RES 1A – Rules, Ethics and Skills for Securities Exchange Dealers

Correct: The transaction pattern may be an indicator of potential terrorism financing activities because regulatory guidelines specifically highlight that when a young person (aged approximately 17-26) opens an account and quickly withdraws or transfers funds, it serves as a red flag for terrorism financing.

Incorrect: The suggestion of foreign exchange law violations is incorrect because such suspicions typically arise from transactions that appear to bypass specific cross-border regulatory limits rather than age-based withdrawal patterns. The claim regarding personal income tax evasion is wrong because tax-related red flags usually involve unconvincing account purposes or transfers to tax havens. The mention of market manipulation is incorrect as that involves specific trading behaviors like wash sales or ramping, not the mere movement of cash funds.

Takeaway: CMS license holders must be vigilant regarding specific age-related transaction patterns, as rapid fund movements by individuals aged 17 to 26 are recognized indicators of potential terrorism financing.

Correct: Statement I is correct because SGX-ST requires all Trading Member Order Management Systems (OMS) to undergo a conformance and assessment test for compatibility, stability, and security before interfacing with the exchange. Statement III is correct because the Trading Member is responsible for configuring its own credit control limits and risk management features within its OMS according to its internal policies. Statement IV is correct because under SGX-ST Rule 4.6.22, Trading Members must ensure their systems have adequate and scalable capacity to handle trading volume levels.

Incorrect: Statement II is incorrect because the SGXAccess FIX Controller is an infrastructure component owned and supported by SGX-ST, not by the individual Trading Member.

Takeaway: Trading Members must ensure their proprietary systems meet exchange standards for security and capacity while maintaining internal risk controls for Direct Market Access. Therefore, statements I, III and IV are correct.

Correct: Statement I is correct because companies seeking a secondary listing on the SGX Mainboard are exempt from SGX’s continuing listing obligations, provided they comply with the rules of their home exchange. Statement III is correct because one of the quantitative admission criteria for the Mainboard is a minimum consolidated pre-tax profit of at least S$30 million for the latest financial year with a 3-year track record.

Incorrect: Statement II is incorrect because the introductory document required for a listing by way of Introduction is specifically not subjected to public comments, unlike an IPO prospectus. Statement IV is incorrect because Mining, Oil & Gas (MOG) companies are required to have sufficient working capital for at least 18 months from the date of listing, not 12 months.

Takeaway: SGX Mainboard admission involves specific financial thresholds and procedural requirements that vary significantly depending on whether the company is seeking a primary listing, secondary listing, or listing by introduction. Therefore, statements I and III are correct.

Correct: Statement I is correct because SGX-ST rules explicitly require Sponsored Access participants to be regulated by a recognized regulatory authority for regulated activities. Statement II is correct because Trading Members must maintain a register of the identity and address of all Sponsored Access customers and produce it to SGX-ST upon request. Statement IV is correct because the rules mandate that Trading Members provide customer education on their responsibilities and regulatory compliance.

Incorrect: Statement III is incorrect because not all offences related to Direct Market Access (DMA) are compoundable. Specifically, offences under SGX-ST Rule 4.5A.2(1)(e) and (f), which relate to security arrangements and investigation assistance, are not compoundable and are subject to mandatory minimum penalties.

Takeaway: While many DMA and Sponsored Access violations are compoundable with fines, Trading Members must adhere to strict participant eligibility and record-keeping requirements, noting that certain security and investigative breaches carry mandatory minimum penalties. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because SGX-ST Rule 4.1.3 allows for the suspension of Direct Market Access (DMA) if a person fails to assist in investigations into potential rule violations. Statement II is correct because Rule 4.1.3 requires Trading Members to have the technical capacity to immediately terminate a customer’s access to fulfill duties such as Good Business Practice. Statement III is correct because SGX-ST Rule 4.3 and Practice Note 4.6.7A(1)(b) mandate automated pre-execution checks, including credit checks, on all orders to prevent overtrading.

Incorrect: Statement IV is incorrect because SGX-ST Rule 4.5A.4 explicitly states that an offense under the rule is not compoundable and is subject to a mandatory minimum imposable penalty, rather than being compoundable with a maximum penalty.

Takeaway: Trading Members must implement automated pre-execution risk controls for all orders and maintain the ability to immediately terminate Direct Market Access to ensure market stability and regulatory compliance. Therefore, statements I, II and III are correct.

Correct: The securities are classified as quoted but not listed, as they are traded over-the-counter without meeting listing criteria is correct because the SGX defines ‘Quotation’ specifically for companies dealt with over-the-counter (OTC) on the GlobalQuote platform that are not on the official list and do not meet listing requirements.

Incorrect: The claim that these are listed on the Catalist board is wrong because Catalist is an official listing board that requires a sponsor and adherence to specific rules, whereas quotation is for OTC trades. The suggestion that they are both listed and quoted is incorrect because the SGX distinguishes between ‘Listing’ (appearing on the official list) and ‘Quotation’ (OTC trading without listing). The idea that they are listed but not quoted is factually reversed; quotation applies to OTC securities that specifically avoid the official listing process.

Takeaway: Listing involves being on the official SGX list, while quotation refers to OTC securities on GlobalQuote that do not meet or require official listing standards.

Correct: Statement I is correct because the shareholding spread for Catalist requires at least 15% of issued capital in public hands and a minimum of 200 shareholders. Statement II is correct because the sponsor and directors must provide a statement in the Offer Document confirming sufficient working capital for at least 12 months post-IPO. Statement IV is correct because the Offer Document must be lodged on the SGX Catalodge website for at least 14 days to allow for public comments.

Incorrect: Statement III is incorrect because SGX-ST does not undertake the direct review of IPO documents for Catalist listings; instead, the admission and supervision responsibilities have been transferred to the approved sponsors.

Takeaway: The Catalist board operates under a sponsor-supervised regime where the sponsor is responsible for assessing suitability and ensuring compliance, rather than the exchange directly reviewing admission documents. Therefore, statements I, II and IV are correct.

Correct: No order entry or amendments are permitted as orders are matched at a single price is the right answer because SGX-ST Rule 8.2.1 specifies that the Non-Cancel phase prohibits any form of order entry, amendment, or withdrawal. This phase is strictly dedicated to matching all existing orders at a single price determined by the SGX-ST algorithm.

Incorrect: The statement that orders may be withdrawn or reduced in size is incorrect because these specific actions are only permitted during the Pre-Open, Pre-Close, or Adjust phases. The claim that new orders may be entered while existing orders are frozen is wrong because the Non-Cancel phase does not allow any new entries. The idea that price amendments are allowed while quantity is fixed is false because the rules prohibit all forms of order modification during this phase.

Takeaway: The Non-Cancel phase is a restrictive period in the SGX-ST trading cycle where the order book is locked to facilitate single-price matching.

Correct: One tick is added to the side with the Market Order Surplus to determine the Equilibrium Price is the right answer because the SGX algorithm specifies that when a Market Order Surplus exists, the lowest imbalance occurs at the Market Price, and the Equilibrium is established by adding one tick to the surplus side.

Incorrect: The option regarding the price closest to the last traded price is wrong because that logic applies only when there is both buy and sell pressure (or nil pressure) within a price overlap, not a Market Order Surplus. The option regarding the highest price in the overlap is wrong because that rule is reserved for situations where there is only buy pressure within a price overlap. The option regarding the highest imbalance is wrong because the algorithm requires the lowest imbalance to determine the Equilibrium Price.

Takeaway: For SGX matching routines, a Market Order Surplus results in the Equilibrium Price being set at one tick above or below the Market Price on the surplus side.

Correct: Statement I is correct because the licensing criteria require the board of directors to have a minimum of two members, at least one of whom must be a resident of Singapore. Statement II is correct as the Chief Executive Officer of the applicant corporation is specifically required to be a resident in Singapore. Statement IV is correct because MAS approval is mandatory before a corporation can appoint a director who will be directly responsible for its business operations in Singapore.

Incorrect: Statement III is incorrect because the regulations require a CMS license applicant to employ at least two full-time individuals for each regulated activity for which it is seeking a license, rather than just one.

Takeaway: CMS licensing criteria ensure robust governance and operational presence by requiring a minimum of two directors, a resident CEO, and at least two representatives for every regulated activity. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because the SGX-ST rules require that notices for ordinary resolutions be given to all shareholders at least 14 days before the meeting. Statement III is correct because the regulations explicitly state that a proxy appointed by a shareholder is entitled to vote on a show of hands on any matter at any general meeting. Statement IV is correct because any meeting convened to consider special business must be accompanied by a statement regarding the effect of any proposed resolution in respect of such business.

Incorrect: Statement II is incorrect because the notice period for special resolutions is 21 days, not 14 days. The 14-day requirement only applies to ordinary resolutions.

Takeaway: Listed companies must adhere to specific notice periods of 14 days for ordinary resolutions and 21 days for special resolutions, while ensuring proxies have voting rights and special business is clearly explained. Therefore, statements I, III and IV are correct.

Correct: Statement I is correct because SGX-ST Rule 13.4.1 provides a specific exception to the precedence rule if the Trading Representative does not have access to the customer’s order flow information while executing for their own account. Statement III is correct because Rule 13.5.1(2) explicitly prohibits any arrangement with a third party to allocate profits or losses to a customer’s account.

Incorrect: Statement II is incorrect because an offence under Rule 13.4.1 regarding the precedence of customer orders is specifically classified as not compoundable and is subject to a mandatory minimum imposable penalty. Statement IV is incorrect because leading a customer to believe they will not suffer a loss (Rule 13.5.1(3)) is an offence that may be compounded with a fine, whereas only the third-party profit allocation rule in that section carries a mandatory minimum penalty.

Takeaway: Under SGX-ST rules, while some conduct breaches are compoundable with a fine, serious violations like failing to prioritize customer orders or third-party profit allocation carry mandatory minimum penalties. Therefore, statements I and III are correct.

Correct: Statement I is correct because market-to-limit orders are designed to match only at the current best bid or ask price, with any unfilled portion becoming a limit order at that same price to prevent trading through the order book. Statement III is correct because the regulatory text distinguishes stop orders as loss-limiting tools for existing positions, whereas if-touched orders are intended for initiating new positions based on anticipated price reversals.

Incorrect: Statement II is incorrect because session state orders are specifically not visible to the rest of the market before they are triggered by the designated session state. Statement IV is incorrect because once a stop price is reached, a stop market order is treated as a regular market order, meaning the execution price may differ significantly from the stop price in fast-moving or cascading markets.

Takeaway: SGX-ST provides various order types like market-to-limit and price-triggered orders to help investors manage execution price risks and automate trading strategies across different market sessions. Therefore, statements I and III are correct.

Correct: Statement I is correct because securities designated by CDP for book-entry settlement are traded on an “ex” basis for 3 market days before and up to the book closing date. Statement III is correct because SGX-ST has the discretion to cancel a contract if there is clear evidence of fraud or if the Trading Members involved in an error trade agree to the cancellation.

Incorrect: Statement II is incorrect because a buyer of securities on an “ex” basis has no right to the entitlement; only a buyer on a “cum” basis is entitled to claim such benefits. Statement IV is incorrect because SGX-ST Rule 8.5 explicitly states that a contract will not be cancelled simply because of a failed delivery or a share registrar’s refusal to register a transfer.

Takeaway: Market participants must distinguish between “cum” and “ex” trading periods and recognize that SGX-ST’s power to cancel contracts is limited to specific integrity-related circumstances. Therefore, statements I and III are correct.

Correct: Setting out in writing the limits of discretionary powers for any group empowered to commit the firm to a financial undertaking is a specific duty under the SFR (LCB). This ensures that financial, operational, and reputational risks are managed through clearly defined boundaries for all authorized personnel, committees, or sub-committees.

Incorrect: The suggestion that all discretionary powers must be restricted solely to the Chief Executive Officer is incorrect because the regulations allow for various officers or groups to be empowered, provided their limits are documented in writing. The requirement to report all discretionary exercises to MAS within 14 days is incorrect as the 14-day reporting timeline specifically applies to misconduct reports or changes in information for publication, not routine discretionary activities. Maintaining only a verbal record is insufficient because the law mandates that firms must keep written records of the steps taken to monitor compliance with operating procedures and discretionary limits.

Takeaway: CMS licence holders must establish written limits on discretionary powers and maintain written records of compliance monitoring to ensure sound risk management and internal control.

Correct: Obtaining prior written approval from independent senior management is the right answer because SGX-ST Rule 12.17.1 specifically requires that personal trades by employees be authorized by senior staff who are not involved in sales or dealing to ensure objective oversight.

Incorrect: The suggestion that approval can come from a supervisor within the sales department is wrong because the rules mandate independence from the sales function to prevent conflicts of interest. The idea that a representative can trade through another firm without notification is incorrect as Rule 12.17.3 requires employees to trade through their own firm unless it is impractical and documented. The requirement for a post-trade review by the settlement team is wrong because the regulation specifically demands prior written approval before the trade occurs.

Takeaway: Trading Representatives must secure prior written authorization from independent senior management for personal trades and generally must execute these trades through their own firm.

Correct: SGX-ST will not cancel the trade because self-matched trades, where buy and sell orders for the same account match, are not classified as error trades. These are often viewed as wash sales that do not involve a change in beneficial ownership, and SGX-ST rules explicitly state they will not be cancelled.

Incorrect: The suggestion that SGX-ST will review the trade upon payment of a fee or if it falls outside a specific price range is incorrect because those procedures only apply to valid error trades, which self-matched trades are not. The claim that written notification on the same day would lead to a cancellation is wrong because SGX-ST explicitly states it will not cancel self-matched trades regardless of the reporting timing. The idea that proving the trade was unintentional would allow for cancellation is incorrect as the rules provide no such exception for self-matched transactions.

Takeaway: Self-matched trades are not considered error trades by SGX-ST and will not be cancelled, as they do not involve a change in beneficial ownership.

Correct: Statement I is correct because SFA Section 99J explicitly allows a representative to act for more than one principal if the principals are related corporations. Statement II is correct because ensuring that principals can closely monitor and supervise their representatives at all times is one of the two primary objectives of the rule. Statement IV is correct because the rule is intended to provide clarity to investors regarding which principal is responsible for handling complaints and providing redress.

Incorrect: Statement III is incorrect because the penalty for an individual who breaches the one-representative-one-principal rule under SFA 99J(1) is a fine not exceeding $50,000, not $150,000. The $150,000 fine is the penalty applicable to a financial institution that permits an unauthorized individual to conduct regulated activities under SFA 99B(3).

Takeaway: The one-representative-one-principal rule is a fundamental requirement designed to ensure clear regulatory accountability and effective supervision within the Singapore capital markets. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because direct business (married trades) includes transactions dealt between two customers of the same Trading Member. Statement II is correct because the regulatory threshold for such business requires a minimum of 50,000 units or a contract value of at least $150,000. Statement III is correct because SGX-ST rules mandate that direct business executed during trading hours must be reported through the system within 10 minutes.

Incorrect: Statement IV is incorrect because the source text explicitly states that the requirement to mark sell orders under Rule 8A applies to direct business reported through the married trade reporting system; there is no exemption for these trades.

Takeaway: Direct business must satisfy specific size or value thresholds and be reported within 10 minutes during trading hours, while remaining subject to standard sell order marking regulations. Therefore, statements I, II and III are correct.

Correct: Obtaining records from the CPF Board is the right answer because the MAS guidelines explicitly require CMS license holders to verify that self-employed candidates are not in arrears of their contributions under the CPF Act.

Incorrect: Checking the Ministry of Law’s Insolvency portal is a general requirement for all representatives to ensure they are not undischarged bankrupts, rather than a specific requirement for self-employed individuals. Requesting credit status from the Credit Bureau (Singapore) is a standard financial status check for all candidates but does not fulfill the specific requirement to check CPF contributions. Searching the Public Register of Representatives is a probity check on past records and regulatory status, which is distinct from the financial status checks required for self-employed persons.

Takeaway: CMS license holders must perform targeted financial due diligence on self-employed candidates by verifying their CPF contribution status to ensure they have met their obligations under the CPF Act.

Correct: Statement I is correct because during a trading halt, existing orders in the ready and unit share markets remain valid and can be modified or withdrawn, though they will not be matched. Statement II is correct because if a trading halt is not lifted by the end of the Market Day, all unmatched orders in the system will lapse. Statement IV is correct because SGX-ST may approve off-market trades on a case-by-case basis if a seller needs to cover a short position as required by the clearing house.

Incorrect: Statement III is incorrect because it describes the characteristics of a suspension, which is typically for a prolonged period and causes all unmatched orders to lapse immediately, whereas a trading halt is usually intra-day and orders remain valid until the end of the day.

Takeaway: Trading halts are temporary measures to allow for the dissemination of material information, maintaining existing orders until the end of the market day, unlike suspensions which clear the order book immediately. Therefore, statements I, II and IV are correct.

Correct: Statement II is correct because broker/dealer companies function as financial intermediaries that specialize in matching buyers with sellers rather than performing traditional bank-like deposit-taking or credit extension. Statement IV is correct because the regulatory framework explicitly deems securities lending as dealing in securities, which necessitates a Capital Markets Services (CMS) licence to operate legally.

Incorrect: Statement I is incorrect because merchant banks are approved under the MAS Act rather than the Banking Act, and they are strictly prohibited from accepting deposits from the general public. Statement III is incorrect because finance companies are classified as exempted institutions and are generally not required to apply for a CMS licence for regulated activities that are not prohibited by the Finance Companies Act.

Takeaway: Different financial intermediaries in Singapore, such as merchant banks and finance companies, operate under distinct regulatory frameworks and licensing exemptions based on their specific functions and target client bases. Therefore, statements II and IV are correct.

Correct: Statement I is correct because SGX-ST Rule 7.5.7 requires Trading Representatives to update their contact details and residential address in writing within 7 days of any change. Statement II is correct because under the Representative Notification Framework, a representative’s status ceases if they stop acting in that capacity for a continuous period of one month and the principal has not notified MAS.

Incorrect: Statement III is incorrect because the Public Register of Representatives only displays the principal companies the representative has worked for within the past three years, not their entire career history. Statement IV is incorrect because SGX-ST has absolute discretion regarding registration and is specifically not obliged to provide any reason for the rejection of an application.

Takeaway: Representatives must adhere to strict 7-day personal data update requirements and understand that their status depends on both continuous activity and the discretionary approval of SGX-ST. Therefore, statements I and II are correct.

Correct: The Trading Member has full discretion over the price and volume of the securities sold and is not required to notify the customer before the sale is the right answer because SGX-ST rules grant the member authority to manage the liquidation of positions for non-payment without prior notice or liability for resulting losses.

Incorrect: The statement requiring one market day’s notice and holding the member liable for losses is incorrect as the rules specifically exempt the member from such notice requirements and liability. The claim that the member cannot recover administrative expenses or losses is wrong because the regulations allow for the recovery of all costs and deficits from the buying customer. The suggestion that the sale must occur at the market opening price on T+3 is false because the member has the discretion to determine the timing and price of the sale.

Takeaway: Under SGX-ST rules, Trading Members exercising a force-sale for non-payment have full discretion over the execution details and are not liable to the customer for losses incurred during the process.

Correct: Statement I is correct because SGX-ST Rule 8.12.1 specifies that the exchange may prohibit a Trading Member from entering orders for a period not exceeding 14 days if the member is experiencing operating difficulty. Statement III is correct because SGX-ST Rule 9.2 establishes that a buying customer must look only to the Trading Member that executed the trade for all obligations, including the delivery of securities.

Incorrect: Statement II is incorrect because Rule 9.1.1 and 9.1.2 state that physical certificates are not allowed for the settlement of securities designated for book-entry clearance by CDP. Statement IV is incorrect because the buying-in process for failed deliveries commences on Settlement Day, which is defined as LTD + 3, rather than LTD + 2.

Takeaway: SGX-ST enforces market stability through temporary trading prohibitions for non-compliant members and maintains a strict book-entry settlement system where customers hold their executing Trading Members accountable for delivery. Therefore, statements I and III are correct.

Correct: Statement I is correct because the Securities and Futures (Licensing and Conduct of Business) Regulations require that if any past profitable recommendation is cited, the advertisement must list all recommendations made in at least the 12 months immediately preceding the date of the advertisement. Statement II is correct because the regulations specifically mandate that the warning statement about past results must be in a font size at least as large as the largest font used in the body of the advertisement. Statement IV is correct because SGX-ST rules require that any advertisement or publication must not contain claims that are not externally verifiable.

Incorrect: Statement III is incorrect because the regulations state that a report or service cannot be claimed as “free” if there is any condition or obligation attached; requiring a client to open a trading account constitutes a condition, making the claim of it being “free” prohibited.

Takeaway: Regulatory standards for advertising ensure that past performance is presented transparently with full 12-month disclosures and that promotional offers are not misleading or conditional. Therefore, statements I, II and IV are correct.

Correct: The Trading Member transacts as principal with SGX-SPV and remains liable for all orders regardless of authorization, as stipulated under SGX-ST Rule 10.5 regarding obligations when accessing foreign markets.

Incorrect: The claim that the Trading Member acts as an agent for SGX-SPV is incorrect because the rules require the member to transact as a principal. The statement that settlement is owed to SGX-SPV is wrong because, under the rules, settlement obligations are owed to the CDP. The suggestion that members are relieved of standard liabilities for foreign trades is false as the rule explicitly states they are not relieved of any applicable obligations.

Takeaway: When trading via the Exchange Link, Trading Members act as principals and retain full responsibility for order accuracy and settlement with the CDP.

Correct: Statement I is correct because SGX-ST Practice Note 12.3.1 allows a Trading Member to verify an applicant’s identity by contacting their employer’s personnel department on a listed business number, provided the customer gives consent. Statement II is correct because certification of account opening forms by a branch of a bank operating in Singapore where the customer maintains an account is a recognized verification method for non-face-to-face applications. Statement IV is correct because under SFR (LCB) 46A, any CMS licence holder that implies its abilities or qualifications have been approved by MAS is liable on conviction to a fine not exceeding $50,000.

Incorrect: Statement III is incorrect because SGX-ST rules require that a Trading Member must ensure an account has been opened for a customer before transacting on their behalf or selling any investment product; there is no provision allowing trades to be executed before the account opening process is finalized.

Takeaway: Trading Members must verify customer identities through approved channels before account opening and are strictly prohibited from representing that MAS has endorsed their professional qualifications. Therefore, statements I, II and IV are correct.

Correct: Requiring each joint account holder to specify whether they are jointly and severally liable for all debts is a mandatory requirement under SGX-ST Rule 12.3.4. This ensures that the Trading Member has clear documentation regarding the financial responsibility of each participant for any liabilities arising from the account.

Incorrect: The option regarding three individuals is incorrect because SGX-ST Rules restrict joint accounts to a maximum of two individuals, with the exception of estate accounts. The claim that only the primary holder must meet age and bankruptcy requirements is wrong because the rules state that each joint account holder must be at least 18 years old and not be an undischarged bankrupt. The statement about an exemption for individual account details is incorrect because Trading Members are specifically required to maintain details of any accounts held in an individual capacity by a joint account holder.

Takeaway: To ensure regulatory compliance for joint accounts, Trading Members must verify the eligibility of all participants and document their specific liability for account debts.

Correct: Statement I is correct because Rule 10.6.6 specifically provides that an offence related to the cancellation of contracts may be compounded with a fine, making it an exception to the non-compoundable nature of other rules in this section. Statement II is correct because Rule 10.6.4 mandates that a Trading Member must immediately inform SGX-ST if it reasonably suspects or knows of any attempted market manipulation in a Selected Foreign Security.

Incorrect: Statement III is incorrect because Rule 10.6.5 prohibits trading in suspended securities unless the Foreign Exchange concerned has agreed to it, regardless of the Trading Member’s internal liquidity assessment. Statement IV is incorrect because Rule 10.6.7 stipulates that an offence related to cornering is not compoundable and is subject to a mandatory minimum imposable penalty, rather than being at the discretion of the exchange.

Takeaway: Most regulatory breaches involving foreign market linkages carry mandatory minimum penalties and are not compoundable, with the specific exception of rules governing the cancellation of contracts. Therefore, statements I and II are correct.