How primary and secondary markets are different from each other?
An important function of the capital markets is to provide opportunities for businesses to raise capital to fund their business activities. These capital-raising activities take place in the primary market.
Trading activity that happens outside of the initial capital-raising activities (i.e. in the primary market) takes 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.
Briefly explain the four different types of banks?
Four different types of banks are:
Qualifying Full Banks/Full Banks
Wholesale Banks
Offshore Banks
Merchant Banks
1. Qualifying Full Banks/Full Banks
Qualifying Full Banks and Full Banks are allowed to carry on 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.
2. Wholesale Banks
Wholesale Banks are generally are allowed to carry on the full range of banking business but are restricted in their deposit-taking activities.
3. Offshore Banks
Offshore banks can generally carry on any banking business subject to restrictions on Singapore dollar business. Offshore banks are not allowed to accept Singapore dollar deposits whether in the form of fixed deposits or savings deposit from Singapore
residents.
4. Merchant Banks
Merchant Banks are not licensed under the Banking Act but are approved under the MAS Act. Merchant Banks can undertake corporate finance activities (including flotation, underwriting, buying and selling of shares and other securities), which fall
under capital markets services or private banking through its Asian Currency Unit for non-Singapore dollar banking business.
What are the different functions of Monetary Authority of Singapore (MAS)?
Functions of Monetary Authority of Singapore (MAS) are to:
1. Act as the central bank of Singapore, including the conduct of monetary policy, the issuance of currency, the oversight of payment systems and serving as banker to and financial agent of the Government;
2. Conduct integrated supervision of financial services and financial stability surveillance;
3. Manage the official foreign reserves of Singapore; and
4. Develop Singapore as an international financial centre.
Present any four objectives of IMAS.
As a representative body of investment managers, the objectives of IMAS are to:
1. Promote professionalism and exemplary practice among members in their conduct of the investment management business;
2. Provide a forum for members to discuss issues or matters relating to the investment management industry;
3. Represent members collectively in discussions with, or assist members in making any representation or recommendation to, any government, government representative, supervisory authority, whether local or foreign, which are concerned with the investment management industry;
4. Promote the education of the investing public on investments and the investment management industry.
What are the different general duties of all CMS Licence Holders?
Implementing and ensuring compliance with effective written policies regarding all operational areas including financial policies, accounting controls, etc.;
Putting in place a compliance function and arrangements (including specifying roles and responsibilities of officers and employees) to ensure legal and regulatory compliance;
Identifying, addressing and monitoring trading or business risks;
Ensuring that business activities are subject to adequate internal audits;
Ensuring that internal audits include inquiring into the CMS licence holder͛s compliance with all relevant laws and business rules
What are the specific duties of LFMCs?
All LFMCs are required to comply with the specific duties set out below:
i. Implement a risk management framework which is appropriate to the nature, scale and complexity of the assets under management;
ii. Assets under its management must be subject to independent valuation to determine their net asset values;
iii. Ensure that an independent party conveys net asset values to the customers to which the assets relate to;
iv. Segregate assets under management from the proprietary assets of the LFMC (or its related corporations or connected persons), and maintain them in a trust.
v. Prioritise the purchase or sale of securities or future contracts, or investments made on behalf of customers over those of the LFMC and/or its officers, employees, representatives or associated persons; and
vi. Mitigate and disclose any conflict of interest to the customer.
If the customer͛s money or assets are denominated in a foreign currency, the LFMC may deposit such money or assets in a trust or custody account maintained with an overseas custodian, subject to the following conditions:
i. The LFMC must first obtain customer͛s prior written consent;
ii. The custodian must be licensed, registered, or authorised in the country or territory where the account is maintained:
a. To conduct banking business (in relation to a trust account maintained with the overseas custodian); or
b. To act as a custodian (in relation to a custody account maintained with the overseas custodian).
When the listed company does not need to make immediate disclosure?
The listed company does not need to make immediate disclosure if:
1. If it would be a breach of law to disclose the information; and
2. The issuer may temporarily refrain from publicly disclosing particular information,
provided that:
i. A reasonable person would not expect it to be disclosed (Condition 1);
ii. The information is kept confidential (Condition 2); and
iii. If one (1) or more of the following applies (Condition 3):
a. The information concerns an incomplete proposal or negotiation;
b. The information comprises of matters of supposition or is insufficiently definite to warrant disclosure;
c. The information is for internal management purposes; and/or
d. The information is a trade secret.
What is the role of market surveillance?
An issuer should monitor the trading in its securities to detect any unusual trading activity. SGX-ST also monitors trading of listed securities. If there is unusual trading activity in a listed security, and it appears to SGX-ST that the unusual trading activity cannot be explained by known factors, SGX-ST may require the issuer to make an announcement. The announcement should state whether the issuer and its directors are aware of reasons for the unusual trading activity and whether there is any material information which has not been publicly disclosed. If the issuer or its directors are aware of any matters concerning the substantial shareholders that may account for the unusual trading activity, they must account for this when responding to any query by SGX-ST.
False trading includes:
ͻ Creating or intend to create an appearance of active trading in a security, futures contract or in connection with leveraged foreign exchange trading;
ͻ Buying and selling without a change in beneficial ownership in securities just to cause fluctuation in the market price of a security in the market ; or
ͻ Creating transactions that are intended to give a false and misleading appearance with respect to the price of any security, futures contract or in connection with leveraged foreign exchange trading.
What are the some common methods for market rigging?
Many devices have been used to rig trades and create a false market. Some common methods are:
1. Buying and selling without a change in beneficial ownership;
2. Wash trades;
3. Matching orders or
4. Window dressing
A wash trade is a transaction which involves no change in the beneficial ownership of any securities. SFA Section 1972 provides that there is no change in the beneficial ownership of security if a person who had an interest in the securities before the purchase or sale continues to have an interest in the securities after the purchase or sale. SGX-ST Rule 13.8.43 also prohibits a Trading Member or a Trading Representative from directly or indirectly dealing in securities which involve no change of beneficial ownership as defined in SFA.
This involves entering a buy order through a broker with the knowledge that a sell order for the same amount or price has been entered or will be entered into at about the same time by another party through a different broker. The purpose is to create an impression of active trading in the securities.
Window dressing is a strategy used by a fund manager, for example, to improve the appearance of the fund performance before presenting it to its clients or shareholders. Fund managers should not engage in window dressing practices that may mislead
investors as to the performance of securities and funds under their management. False trading which results from window dressing practices should be avoided as it undermines the integrity of Singapore’s capital markets.
What is market manipulation and how to prevent it?
Broadly, market manipulation involves the intentional interference with the free forces of supply and demand to deceive or defraud investors, or for some other ulterior purpose.
To prevent market manipulation, there are provisions in SFA which disallow any person from directly or indirectly effecting two or more transactions in the securities of a corporation if the transactions serve to raise, maintain or stabilise a corporation͛s
share price. There are similar provisions in the SGX-ST and SGX-DT Futures Trading Rules against market manipulation.
What are the different methods of manipulation?
There are many different methods by which offenders can try to manipulate the market. For example, a person may try corner the market in a particular commodity, by purchasing large volumes of the commodity such that they gain monopolistic control and drive up the commodity͛s price. The manipulator can then sell the
commodity at inflated prices. Short sellers of the commodity are then forced to pay inflated prices to cover their positions.
Another method of manipulation might be where a trader deliberately enters orders into a contract to cause a new day high
price to be recorded, which then allows him to trigger stops for other instruments which use that contract as a reference price.
What are the consequences of false information?
(i) Induce other persons to subscribe for the securities;
(ii) Induce other persons to buy or sell the securities; or
(iii) Raise, lower, maintain or stabilise the market price of securities
Inside information is information that is not generally available, and if known would or would have a material effect on the price or value of securities. Persons with inside information must not enter into transactions in instruments that will be affected by the information. They must also not communicate the information to other parties.
Insider trading, therefore, is to trade on such privileged and confidential information, in the belief that one can reap profit or avoid a loss from the trade. Trading on such inside information therefore serves to provide an advantage over other investors
resulting in an unfair market.
What should be proved when considering a person as a connected insider?
In the case of a connected person, it has to be proven that the connected person possessed information which was not generally available. It is also assumed until proven otherwise that the connected person knew that the information was not generally available, and if the information was generally available, it might have a material effect on the price or value of the security.
How a tippee is different from a connected insider?
(i) A tippee does not have to be connected to the corporation in respect of which he knows price sensitive information;
(ii) Actual knowledge that the information is not generally available and is price sensitive is required before the tippee is obliged to not subscribe for or trade in the securities, or to procure another person to do the same. This is opposed to a connected insider where it is sufficient to show that they ought reasonably to have
known that they possessed information which is not generally available and which is price sensitive; and
(iii) There is also a shift in the burden of proof against the connected insider in that if it is shown that he/she possessed confidential price sensitive information, it will be presumed, unless proved otherwise, that he knew that the information was not
generally available and was price sensitive.
What is a Chinese wall defence?
A corporation does not contravene the insider trading provisions under the SFA if it enters into a transaction or agreement merely because one of its officers possesses inside information if:
(a) The decision to enter into the transaction or agreement was taken on its behalf by a person other than that officer;
(b) The corporation had put in place operations or arrangements that could reasonably be expected to ensure that the information was not communicated to the person who made the decision, and that no advice with respect to the transaction or agreement was given to that person by an officer who possessed the information; and
(c) The information was not so communicated and no such advice was given.
This is essentially a Chinese wall defence. However, ad hoc or inconsistent Chinese walls may not be sufficient for a corporation to rely on this defence
What are some exceptions of insider trading under the SFA?
There are some categories of individuals and situations that are not considered to be insider trading under the SFA. These are:
i. The redemption by trustees or managers for a CIS, subject to certain conditions;
ii. Persons acting as underwriters pursuant to the performance of their roles;
iii. The purchase or sale of securities pursuant to legal requirements such as requirements imposed by written law or a court order;
iv. Price sensitive information communicated pursuant to legal requirements or requirements imposed by written law or a court order;
v. Knowledge within partnership and limited liability partnerships ʹ knowledge of a partners is typically regarded as knowledge of the partnership or limited liability partnership, unless Chinese walls apply;
vi. Knowledge by virtue of a natural person͛s own transactions; and
vii. Knowledge of a corporation͛s own transaction.
What is excessive trading/churning?
Churning is intentional trading for the purpose of enriching a representative at his/her customer͛s expense or just to generate commissions. This is done by entering into many trades, often small, which generate little or no benefit or profit for the customer.
Each trade, of course, earns the representative a commission.
When does the unauthorized trading occurs?
Unauthorised trading occurs when a representative executes trades in a customers account without the customers’ knowledge or approval. Sometimes, the customer may not even be aware of such trades because the representative had directed the contract notes (which depicts trades executed under the customers’ account) to another address. Dormant account are particularly at risk to such activities
A Trading Member and a Trading Representative must not knowingly take advantage of a situation arising from:
1. A breakdown or malfunction in any of the procedures or systems of SGX-ST or SGXDT; or
2. Error entries made by SGX-ST, SGX-DT or CDP on their respective systems
Late trading refers to the practice where an investor places an order to subscribe, switch, cancel or redeem units or shares in a CIS after the time which the CIS has calculated its net asset value, and the investor receives a price per unit or price per share based on the net asset value already determined earlier that day.
What are some advantages of short selling?
Short selling has some advantages as it provides for more efficient price formation, increases market liquidity and facilitates risk management and hedging activities. Conversely, it could also result in increased market volatility, potentially leading to disorderly markets when there is significant market uncertainty. Short selling may also be used as a tool for market abuse, where false rumours are spread to cause widespread panic selling and decrease prices. Uncovered short selling may also result in disruptions to the settlement process.
How inconsistent history can help in preventing manipulation and creation of false market?
CMS licence holders and their representatives should consider whether the proposed transaction is inconsistent with the history or recent trading of the security. Since CMS licence holders and their representatives would generally be familiar with the security’s trading patterns, they are expected to exercise their judgment to assess the impact of a proposed transaction on a security. This does not prevent CMS licence holders or their representatives from executing an order simply because it will have an impact on a security’s price or market.
When SGX-ST may suspend or restrict trading regarding to the securities?
SGX-ST may suspend or restrict trading in any or all listed or quoted securities when:
1. SGX-ST wishes to release information on an issuer which is market sensitive;
2. It is of the view that it is in the public͛s interest;
3. An issuer requests and SGX-ST agrees to the suspension;
4. Access to the Trading System is generally restricted;
5. Any of the circumstances described in Rule 1303 of the SGX-Listing Manual occurs,
e.g. possible takeover situations where less than 10% of issued shares capital is held in public hands, insolvency of the issuer, etc.
6. SGX-ST Rule 8.10A on Circuit Breakers apply; or
7. One or more of SGX-ST’s functions are threatened to be severely or adversely affected by a physical emergency such as a fire, terrorist attacks, power failure, communication or complete malfunction of its systems
What conditions may be imposed by SGX when declaring a designated security?
By declaring a designated security, SGX may impose the following conditions:
• Require a Trading Member to obtain margins from each customer in respect of the customer’s dealing in the designated security;
• Restrict trading in the designated security if its outstanding contracts in the designated security exceed 5% of the paid-up capital of the company, or any percentage prescribed by the Board; or
• Prohibit any sale unless the seller holds the designated security at the time of the sale with the CDP or can deliver the physical security and executed transfer forms to the Trading Member.