What are the different types of banking licenses?
The types of banking licences include:
i. Qualifying Full Banks/ Full Banks
ii. Wholesale Banks
iii. Offshore Banks
iv. Merchant Banks
What are the qualifying full banks/full banks?
Qualifying Full Banks and Full Banks provide the whole range of banking business approved under the Banking Act and are allowed to take deposits of any amount in any currency, including offering savings accounts. They are also allowed to provide capital market products, custodial business, underwriting, corporate finance activities and some even offer life policies as distributors for insurance companies. In view of the fact that they do not have restrictions in offering deposit products, many of the Qualifying Full Banks or Full Banks are also in the retail banking business as well. Their clientele base is more diversified with mass retail, private banking and institutional clients.
How the Singapore’s regulatory framework seeks to safeguard interests of investors?
Singapore’s regulatory framework for Singapore seeks to safeguard the interests of investors and maintain confidence and stability in the market by:
- Keeping risks at acceptable levels, to maintain both the stability of the financial system as a whole and the soundness of individual institutions;
- Maintaining a safe and efficient financial infrastructure;
- Ensuring fair, efficient and transparent organized markets; and
- Keeping customers well-informed and empowered.
Risk-Based Targeting of Regulatory Activities:
SGX adopts a pragmatic risk-based approach. Supervisory activities focused on principles one and two are tailored according to risk profiles developed for
issuer sponsors and Member firms. Resources are allocated to those matters
that it considers as posing the greatest risks to achieving a fair, orderly, and
transparent market and safe and efficient clearing outcomes.
What is the minimum licensing admission criteria for the corporations?
The minimum licensing admission criteria for corporations applying for a CMS licence ensure that only financially sound and reputable corporations that are prudently managed and directed by integrous and competent officers are granted a CMS licence.
What are the two classes of membership that CMS license holders can operate under the SGX-DT?
1. Trading Members
Trading Members are permitted to conduct trading activities, but do not engage in clearing activities. A Trading Member’s trades would have to be cleared through a Clearing Member.
2. Clearing Members
Clearing Members engage in clearing activities. If the Clearing Member also has a Trading Membership, it can operate as a Trading Member would as well.
What are the regulatory requirements for advertisements of the SGX futures trading?
The advertisements must:
1. Contain only information that the advertiser knows or believes to be true;
2. Not make any promise of profits. If profits are mentioned, there must also be mention of the possibility of losses;
3. Not misrepresent the advertiser’s Membership, registration, or the privileges they enjoy; and
4. Not misrepresent the authorisation, licence or permission, if any, which they
possess from the regulating bodies (such as MAS and SGX).
When a customer is eligible to open a SIP trading account?
A CMS licence holder must not open a SIP trading account for a customer unless its senior management, who is not involved in that particular account opening process and is not a connected person of that customer, is satisfied based on the outcome of the CAR or CKA that the customer has knowledge or experience in derivatives (for CAR) or in the unlisted SIP (for CKA), and has approved the opening of the customer’s SIP trading account.
The risk warning statement highlights the key risks that customers should be
aware of when trading overseas-listed investment products, such as:
- Level of investor protection and safeguards afforded in the relevant foreign
jurisdiction; - Differences between the legal systems in foreign jurisdiction and Singapore;
- Tax implications, currency risks, and additional transaction costs that may
be incurred; - Exposure to counterparty and correspondent broker risks;
- Political, economic and social developments that may influence overseas
markets.
Mention the PDPA (Personal Data Protection Act)
Data protection is an aspect of privacy protection that deals with control over
the collection, storage, accuracy, use and dissemination of personal
information. The purpose of data protection is to ensure that personal data is
not used without the knowledge or consent of the individual concerned. The
PDPA also aims to prevent the processing of incorrect or inaccurate personal
data about a specific individual.
What are the potential limitations and risks of online trading?
These include:
- The possibility of delays in order transmission and confirmation of order
execution, and what to do in case of such delays; - Not being able to withdraw erroneous orders in time due to the speed of
electronic trading; and - The danger of unauthorised access to a customer’s Internet Trading account and recommended preventive security measures in relation to matters such as the protection of passwords and leaving an Internet Trading screen unattended.
Total net equity is the remaining amount of funds in a customer’s account, after setting aside the initial margin and additional margin amounts required to support his open positions.
What are the acceptable instruments for margin for the members?
Members may accept margins in the following forms:
Cash
Government securities (includes securities issued by other countries besides Singapore)
Common stocks
Gold bars and gold certificates issued by Singapore-licensed banks
Bank certificates of deposit
Bank guarantees and bank letters of credit
Other instruments as the Clearing House permits
Why the customer’s money or assets can be held with the clearing house?
The Member may deposit customer monies with a Clearing House for the purposes of:
1. Margin requirements arising from the customer’s trades;
2. Settlement of customer’s trades; or
3. Any other purpose specified under the business rules and practices of the clearing house, futures exchange or overseas futures exchange.
The Member must inform the Clearing House if deposits and positions are for a customer or its own house account.
What is meant by hunting for stops?
This occurs when a trader deliberately places subsequently higher (or lower) bids (or offers) into the market, effectively pushing the market up (or down). This is done in the hope that eventually the market price will be moved to a point where Stop Loss orders are triggered. The trader will either already be Long and take profit as the buying momentum from the triggered Stop Loss orders kicks in, or will go Short after the buying momentum kicks in, expecting the market to fall back off thereafter.
“Cornering” is another form of manipulation. Cornering is achieved by purchasing a commodity in such volume that the manipulator gains a monopoly over it and, hence, control over its price is achieved. Short sellers are left having to pay an inflated price to cover their positions.
What is bucketing and how it is minimized?
Bucketing of orders is prohibited. Bucketing occurs when a broker, directly or
indirectly, takes the opposite side of a customer’s order, with the aim of attempting to profit from the customer’s order.
If a Trading Member wishes to take the opposite side of a customer’s trade, he must get the customer’s prior consent12. This practice also violates the rules on withholding of orders, which state that a Trading Member must not withhold or withdraw any customer orders from QUEST, unless it is for the benefit of the customer.
A Member who receives buy and sell orders from different customers at the same time and price, for the same contract month of the same contract is not allowed to match the 2 orders internally (also known as crossing the trade).
Instead, the Member is required to enter an order into QUEST for the leg which has the better price than the last traded price, or if there is no last traded price, the last settlement price.
The practice of “churning” involved executing as many trades as possible for a
customer, even when there are no sound opportunities in the market. This is done by the broker with the sole purpose of increasing the volume of trades executed for a customer, and hence billing the customer for more commissions.
What can be the penalties for overtrading by the SGX?
SGX may:
1. Suspend that Member from trading until such time as the hearing in respect of such charge against such Member is completed;
2. Instruct the Clearing Member to withhold any profits due to the Member until the Disciplinary Committee or the Appeals Committee has completed the hearing in respect of the charge against the Member; and
3. Direct the Clearing House to withhold any profits due to any Clearing Member that is a party to the transaction that resulted in overtrading until the Disciplinary Committee or the Appeals Committee has completed the hearing in respect of the charge against the Member.
What are some examples of the exceptions of pre-arranged trades?
The following are not considered pre-arranged trades:
1. An Exchange of Underlying for Futures Contracts as contemplated in the SGX Futures Trading Rules; or
2. A Negotiated Large Trade as contemplated in this Rules; or
3. A request for a quote from a designated market maker approved by SGX.
When a SGX-DT may decide to suspend or terminate any person’s DMA (Direct Market Access) connection?
SGX-DT may decide to suspend or terminate any person’s DMA connection if:
i. He or she has failed to assist the Exchange with any investigation involving
a breach of the SGX Futures Trading Rules;
ii. It is in the interest of a fair, orderly and transparent market; or
iii. He or she has caused the Member to breach requirements in the Rules.
What is typically included in the internal controls for pre-execution checks?
Typical internal controls include:
User access control measures, such as robust user and password control
policies; and
“Doer-checker” measures, where a staff member prepares the data or
parameter changes, and a senior staff member verifies the information and
triggers the change.
What is the benefit of “fill or kill“ QUEST offer?
FOK orders shall be matched with the entire quantity at the specified
price or better or completely cancelled. There will be no partial executions of a
FOK order. The order does not rest in QUEST’s central order book.
This validity enables traders to ensure that either all of their order quantity is
matched, or else none of it will be matched. This prevents traders from getting
partial fills on their orders.
How a give-up trade is executed?
Customers might choose to execute their trades through a Member that offers favourable fees, lower latency, or other benefits, but choose a different Member to clear their trades. In such cases, the executed trades will have to be “given-up” to the Clearing Member.
A Member may enter into a give-up arrangement with a customer and an accepting Clearing Member, provided that such arrangement is supported by a duly executed give-up agreement.
What are the different modes of registration for NLTs?
NLTs can be registered via one of the following modes of registration:
The eNLT system (Electronic Negotiated Large Trade — a web-based
system);
The Trade Report Application Programming Interface functionality; or
The Trade Registration System and any enhancements, updates and
variations to such system from time to time.
What are the different advantages to using MOS system?
There are several advantages to using the MOS system.
1. Reduced margin costs
Trades executed on one exchange can be transferred to the other exchange so that all resulting positions can be maintained and margined by one exchange. This reduces the margin requirements on the customer.
2. Reduced basis risks
Without mutual offset, the process of liquidating positions hedged on or
arbitraged between different exchanges means having basis and/or spread risks.
3. Reduced transaction cost with MOS
In the Reduced Basis Risks example above, without the use of the MOS, the
customer would have executed a total of 4 transactions to close out his positions. By using the MOS to transfer his positions for close out instead, he would not need to execute Trade Nos. 3 and 4. This reduced the number of transactions required, and hence transaction costs.
4. Improved liquidity
If the market on SGX-DT is illiquid, a user can unwind his position on CME and vice versa.
If the nature of the error is due to the difference between the price instructed by the customer and the price executed by the Member, the Member may, after reaching an agreement with the customer, resolve the error by compensating the customer through cash or credit adjustment to the customer account.
However, if the customer does not accept cash or credit adjustment but requests the Member to abide by the instructed price, the Member may accede to the requestprovided that it discloses to the customer the details of the trade execution error in the contract note issued to the customer. These details shall include:
the price that the Member has confirmed to the customer; and
the actual price at which the trade is executed.
SGX may consider the following factors when deciding whether to adjust the trade price or cancel any trades:
The difference between the price at which the error trade was done and the
preceding traded prices of the contract;
Market conditions, including market liquidity in the contract at the time the error trade occurred;
The monetary loss involved and the financial impact on the parties if the error trade is or is not adjusted or cancelled;
Reason(s) given by the erring party for the error
Whether the error trade was caused partially or fully by problems with the
Exchange’s systems; or
Any other relevant factors.
How futures cash settlement is made?
Under cash settlement, open positions, Long or Short, which are held beyond the contract’s expiry will be valued against the FSP, and the resulting profit or loss will be settled in cash.