CMFAS FMRP – Financial Markets Regulatory Practices Exam Set Two

In case of unforeseen events,the disruptions related to Singapore Dollar are dealt by Monetary Authority of Singapore (MAS)

In an effort to reduce pre-settlement risk, central banks around the world have mandated that long-dated FXforward and interest rate swap OTC transactions be cleared on a central counterparty (“CCP”) or clearing house. This would require both counterparties to place margin deposits with the clearing house, proportionate to their exposures, which can be used to cover unrealised losses in event of default by either counterparty.

For example, a transaction or circumstance could be considered suspicious and warrant filing a STR to the
relevant authorities if the customer:
i. Is unable to complete CDD measures;
ii. Is reluctant, unable or unwilling to provide any information requested by the financial institution; or
iii. Decides to withdraw a pending application to establish business relations or a pending transaction or to
terminate existing business relations.

Mark up is the spread or charge that may be included in the final price of a transaction in order to compensate the Market Participant for a number of considerations such as the risks taken, costs incurred, and services rendered to a particular customer.

Ethics can be defined as a framework of moral principles that governs a Individual’s behavior.

Licensed financial institutions that are regulated under the SFA and the FAA must shall report to the MAS, anyactual or suspected misconduct committed by their Representatives, or any of their Representatives who ceased to be a Representative before the misconduct was discovered.

The SFEMC will endeavour to disseminate its recommendations or other information to Market Participants through the most efficient means available, including but not limited to announcements through its website, broadcasts through MASNET or direct telephone contacts with or e-mails to senior management of Market Participants.

During market disruption events, Market Participants are also encouraged to establish contacts with the Secretary of the SFEMC were needed.

In order for financial markets to function efficiently and effectively, these key features must be present:
i. Sufficient active Market Participants to ensure liquidity;
ii. The market is reasonably transparent and participants can see prices dealt;
iii. The market has clear and enforceable rules that facilitate orderly trading and prohibit market misconduct;
and
iv. Dealing is performed on a fair and objective “best deal” basis, and is not based on personal relationships

The FX market facilitates the exchange of money from one currency to another and helps to determine therelative values of different currencies

Ethical principles and standards that Market Participants should strive for include:
i. Honesty in dealing with customers and counterparties;
ii. Fairness in dealing with customers and counterparties;
iii. Consistency of action; and
iv. Integrity, which is best described as doing the right thing, even when no one else is watching

The Monetary Authority of Singapore is Singapore’s central bank and financial regulatory authority. It administers the various statutes pertaining to money, banking, insurance, securities and the financial sector in general, as well as currency issuance.

The false trading offence refers to a false or misleading appearance of active trading or with respect to the market for, or the price for dealings in, securities or futures contract.

Certain Market Participants that are licensed financial institutions, such as banks, merchant banks or CMS Licence holders are subject to restrictions against the lending of SGD. These restrictions imposed by the MAS limit the lending of SGD by such licensed Market Participants to non-resident financial institutions

A licensed Market Participant may lend SGD to non-resident financial institutions for any purpose whether in Singapore or elsewhere as long as the aggregate SGD credit facilities do not exceed SGD 5 million per borrower

Investment banking activities include: 1)Underwriting 2)Mergers and Acquisitions 3)Sales and Trading Activities 4)Proprietary Trading

Investment banks are also typically required to make markets for the equity and debt securities that they have originated.

Creating a false impression of depth, or liquidity is referred to as quote stuffing or “wash trades.Creating an artificial impression of high demand for the asset is known as spoofing while creating a false impression of depth or liquidity is known as quote stuffing.

The most common false trading practices are Hunting for Stops & Wash Trades .

After Hours and Off Premises Dealing – If Market Participants allow after hours and off premises dealing, there should be:
a. Guidelines that specify personnel authorized to engage in such activity;
b. Possible reduction of the position and loss limits allowed, reflecting the reduced decision-making resources available outside the dealing room;
c. Possible restrictions on type of transactions allowed, such as only allowing risk-reducing transactions;
d. Other risk mitigating measures, such as the mandatory inclusion of stop-loss orders;
e. A prompt written reporting process should be developed, and appropriate records should be kept for any after hours and off premises transactions undertaken.

BCPs should be updated regularly in response to environmental changes.

Please note that parties giving or receiving stop orders should ensure that both parties mutually understand the terms under which such orders are made. For example, Market Participants handling a customer’s stop order should:
I. Obtain from the customer the information required to fully define the terms of a stop order, such as the reference price, order amount, time period, and trigger

When a Market Participant engages in borrowing or lending of securities to a customer, there should be some terms and conditions set in a written agreement. Among them, stating the capacities in which the parties are entering into the agreement whether as principal or agent should be included too.

They are some additional specific execution requirements for IDBs who handle customer. Among them is when Market Participants place orders with special conditions attached, IDBs must accurately relay the said conditions

It is to be noted that the purposes of generating trade confirmations are as follow
I. The practice of deal confirmation helps to detect discrepancies immediately after the transaction
II. To reduce the operational risk
III. To indicate any kind of false economic details
IV. To give all the details of the trade to the counter parties

IOSCO Principles provide guidance on: i. Governance: Addressing Conflicts of Interest and protecting the integrity of the Benchmark determination process; ii. Benchmark quality: Improving the integrity and quality of Benchmark determination; iii. Methodology: Improving the integrity and quality of adopted Methodologies; iv. Accountability: Establishing complaints processes, documentation requirements and audit reviews.

It is noticeable that the code of conduct for submitters include, integrity, professionalism, ethical standards, providing commentaries on benchmarks, benchmarks that are not overseen by the benchmark administrator and prohibited behavior only.

Please note that these benchmarks (FX and Interest Rate) are used for the settlement of contracts, such as NDFs and loans, such as floating rate loans.

The three main steps of money laundering is
Placement Stage
Layering Stage
Integration Stage

Market Participants should have appropriate processes in place to identify and manage operational risks. The causes of such risk could be internal issues, such as human error or misconduct, inadequate systems or processes, system failures, sabotage or gaps in processes. The risk cannot occur when there is continuity in the process.
Market Participants should also consider operational risks which arise from factors beyond their organisation’s control. Such external events include civil disturbances and natural disasters, time differences and differing industry conventions across countries and terrorism.