the adequacy of the due diligence performed.

Incorrect: The option suggesting the delegation of ultimate responsibility is incorrect because MAS Notice 626 explicitly states that the responsibility for CDD measures remains with the financial institution relying on the third party. The option regarding waiving the immediate receipt of CDD information is incorrect because the FI must obtain the CDD information (the data) from the third party immediately, even if the supporting documents are provided later. The option regarding automatic simplified due diligence is incorrect because the level of due diligence must be based on the broker-dealer’s own risk assessment of the clients, and reliance on a third party does not inherently change the risk classification.

Takeaway: Under MAS Notice 626, a financial institution may rely on a third party for CDD but retains ultimate responsibility and must ensure immediate access to CDD information and documents.

Correct: The Straits Times Index (STI) is a free-float market-capitalization weighted index that includes the 30 most liquid and largest companies on the SGX Mainboard. It is maintained through a partnership between FTSE Russell, Singapore Press Holdings (SPH), and the Singapore Exchange (SGX). The index is reviewed twice a year, in June and December, to ensure it remains representative of the market.

Incorrect: The STI does not include Catalist stocks and is not price-weighted; it is limited to 30 stocks, not the entire market. The Monetary Authority of Singapore (MAS) is the financial regulator and does not select index components; this is done by the index administrators based on a rules-based methodology. The index is not equal-weighted, does not contain 50 stocks, and is not reviewed on a monthly basis.

Takeaway: The STI is a market-capitalization weighted index of 30 blue-chip stocks on the SGX Mainboard, serving as the definitive benchmark for the Singapore stock market.

Correct: The MAS Guidelines on Environmental Risk Management for Asset Managers emphasize that environmental risk should be integrated into the investment process. This involves incorporating both quantitative data and qualitative assessments into research, portfolio construction, and ongoing monitoring. By doing so, asset managers can better identify and manage physical and transition risks that could materially affect the value of their investments, rather than treating environmental risk as a separate or secondary concern.

Incorrect: Relying solely on external ratings is insufficient because MAS expects asset managers to develop internal capabilities and perform their own due diligence to understand the underlying risks. Creating a siloed department independent of the investment team can lead to a lack of practical integration where risk insights do not actually influence investment decisions. Restricting assessments to green-labeled funds is incorrect because the guidelines state that environmental risk can be material to any investment, and managers should consider these risks across all managed assets where relevant.

Takeaway: Effective environmental risk management under MAS guidelines requires the systematic integration of environmental factors into the core investment analysis and monitoring processes for all relevant assets.

Correct: Under the CPFIS, eligibility to invest is subject to maintaining a minimum ‘set-aside’ balance in the respective accounts: $20,000 for the Ordinary Account (OA) and $40,000 for the Special Account (SA). Only amounts above these thresholds are considered investible. Furthermore, the CPFB imposes specific investment caps on OA funds, such as the 35% stock limit and 10% gold limit, which are calculated based on the ‘investible savings’ (the current OA balance plus any OA funds already withdrawn for investment).

Incorrect: The suggestion that OA and SA balances can be pooled for a combined set-aside is incorrect as the CPFB mandates separate thresholds for each account. The idea that SA funds can be invested based on OA requirements is false because SA eligibility is independent and subject to its own $40,000 limit. The claim that CPFIS-SA is only available at age 55 is incorrect; while the SA is closed and transferred to the Retirement Account (RA) at age 55, CPFIS-SA is available to eligible members from age 18 onwards provided they meet the $40,000 threshold.

Takeaway: CPFIS participants must maintain separate minimum balances of $20,000 in the OA and $40,000 in the SA, with specific percentage limits on stocks and gold applying only to OA funds.

Correct: Under the Financial Advisers Act (FAA) and related MAS guidelines, a licensed financial adviser (LFA) must establish an effective compliance function. To mitigate conflicts of interest, the compliance officer should be independent of the front-office or sales functions they monitor. A direct reporting line to the Board or senior management ensures that compliance concerns are escalated and addressed without being suppressed by business or sales pressures.

Incorrect: Appointing a top-performing salesperson as a compliance officer creates a significant conflict of interest as their primary focus has been sales volume rather than regulatory oversight. While MAS allows for the outsourcing of certain compliance activities, the firm remains responsible for its own compliance and must typically have a designated person or senior management oversight locally. Tying a compliance officer’s bonus to sales volume is a major regulatory risk as it incentivizes the officer to overlook breaches in order to protect their own financial interests.

Takeaway: Independence from sales units and a direct reporting line to senior management are fundamental requirements for a compliance officer in a Singapore licensed financial advisory firm to ensure regulatory integrity and conflict management.

Correct: Under the one-tier corporate tax system, which has been in effect in Singapore since 1 January 2003, the tax paid by a company on its chargeable income is the final tax. Dividends paid by a Singapore resident company are exempt from income tax in the hands of all shareholders (both individuals and corporate entities). This eliminates the double taxation of corporate profits and makes dividend-yielding stocks highly attractive for local investors.

Incorrect: The suggestion that investors can claim a tax credit describes the old imputation system, which was phased out in favor of the one-tier system. There is no 10% withholding tax on dividends paid to Singapore residents; dividends from resident companies are generally tax-exempt. The distinction between capital gains and operating profits for dividend taxation is incorrect, as the one-tier system applies to all dividends paid by resident companies regardless of the underlying profit source.

Takeaway: The Singapore one-tier corporate tax system ensures that dividends from resident companies are tax-free for shareholders, significantly enhancing the net return of dividend-yield strategies.

Correct: Under the Financial Advisers Act (FAA) and the MAS Guidelines on Fair Dealing, financial advisers and their representatives are required to disclose any conflict of interest that may arise from receipt of gifts or entertainment. This disclosure is crucial because such benefits could reasonably be perceived to influence the objectivity of the investment recommendation. Ensuring the client is aware of these interests allows them to make a fully informed decision, aligning with the Fair Dealing Outcomes mandated by the Monetary Authority of Singapore (MAS).

Incorrect: While internal reporting to a compliance register is a standard firm-level requirement, it does not satisfy the statutory duty under the FAA to disclose conflicts of interest directly to the client. The Singapore Exchange (SGX) listing rules apply to issuers and listed companies, not primarily to the conduct of financial advisers under the FAA. Furthermore, while a Product Highlights Sheet (PHS) is a mandatory disclosure document under the SFA for certain products, it focuses on product-specific risks and features rather than the individual representative’s conflicts of interest or incentives.

Takeaway: In Singapore, financial advisers must transparently disclose any material conflicts of interest, including significant gifts or entertainment, to clients to maintain the integrity of the advisory process under the FAA and SFA frameworks.

Correct: According to the MAS Guidelines on Outsourcing, financial institutions (FIs) must conduct a materiality assessment for all outsourcing arrangements. If an arrangement is material—such as a back-office settlement system that could impact the FI’s operations or reputation—the FI must perform rigorous due diligence and ensure the contract includes specific clauses. These clauses must provide the FI and MAS with the right to audit the service provider and access its data or systems to ensure effective oversight.

Incorrect: The MAS Guidelines apply to any outsourced function that is material, regardless of whether it is front-office or back-office; the PDPA is a separate requirement that does not exempt an FI from MAS guidelines. Notification to MAS regarding material outsourcing should be timely and generally occurs before implementation, not after a 90-day pilot. Furthermore, an FI cannot outsource its regulatory responsibilities; the Board and Senior Management remain accountable, and the FI must maintain its own business continuity and contingency plans.

Takeaway: Financial institutions in Singapore remain legally responsible for outsourced material functions and must ensure the right to audit and inspect service providers is contractually secured for both the firm and MAS.

Correct: Under the Financial Advisers Act (FAA) and the Representative Notification Framework (RNF), any individual who performs any financial advisory service must be an appointed or provisional representative of a licensed or exempt financial adviser. The principal firm must notify MAS of the appointment, and the individual’s name must appear on the Public Register of Representatives. This ensures individual accountability and allows the public to verify the status and history of the representative.

Incorrect: The suggestion that a corporate license covers all employees without individual notification is incorrect because the RNF specifically requires individual accountability and public transparency. While the firm is responsible for its representatives, MAS requires a public record of individuals authorized to provide advice. There is no general exemption from notification based solely on the type of client (retail vs. accredited) for individuals acting as representatives of a financial adviser in Singapore. Internal training, while necessary, does not replace the legal requirement for regulatory notification and entry into the Public Register.

Takeaway: All individuals providing financial advisory services in Singapore must be appointed as representatives by a principal firm and notified to MAS under the Representative Notification Framework.

Correct: Under Section 305A of the SFA, units of a collective investment scheme acquired under the Section 304 exemption (offers to accredited investors) are subject to resale restrictions. Specifically, for a period of 6 months from the date of initial acquisition, the units cannot be subsequently sold to any person in Singapore unless that person is an institutional investor, an accredited investor, or another person to whom an offer could be made under an equivalent exemption.

Incorrect: The 24-month holding period is not a requirement under the SFA for these exemptions; the statutory restriction period is 6 months. Preparing a simplified prospectus or Product Highlights Sheet is a requirement for retail offers or certain transactions on the SGX, but it is not the mechanism for managing secondary sales of exempt units. The limit of 50 persons refers to the ‘Small Offer’ exemption under Section 272A of the SFA, not the ‘Accredited Investor’ exemption under Section 304.

Takeaway: Units acquired under the Section 304 exemption are subject to a 6-month resale restriction to prevent the circumvention of prospectus requirements through secondary market sales to the public.

Correct: Under the Monetary Authority of Singapore (MAS) Code on Collective Investment Schemes and the Securities and Futures Act (SFA), issuers are required to provide a Product Highlights Sheet (PHS) alongside the prospectus. The PHS must follow a prescribed format to ensure that key information, particularly fees, charges, and the expense ratio, is presented clearly and concisely. This standardized disclosure is a critical regulatory control to ensure investors can compare costs across different schemes and understand the total cost of ownership.

Incorrect: Marketing brochures are considered promotional material and do not replace the statutory disclosure requirements of the Prospectus and PHS. Hiding material fees such as performance fees in non-public internal manuals violates the fundamental principle of full and fair disclosure required by MAS. Furthermore, the requirement to provide a PHS is a regulatory mandate under the SFA; it cannot be substituted by verbal explanations or bypassed through investor waivers.

Takeaway: Standardized disclosure through the Product Highlights Sheet and Prospectus is a mandatory regulatory requirement in Singapore to ensure transparency regarding all fees and the expense ratio of a collective investment scheme.

Correct: Under the Code on Collective Investment Schemes (the Code) issued by the Monetary Authority of Singapore (MAS), the manager and the trustee of an authorized scheme must be independent of each other. If they are not independent (for example, if they are both subsidiaries of the same corporation), they must satisfy MAS that the independence of the trustee’s functions is not compromised. This ensures the trustee can effectively perform its fiduciary duty to protect unitholders and provide independent oversight of the manager’s activities.

Incorrect: Option B is incorrect because a self-declaration is insufficient to meet the regulatory standards of independence; the manager and trustee must demonstrate to MAS that structural and operational safeguards are in place. Option C is incorrect because collective decision-making between a manager and a trustee violates the principle of segregation of duties and undermines the trustee’s oversight role. Option D is incorrect because disclosure alone does not resolve a potential breach of the operational independence requirements mandated by the Code for authorized schemes.

Takeaway: The manager and trustee of a Singapore-authorized CIS must maintain operational independence to ensure effective oversight and the protection of unitholders’ interests.

Correct: In a single pricing model, the fund is priced at a single NAV. Without adjustment, the transaction costs (like brokerage and bid-ask spreads of underlying assets) incurred when the manager buys or sells assets to meet subscriptions or redemptions are paid by the fund itself, diluting the value for remaining investors. Swing pricing or dilution adjustments allow the manager to adjust the price when net flows exceed a threshold, ensuring transacting investors cover these costs, which aligns with the Monetary Authority of Singapore (MAS) principles of fair treatment of investors.

Incorrect: Fixed bid-offer spreads in dual pricing models are often insufficient during periods of high market volatility or low liquidity, as they may not reflect the actual costs of trading, leading to fund dilution. Absorbing transaction costs into the management fee is generally not sustainable and lacks transparency regarding the true cost of investing. Restricting liquidity to a monthly cycle is a disproportionate measure that negatively impacts investor access to funds and does not address the structural issue of how transaction costs are allocated between different groups of investors.

Takeaway: Swing pricing and dilution adjustments are critical controls in single pricing models to protect long-term investors from the costs generated by those entering or exiting the fund.

Correct: Under Section 273 of the Securities and Futures Act (SFA), the ‘hawking’ of units in a Collective Investment Scheme is prohibited. This means making unsolicited calls or visits to members of the public to offer CIS units is an offense. The most appropriate approach is to ensure that contact is only made when there is prior consent, a specific request, or an established relationship, as this aligns with the legislative intent to protect retail investors from being pressured into investment decisions through aggressive or unsolicited sales tactics.

Incorrect: Contacting individuals from public directories, even after checking the DNC Registry, still constitutes unsolicited ‘hawking’ of CIS units under the SFA, which is a separate and more specific restriction than general data protection rules. Limiting calls to business hours or adhering to prospectus disclosures does not rectify the underlying violation of making an unsolicited offer. Relying on general marketing opt-ins from third parties is often insufficient because the SFA requires a more direct relationship or a specific prior request to avoid the prohibition on hawking specific investment units to the public.

Takeaway: The Securities and Futures Act strictly prohibits the unsolicited hawking of Collective Investment Schemes to the public to prevent aggressive sales tactics and ensure retail investor protection.

Correct: According to the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore (MAS), managers of open-ended schemes must have a robust liquidity management framework. This framework requires the manager to monitor the liquidity of the portfolio assets and ensure they are sufficient to meet redemption obligations under various scenarios, including stressed market conditions. This ensures that the interests of both redeeming and remaining unitholders are protected.

Incorrect: The suggestion that a manager can rely solely on historical patterns is incorrect because the CIS Code requires forward-looking assessments and stress testing. The idea that the liquidity function should be managed by the same portfolio management team is incorrect because there should be a functional independence between the liquidity risk management and the portfolio management to avoid conflicts of interest. The claim that liquidity management tools like swing pricing are prohibited unless a specific 20% threshold is met is incorrect; these tools are available to managers to manage liquidity fairly, provided they are disclosed in the prospectus and used appropriately.

Takeaway: Managers of Singapore-authorized CIS must maintain a liquidity management framework that ensures asset liquidity is aligned with redemption terms across all market conditions.

Correct: The Financial Industry Disputes Resolution Centre (FIDReC) in Singapore provides an independent alternative dispute resolution (ADR) process. It typically involves a two-stage process: mediation followed by adjudication. If a settlement is not reached during mediation, the matter proceeds to an adjudicator. The adjudicator’s decision is final and binding on the financial institution, but only if the complainant (the client) chooses to accept the award. If the client rejects the award, they remain free to pursue other legal avenues, such as court litigation.

Incorrect: The suggestion that the decision is binding on both parties regardless of acceptance is incorrect because the complainant retains the right to reject the adjudicator’s decision and seek other remedies. FIDReC is a dispute resolution body and does not have the authority to recommend or impose civil penalties, which is a regulatory function of the Monetary Authority of Singapore (MAS). Furthermore, the right to proceed to adjudication is not contingent upon the institution admitting liability; it is available whenever mediation fails to produce a settlement.

Takeaway: FIDReC provides a two-stage mediation-adjudication process where the final decision is binding on the financial institution only if the consumer accepts the award.

Correct: According to the Code on Collective Investment Schemes (CIS Code) issued by the Monetary Authority of Singapore (MAS), managers of authorized schemes are required to send semi-annual reports to unitholders within 2 months from the end of the period covered by the report. This ensures that investors receive timely updates on the fund’s performance and financial position mid-way through the financial year.

Incorrect: The 3-month timeframe is the regulatory requirement for the dispatch of annual reports, not semi-annual reports. A 1-month deadline is not a requirement under the CIS Code and would be shorter than the standard industry practice allowed by MAS. A 4-month period exceeds the maximum allowable time for both annual and semi-annual reporting cycles, representing a significant breach of the CIS Code.

Takeaway: In Singapore, managers of authorized collective investment schemes must ensure semi-annual reports are dispatched within 2 months and annual reports within 3 months of the respective period ends.

Correct: In the S-REIT structure regulated by the Monetary Authority of Singapore (MAS), the REIT Manager is responsible for the strategic management of the REIT, which includes setting the investment strategy, managing the capital structure, and ensuring the financial viability of Asset Enhancement Initiatives (AEIs). The Property Manager is typically appointed by the REIT Manager to handle the operational aspects of the real estate, such as leasing, maintenance, and physical project management. This division of labor ensures that the REIT Manager focuses on unitholder returns and strategic growth while the Property Manager focuses on the efficiency of the physical assets.

Incorrect: The suggestion that the Property Manager determines capital structure is incorrect because financial strategy and capital management are core functions of the REIT Manager, not the Property Manager. The idea that the Trustee manages operations is incorrect because the Trustee’s role is to hold the assets in trust for unitholders and provide oversight, not to engage in property management. The delegation of regulatory compliance to the Property Manager is incorrect because the REIT Manager holds the Capital Markets Services (CMS) license and remains legally responsible for compliance with the Securities and Futures Act and the Code on Collective Investment Schemes.

Takeaway: The REIT Manager provides the strategic and financial direction for the S-REIT, while the Property Manager executes the operational and physical management of the property assets.

Correct: Under the MAS Code on Collective Investment Schemes, specifically the investment guidelines, when a scheme engages in securities lending, it must receive collateral that is marked to market daily. The value of this collateral must be at least 100% of the market value of the securities lent to ensure the scheme is fully protected against counterparty default.

Incorrect: Accepting illiquid private equity as collateral is incorrect because collateral must generally be liquid and of high quality to be easily liquidated in case of default. Lending 80% of NAV to a single counterparty without collateral is incorrect as it violates both concentration limits and the mandatory collateralization requirements set by MAS. Retaining all lending income as a performance fee for the manager is incorrect; while reasonable costs can be deducted, the net income from such activities should generally accrue to the scheme for the benefit of the participants.

Takeaway: In Singapore, securities lending by a CIS requires daily marking to market and a minimum collateral value of 100% of the lent securities.

Correct: Under Appendix 3 of the Code on Collective Investment Schemes (CIS Code) issued by the Monetary Authority of Singapore (MAS), hedge funds offered to retail investors are subject to enhanced disclosure requirements. Specifically, the prospectus must disclose the maximum limit of leverage the fund may employ, the methodology for calculating that leverage (e.g., commitment approach or gross approach), and the specific risks that leverage poses to the retail investor’s capital.

Incorrect: Providing only a general statement about discretionary leverage is insufficient under the CIS Code, which requires specific limits to be defined for retail offerings. While counterparty risk is important, the CIS Code does not mandate the disclosure of the names and credit ratings of all lending institutions in the prospectus as a primary leverage disclosure requirement. Stating that leverage is only used during volatility without specifying numerical limits fails to meet the transparency standards required by MAS for retail collective investment schemes.

Takeaway: Retail hedge funds in Singapore must disclose specific maximum leverage limits and calculation methodologies in their prospectus to comply with the CIS Code.

Correct: Under the Securities and Futures Act (SFA) and the Code on Collective Investment Schemes in Singapore, the registrar (often the manager or a delegated service provider) is responsible for maintaining a precise and up-to-date register of unitholders. This register must include the name, address, and the number of units held by each person. Prompt updates are essential for effective transaction monitoring, AML/CFT compliance, and ensuring the integrity of the scheme’s ownership records.

Incorrect: Updating the register only during audits or distributions is insufficient because the register must reflect current ownership for regulatory and operational purposes at all times. While functions can be outsourced, the registrar must ensure the register remains accessible and compliant with Singapore’s regulatory standards; simply moving it offshore without local accessibility is not permitted for authorized schemes. The registrar’s duty is to the individual unitholders (the beneficial or registered owners), not just the trustee, as the register serves as the primary evidence of a unitholder’s entitlement.

Takeaway: The registrar of a Singapore-authorized CIS must maintain a timely and accurate register of unitholders to ensure transparency and support AML/CFT transaction monitoring requirements.

Correct: In Singapore, the Suspicious Transaction Reporting Office (STRO) is the national center for the receipt and analysis of Suspicious Transaction Reports (STRs). Under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA), any person who knows or has reasonable grounds to suspect that any property may be connected to criminal conduct is required to file an STR. The standard for reporting is ‘suspicion,’ not ‘certainty.’ Furthermore, the CDSA prohibits ‘tipping-off’ the subject of the report, making confidentiality a critical component of the AML framework.

Incorrect: Seeking approval from the Monetary Authority of Singapore (MAS) before reporting to the STRO is incorrect because the legal obligation to report to the STRO is direct and mandatory under the CDSA. Requiring proof ‘beyond a reasonable doubt’ is an incorrect threshold; the law only requires ‘reasonable grounds to suspect.’ Involving the Singapore Exchange (SGX) for a joint investigation before filing a report is inappropriate as it risks tipping-off the suspect and deviates from the established legal reporting channel through the STRO.

Takeaway: The STRO is Singapore’s central agency for financial intelligence, and STRs must be filed based on reasonable suspicion without alerting the client or seeking prior regulatory clearance from other bodies.

Correct: Under the Securities and Futures Act (SFA), specifically Section 288, the Monetary Authority of Singapore (MAS) has the authority to revoke the authorization of a collective investment scheme (CIS) if the manager or trustee has contravened any provision of the SFA or the Code on Collective Investment Schemes. Before revoking the authorization, MAS is generally required to give the manager and the trustee an opportunity to be heard (the ‘show cause’ process) to ensure administrative fairness, unless MAS determines that such a delay would be contrary to the public interest.

Incorrect: The approach in option b is incorrect because MAS has direct statutory power under the SFA to revoke authorization without requiring a court order. The approach in option c is incorrect because a breach of the Code on Collective Investment Schemes is a sufficient standalone ground for revocation of the scheme’s authorization, regardless of whether the manager’s CMS license is also in breach. The approach in option d is incorrect because MAS has the authority to regulate both local authorized schemes and foreign recognized schemes under the SFA; the Trustees Act does not supersede the SFA in matters of regulatory authorization.

Takeaway: MAS may revoke the authorization or recognition of a CIS for contraventions of the SFA or the Code, typically following a show-cause process to allow the manager or trustee to be heard.

Correct: According to the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore (MAS), when market prices are unavailable or unreliable, the manager has a duty to ensure that the scheme’s assets are valued fairly. This process must be conducted in good faith and typically involves consultation with the trustee. The goal is to ensure that the Net Asset Value (NAV) reflects the true value of the fund’s holdings so that entering and exiting investors are treated equitably.

Incorrect: Using stale prices or historical costs when they no longer reflect current market realities can lead to an inaccurate NAV, potentially disadvantaging remaining or new unitholders. Relying solely on an issuer’s valuation without independent verification or trustee consultation fails to meet the fiduciary standards of oversight required in Singapore. While suspension of dealings is a tool available to managers in extreme circumstances, it is not the immediate requirement for a valuation gap; rather, the manager is expected to apply fair value pricing principles first.

Takeaway: When market prices are unavailable, the manager must determine a fair value in good faith and in consultation with the trustee to maintain the integrity of the fund’s NAV.

Correct: Under the MAS Guidelines on the Advertising of Collective Investment Schemes, all advertisements must be fair and not misleading. Material information, such as fees and charges, must be disclosed clearly and prominently. Presenting promotional benefits (like zero subscription fees) in a highly visible manner while hiding recurring costs (like management fees) in fine print is considered misleading and a violation of the requirement for balanced and clear disclosure.

Incorrect: The suggestion that fees only need to be in the Prospectus or PHS is incorrect because marketing materials themselves must not be misleading and must provide a fair representation of costs. There is no regulatory provision allowing the exclusion of fees based on industry averages or ‘materiality’ thresholds relative to investment strategy. Furthermore, the requirement to disclose fees is not contingent upon the fund’s total expense ratio (TER) relative to its peers; all retail CIS marketing must adhere to clear disclosure standards regardless of the fund’s cost ranking.

Takeaway: In Singapore, marketing materials for Collective Investment Schemes must present all fees and charges with sufficient prominence to ensure investors are not misled by unbalanced promotional content.

Correct: Under the MAS Code on Collective Investment Schemes and the IMAS Code of Ethics, managers are fiduciaries who must act in the best interests of the scheme’s participants. Accepting excessive or frequent gifts and entertainment from service providers like brokers creates a conflict of interest that may compromise the manager’s duty to seek best execution. Managers must have robust internal policies to limit such benefits and ensure they do not interfere with their duty to the participants.

Incorrect: Setting a threshold based on a percentage of brokerage commissions is not a recognized regulatory standard in Singapore for managing personal conflicts of interest. While disclosure is important, it does not absolve the manager of the duty to avoid inappropriate influences on their professional judgment. Transferring broker selection to the trustee is not a standard industry practice and does not address the manager’s internal compliance obligations regarding staff conduct and conflict management.

Takeaway: Managers of Singapore-authorized CIS must strictly manage conflicts of interest related to gifts and entertainment to ensure their duty of loyalty to participants and the principle of best execution are never compromised.

Correct: Under the Securities and Futures Act (SFA) and the MAS Guidelines, foreign recognized schemes offered to the retail public in Singapore must be accompanied by a Singapore Prospectus, often referred to as a wrap-around. This document supplements the foreign prospectus with essential local information, including the contact details of the Singapore representative, Singapore-specific tax considerations, the availability of the Financial Industry Disputes Resolution Centre (FIDReC), and local procedures for the subscription and redemption of units.

Incorrect: Relying on a marketing factsheet or a written guarantee is insufficient because the SFA requires a formal prospectus (or wrap-around) to be lodged and registered with MAS for retail offers. While a Profile Statement is a legal concept, it cannot be used to bypass the requirement for a comprehensive Singapore-specific wrap-around that addresses local regulatory nuances. Simply providing the foreign document without local disclosures fails to meet the transparency standards required for retail investors in Singapore.

Takeaway: A wrap-around prospectus is mandatory for foreign recognized schemes to bridge the disclosure gap between the foreign jurisdiction’s requirements and Singapore’s SFA standards for retail investors.

Correct: According to the MAS Code on Collective Investment Schemes (Appendix 1, Paragraph 7.11), a retail scheme may invest in credit derivatives provided they are used for the purpose of efficient portfolio management (EPM) or hedging. Furthermore, the reference entity must be an eligible investment that the scheme is permitted to invest in directly, and the counterparty must be an eligible financial institution. The manager must also possess the necessary expertise and systems to manage the risks associated with such derivatives.

Incorrect: Option B is incorrect because Efficient Portfolio Management (EPM) allows for the creation of synthetic long positions, provided they are within the investment limits and the fund holds sufficient cover; it is not restricted solely to hedging existing physical holdings. Option C is incorrect because the CIS Code does not mandate a 150% cash margin with the SGX for credit derivatives, and many credit derivatives are traded Over-the-Counter (OTC) rather than on the SGX. Option D is incorrect because authorized retail schemes are indeed permitted to use derivatives, including credit derivatives, subject to the requirements and limits set out in the CIS Code; they are not restricted only to accredited investors.

Takeaway: In Singapore, retail funds can use credit derivatives for hedging or efficient portfolio management provided the underlying entity is an eligible investment and the counterparty is an eligible financial institution.