CMFAS M2a Exam Free Trial Set Two

Trading activity that takes place outside of the initial capital-raising activities (i.e. in the primary market) take place in the secondary market. As such, it can be said that the secondary market allows investors to manage or transfer their risk to other parties. Risk transfer or risk management can also be achieved by trading in futures or derivatives products instead of simply selling the shares or bonds. Some examples of derivatives include Futures, Options, Extended Settlement Contracts, and Issuer Warrants. Singapore Exchange Limited (SGX) provides capital-raising and risk management opportunities to the global market through its product offerings

Businesses raise capital through the issuance of various securities instruments such as shares / common stock / equity securities, bonds / fixed income securities and company warrants.

I & II.
Failure to notify changes to Approved Traders’ or Registered Representatives’ circumstances
SFA 99D(8), 99E(4), 99F(4)
Offences are punishable with a fine not exceeding $150,000 and, in the case of a continuing offence, to a further fine not exceeding $15,000 for every day or part thereof during which the offence continues after conviction.

“Prominent public functions” includes role held by heads of state, heads of government, government ministers, senior civil servants, senior judicial or military officials, senior executives of state owned corporations and senior political party officials.

The following is a summary of the money laundering offences under the law:
i. Laundering Own Criminal Benefits
Any person who:
(a) conceals or disguises any property which is or in whole or in part, directly or indirectly, represents his benefits trafficking or criminal conduct; or
(b) converts or transfers that property or removes it from the jurisdiction, shall be guilty of an offence

ii. Money Laundering by Acquisition
Any person who knowing or having reasonable grounds to believe that any property (in whole or in part, directly or indirectly) represents another person’s benefits from drug trafficking or criminal conduct, acquires that property for no or inadequate consideration shall be guilty of an offence.

II & IV.
When the Risk Score is high, a Member and its Representative must carry out EDD. Some basic guidelines for enhanced due diligence include:
 EDD on local and foreign politically exposed persons;
 Do not perform simple CDD if the bank suspects that money laundering or terrorist financing is involved;
 In instances where financial institutions rely on the intermediaries to perform CDD, the financial institutions would need to immediately obtain the CDD information from the intermediaries. Failing which CMS licence holder should carry out its own due diligence.

Underlying Cash Market Open
When the underlying cash market is open for trading, the reference price shall be the average of the high and low traded prices in the minute before the error trade. If there are no trades in the minute before the error trade, the dynamic futures reference price will be determined by theoretical pricing models using the latest cash index value before the error trade, among other variables.

I & IV.
An example of an external fraud could result when someone outside of the institution uses a client’s name and account after discovering the details (e.g. through hacking a client’s computer system), and then instructs a CMS licence holder to sell the client’s holdings and pay to their own account which is different from the records in the booksof the CMS licence holder.
This is possible because very often instructions are given through the telephone. The CMS licence holder must be able to have controls in place to verify such instructions. If it fails to have such controls, then the fraudster – after receiving the funds into his account – will withdraw it very quickly, disappear and cannot be caught.

II & IV.
An employee who may know his or her client’s behaviour, and be aware that the client could be out of town. Taking advantage of the situation and knowing client’s account details, the employee could instruct the sale of investments and payments to be made to a fictitious account operated by him or her.
When the funds are received they will be withdrawn very quickly and the employee too will disappear. Or in some cases, if he or she does not disappear, he or she will cover their tracks through falsifying the client’s instruction records. Therefore operational tests and audits must be robust in CMS licence holder’s organization.

Price Alerts – When the price of the order differs from a reference price by more than a stipulated number of ticks or percentage. The reference price would be the last traded price, or the previous day’s settlement price if there has been no trade during the day.

A Member must have the ability to immediately suspend or terminate a customer’s DMA when necessary15. This is to ensure that the Member can comply with instructions from SGX to suspend or terminate a customer’s DMA as described in Section 4.1.1.3 (Suspension and Termination of DMA).

I & IV.
To protect the financial integrity, reputation or interests of the markets established or operated by SGX, SGX retains the right to:
1. Amend the Error Trade Price Range and Methodology SGX has the right to consider other relevant market information to determine the error trade price range or the reference price, and determine error trade price ranges using any other methodology. SGX may periodically adjust the error trade price range to reflect prevailing market conditions. DMC will broadcast such changes to Members.
2. Cancel or adjust the price of an Error Trade
SGX retains the power to cancel an error trade partially or fully, or adjust the price of an error trade. SGX’s discretion to adjust the trade price or cancel a trade, either partially or fully, may be exercised even where the trade is within the error trade price range.

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.

I & III.
OMS’s are required to have error prevention alerts that notify users of:
 Maximum Quantity Per Order – This should be configurable for the individual trader. For example, where the Trader typically trades in sizes no larger than 10 lots, an alert should be triggered if the order’s quantity exceeded 10 lots
 Price Alerts – When the price of the order differs from a reference price by more than a stipulated number of ticks or percentage. The reference price would be the last traded price, or the previous day’s settlement price if there has been no trade during the day. Alerts on additional data fields are good practice but not mandatory.

Members do not need to send a monthly statement to a customer if:
1. The information that is to be contained in the statement has already been sent to the customer by a Clearing House, which the Member is a member of; or
2. There has been no change to the customer’s account in the month; or
3. The customer is an Accredited Investor, or a corporation related to the Member, and: i. Real-time electronic statements have been made available to the customer, and the customer has agreed to using these electronic statements; or
ii. The customer has requested, in writing, not to receive such monthly statements

II & IV.
The SFA & SGX Futures Trading Rules spell out the prohibited market conduct as:
 False Trading and Market Rigging Transactions
 Manipulation of Futures Prices Price of Futures Contract and Cornering
 Fraudulently Inducing Persons to Trade in Futures Contracts
 Employment of Fraudulent or Deceptive Devices,
 Insider Trading
 Dissemination of Information about Illegal Transactions

The decision whether to register a representative or to revoke a registration depends on the following:
1. The seriousness or severity of circumstances surrounding the person’s failure to meet a specific criteria;
2. The relevance of the unfulfilled criteria in relation to the duties that are, or are
to be performed and the responsibilities that are, or are to be assumed by the person; and
3. The amount of time that has lapsed since the person’s failure to meet a specific criteria.

Gearing ratio = Share price / (Warrant price / Conversion ratio)
Gearing ratio for put warrant = $7.00 / ($0.20/2)
Gearing ratio = 70

Given that Delta = 30% = 0.3
Effective gearing = Gearing ratio x delta
Effective gearing = 70 x 0.3 = 21 times