CMFAS Financial Markets Regulatory Practices (FMRP) Exam Free Trial

Pre-hedging is the management of the risk associated with one or more anticipated customer orders, designed to benefit the customer in connection with such orders and any resulting transactions. Market Participants should only pre-hedge customer orders when acting as a principal and should do so fairly and transparently.

Market risk arises from the movement of prices, which can be equity prices, exchange rates or interest rates, or their co-movement or correlation.

Settlement risk arises when the Market Participant has paid its counterparty in settlement of the transaction, and the counterparty then defaults before making good on its payment to the Market Participant.

Real-time gross settlement (RTGS) solutions enable counterparties to settle individual legs of each transaction in full, immediately after the transaction is concluded, instead of waiting for the normal settlement cycles

Inter dealer Brokers (IDBs) are wholesale financial market intermediaries that facilitate the trading and execution of financial product transactions through the matching of buyers and sellers of these financial products

Association of Banks (ABS) is an association formed by all licensed banks in Singapore to represent and promote the interests of its members. ABS participates in regular dialogues and consultations with the MAS on industry issues and on promoting a sound financial system in Singapore.

The Oversight Committee is responsible for the supervisory oversight of the benchmark rate-setting process and the review and challenge of key policies and processes applicable to Surveyed and Traded Benchmarks.

The practice of intra-day deal checks is strongly recommended as it can be an important means of helping to reduce the number and size of differences, particularly when dealing through non-electronic means such as voice calls or for deals involving foreign counterparties. It can also be useful in the faster-moving markets such as foreign exchange or when dealing with other products which have short settlement periods.

Requests for arbitration should be addressed to the Secretary of the SFEMC

The price maker has the right to set the spot rate in a FX swap transaction.

It should be noticed that submitters refer to IDBs, banks and dealers who are surveyed for computing surveyed benchmarks, as well as any Market Participant whose transactions form the basis for the calculation of a traded benchmark.
The responsibilities of the submitter include:
a. Substantiate benchmark contributions against available objective evidence;
b. Mitigate against risk or perception of conflict of interest between the benchmark contribution process and other activity;
c. Ensure the integrity of data submitted to the

It is found that practices used for traded/ surveyed benchmarks are
Supervision, Confidentiality, Escalation, Record Retention, Experience, Seniority and Character, Management of Information etc.

Market Participants should ensure clear and prominent disclosures of actual, potential or perceived conflict of interest in writing when providing opinions and market commentary on the benchmarks in which they are submitter.
It is preferable that individuals responsible for contributions do not publish commentaries. Alternatively, individuals should be restricted from commenting prior to benchmark publication or where not possible, there should be clear and prominent disclosures of actual and potential conflicts of interest in writing. The submitter’s individual submission should not be disclosed prior to the 90-day delay.

It is to be noted that the parties not involved in the benchmark rate setting process are
The Association of Banks in Singapore (ABS)
The Monetary Authority of Singapore (MAS)

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

It is found that there are total five different levels of the hierarchy of evidence that can be applied to provide specific provisions for benchmarks which may have limited liquidity.

It is to be noted that alternative settlement procedures include, The value date, settlement date, maturity date, or fixing date of the trade that falls on this specific date should be adjusted by extending the date to the next business day;
The value dates in FX transactions may need to be dates where both parties agree or where special local practice allows for split delivery;
The affected parties should agree to adjust the exchange rate according to the prevailing relevant swap mid-rate
Support staff must perform deal confirmations swiftly to avoid any potential dispute with dealing party.

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.

Market Participants filling a customer order, which may involve a partial fill, should:
a. Be fair and reasonable based upon prevailing market circumstances, and any other applicable factors disclosed to the customer, in determining if and how a customer order is filled, paying attention to any other relevant policies;
b. Make a decision on whether, and how, to fill a customer order, including partial fills, and communicate that decision to the customer as soon as practicable; and
c. Fully fill customer orders they are capable of filling within the parameters specified by the customer, subject to factors such as the need to prioritize among customer orders and the availability of the Market Participant’s credit line for the customer at the time.

While providing quotations, participants should always have a clear intention to trade but there are a few practices that should be avoided,
1. Entering orders or trades that create a false impression of market prices
2. Initiating artificial price movements

With reference to “SGD Credit Facilities” when transactions exceed SGD 5 million,
licensed Market Participants may extend temporary Singapore Dollar overdrafts of any amount to Vostro accounts of non-resident financial institutions for the purpose of preventing settlement failures.

It is to be noted that while acting as an agent,
Market Participants acting as agent should:
a. Inform the customer that it is acting as agent;
b. Strive to obtain the result requested by the customer;
c. Have a transparent policy regarding:

They are some certain set of guidelines and directives for dealing in SGS. One of those guidelines is a dealer must take reasonable precautions against any falsification of books, accounts, documents

Market Participants should identify and understand the various types of risks to which they are exposed. They should then establish risk limits and monitoring mechanisms, and adopt of risk-mitigating and other prudent practices to control the risks related to their market trading activity. These practices could comprise, but are not limited to the following:
i. Approval of risk limits; ii. Implementation of risk measures; iii. Monitoring of risk activity; and iv. Periodic evaluation of the valuation models.

It is to be noted that examples of product/service/transaction or delivery risk include: (a) Anonymous transactions (which may involve cash); or (b) Frequent payments received from unknown or associated third parties.

It is found that Capacity Monitoring – Market Participants that are operating E-Trading Platforms should monitor the intraday health of the platform (for example, capacity utilization) and should conduct periodic capacity testing of critical systems to determine such system’s ability to process transactions in an accurate, timely, and robust manner.

It is to be noted that the market participants must not disclose any kind of confidential information to different sorts of parties whether it be internal or external. Most importantly, under any circumstance the the party will misuse the information.

Keeping in mind the statement that is correct while sharing market color is communications should not include specific customer names, including code names that implicitly link activity to a specific Market Participant, or information specific to any individual customer

Information on the customer can be sourced from the following sources, amongst others:
a. Internet;
b. Newspapers and other news sources;
c. Company reports;
d. Official subscribed databases such as: Factiva or Thomson Reuters Complinet;
e. Intermediary Introduction certificates and disclosures; and
f. Others – e.g. grapevine.

Reconciliations should be carried out by personnel who are not involved in processing transactions that would affect the balances of accounts held with correspondent banks.