RES 2A – Rules, Ethics and Skills for Derivatives Exchange Dealers

Correct: Statement I is correct because the regulatory framework requires a person bringing a civil action to have entered into trades of the same description contemporaneously with the commission of the offence. Statement III is correct because if criminal proceedings or proceedings for a civil penalty are initiated, any private action for damages must be stayed until those proceedings are resolved. Statement IV is correct because the SGX-DT Disciplinary Committee is specifically empowered to require a Director of a Trading Member to step down from the day-to-day conduct of business affairs as a disciplinary measure.

Incorrect: Statement II is incorrect because the amount recoverable in a civil action is subject to a ceiling based on the profit gained or loss avoided by the defendant, rather than being uncapped based solely on the claimant’s total market losses.

Takeaway: Civil recovery for market misconduct is capped at the defendant’s illicit gains, and the SGX-DT Disciplinary Committee possesses wide-ranging powers to sanction both individuals and firm management. Therefore, statements I, III and IV are correct.

Correct: Filing within 15 days to the Commercial Affairs Department and the MAS is the right answer because Section 5.9 of the regulations specifies that once a decision is made to file a Suspicious Transaction Report (STR), the filing must be completed within 15 days of the case being referred by the relevant staff to the Commercial Affairs Department (CAD) with a copy provided to MAS.

Incorrect: The option suggesting a 30-day window is incorrect because the regulatory requirement is strictly 15 days from the point of staff referral. The option mentioning the Singapore Police and SGX-DT only is wrong because it omits the mandatory requirement to copy the MAS on the filing. The option citing a 7-day deadline and the Ministry of Finance is incorrect as it uses an unauthorized timeframe and identifies the wrong government ministry for STR submissions.

Takeaway: CMS license holders must file Suspicious Transaction Reports with the CAD and MAS within 15 days of internal referral and maintain these records for at least 5 years.

Correct: The statement regarding conviction or acquittal is correct because Section 233 of the SFA explicitly states that if a defendant has already been convicted or acquitted in a criminal trial for a specific contravention, civil penalty proceedings for that same matter cannot be initiated.

Incorrect: The claim that civil proceedings continue during a criminal trial is wrong because the SFA requires that ongoing civil penalty proceedings must be stayed (suspended) if criminal proceedings are commenced for the same facts. The statement about withdrawn charges is incorrect because the MAS is specifically empowered to commence civil action even if a criminal charge against the defendant has been withdrawn. The assertion that criminal prosecution can follow a civil penalty is false, as the law provides that no criminal proceedings shall be commenced once a defendant has been ordered to pay a civil penalty.

Takeaway: The SFA framework ensures that civil and criminal penalties for market misconduct are mutually exclusive to prevent a defendant from facing both types of legal outcomes for the same offence.

Correct: Staff must receive regular AML/CFT training that is refreshed on a yearly basis, and the internal audit function must be independent and adequately resourced to assess the effectiveness of the firm’s controls. This is required because CMS licence holders must ensure staff are continuously updated on financial crime risks and that the audit function remains objective and capable of evaluating internal controls.

Incorrect: The assertion that training is only required during initial recruitment is wrong because the regulations mandate that training must be refreshed annually. The claim that training is optional if automated screening is used is incorrect because training is a compulsory requirement of the internal control framework regardless of technology. The statement that training is required every two years or that internal audit files reports is wrong because the refresh cycle is yearly and reporting is handled by a designated central point of referral.

Takeaway: CMS licence holders are required to maintain an independent internal audit function and provide annual AML/CFT training to all staff to ensure robust financial crime prevention.

Correct: Statement I is correct because SGX Trading Rules require Members to ensure DMA customers meet minimum standards regarding financial standing and have no adverse records related to prohibited market conduct. Statement II is correct because a legally binding agreement governing the terms and conditions of the access is a mandatory prerequisite for DMA. Statement IV is correct because the customer must have robust security arrangements to prevent unauthorized persons from accessing the trading system.

Incorrect: Statement III is incorrect because all customers granted Direct Market Access must be familiar with and comply with the SGX Trading Rules; there is no exemption based on the use of a Member’s infrastructure or internal policies.

Takeaway: Trading Members are responsible for ensuring that DMA customers meet specific financial, proficiency, and security standards to maintain the integrity of the SGX QUEST trading platform. Therefore, statements I, II and IV are correct.

Correct: The Pre-Settlement Matching Service (PSMS) is designed to automate the matching of settlement instructions between depository agents and SGX-ST members, which reduces the risk of manual errors and settlement failures. By providing a straight-through-processing environment, it replaces the need for participants to manually agree on trade details over the phone before affirming them in the CDP system.

Incorrect: The option regarding money settlement for Free-of-Payment (FOP) transactions is wrong because FOP transactions are specifically defined as those where participants settle funds without involving the CDP. The option about linking trading accounts to direct securities accounts is wrong because this refers to a standing instruction for account linkage, not the PSMS matching process. The option concerning the quantitative entry criteria for the Catalist Board is wrong because such criteria are determined by approved Sponsors under the SGX-ST Listing Manual, not by a settlement matching service.

Takeaway: The PSMS improves operational efficiency and mitigates settlement risk in the Singapore securities market by automating the pre-settlement matching process prior to final settlement at the CDP.

Correct: Serving as a treasury officer for three consecutive years within the last eight years meets the criteria because the regulation accepts a minimum of three consecutive years of relevant work experience (including treasury) within the past ten years.

Incorrect: Executing four trades in listed futures over twenty-four months is insufficient because the requirement specifies at least six transactions within the preceding three years. Holding a diploma in mechanical engineering does not qualify as it is not one of the approved fields of study such as finance, business, or accountancy. Having two separate two-year stints in research does not satisfy the requirement because the work experience must be for a minimum of three consecutive years.

Takeaway: To pass a Customer Account Review for listed derivatives, a client must meet specific thresholds regarding educational qualifications, professional certifications, trading frequency, or consecutive relevant work history.

Correct: Failing to answer customer complaints promptly and in appropriate detail is the right answer because SGX Futures Trading Rule 3.4.6(f) is the only category of professional misconduct listed that may be compounded with a fine. This distinction is explicitly made in the penalty guidelines for SGX-DT Members and representatives.

Incorrect: Making a material misstatement to the SGX Disciplinary Committee is wrong because Rule 3.4.6(i) classifies this as a non-compoundable offense subject to a mandatory minimum penalty. Refusing to comply with a final arbitration award is wrong because Rule 3.4.6(e) is categorized as a non-compoundable offense. Altering books and records relating to transactions without a valid reason is wrong because it falls under Rule 3.4.6(k), which is also non-compoundable.

Takeaway: Under SGX-DT rules, while most acts of professional misconduct are non-compoundable and carry mandatory minimum penalties, failures to satisfactorily address customer complaints may be compounded with a fine.

Correct: Statement I is correct because Appendix B allows a customer who fails the initial knowledge assessment for an unlisted specified investment product to be deemed competent if they complete a learning module provided by an independent body. Statement II is correct because the Risk Warning Statement (RWS) must explicitly state that overseas-listed products are subject to the laws and regulations of the jurisdiction where they are listed. Statement IV is correct because the RWS is required to disclose that differences in legal systems between the foreign jurisdiction and Singapore may affect the customer’s ability to recover funds.

Incorrect: Statement III is incorrect because Appendix C explicitly states that the Risk Warning Statement does not disclose all the risks and other significant aspects of trading in an overseas-listed investment product; it is not intended to be an exhaustive list.

Takeaway: Intermediaries must provide specific risk disclosures for overseas-listed products and may use independent learning modules to bridge a customer’s knowledge gap for unlisted specified investment products. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because overseas markets operate under different regulatory frameworks, which may lead to different rules for the safekeeping and segregation of client monies compared to Singapore. Statement III is correct because differences in international accounting and auditing standards can significantly impact the quality and comparability of financial disclosures provided to investors.

Incorrect: Statement II is incorrect because the Monetary Authority of Singapore (MAS) explicitly states it is unable to compel the enforcement of rules of regulatory authorities or markets in other jurisdictions. Statement IV is incorrect because the laws of some jurisdictions may restrict or prohibit the repatriation of funds, meaning there is no guarantee that capital or profits can be remitted.

Takeaway: Investors in overseas-listed products must acknowledge that they are subject to foreign legal and regulatory regimes where Singaporean authorities lack enforcement power and investor protections may differ. Therefore, statements I and III are correct.

Correct: Statement I is correct because the SGX QUEST system is designed to allow the revocation of access for Approved Traders or customers in real-time, particularly in cases of dismissal or customer issues. Statement III is correct because SGX-DT rules mandate that Order Management Systems (OMS) must include price alerts that trigger when an order price deviates from a reference price, such as the last traded price, by a set percentage or number of ticks.

Incorrect: Statement II is incorrect because the “doer-checker” internal control requires a staff member to prepare the data or changes, while a senior staff member is responsible for verifying and triggering those changes. Statement IV is incorrect because monitoring account activity on an intraday basis is a mandatory requirement for Members under SGX-DT rules, not an optional best practice.

Takeaway: SGX-DT Members must maintain rigorous pre-execution checks and internal controls, including mandatory intraday monitoring and automated OMS alerts for price and quantity limits. Therefore, statements I and III are correct.

Correct: When the individual has failed to assist the Exchange with an investigation involving a breach of the SGX Futures Trading Rules is the right answer because it is one of the three specific grounds listed under SGX Futures Trading Rule 2.1.2B for the suspension or termination of a person’s Direct Market Access (DMA) connection. This authority allows SGX-DT to maintain regulatory oversight and ensure cooperation during enforcement actions.

Incorrect: The claim that failing to meet minimum monthly trading volumes is a ground for suspension is wrong because volume quotas are typically commercial agreements between a Member and its client, not a regulatory trigger for Exchange-level termination. The mention of technical support interventions is incorrect as the frequency of operational assistance does not constitute a breach of trading rules or a threat to market integrity. The failure to update contact information within fourteen days is an administrative oversight and is not listed in the rules as a basis for SGX-DT to terminate a DMA connection.

Takeaway: SGX-DT retains the authority to suspend or terminate market access to ensure a fair and orderly market or when a participant fails to cooperate with regulatory investigations.

Correct: Statement I is correct because SGX-DT is required to notify all Members via a Regulatory Notice at least three weeks before implementing a new or different trade matching algorithm. Statement III is correct because the Pro-rata algorithm matches orders at the same price based on their individual volume contribution to the total aggregate volume at that price level.

Incorrect: Statement II is incorrect because price priority always takes precedence over time; a better price (higher bid or lower offer) is matched before a worse price regardless of when the orders were entered. Statement IV is incorrect because the Pro-rata algorithm is specifically intended to prevent large orders from blocking others by allowing all participants at a price point to share in the execution volume.

Takeaway: SGX-DT utilizes specific matching algorithms like Price/Time and Pro-rata to ensure market transparency, requiring a three-week notice period for any changes to these protocols. Therefore, statements I and III are correct.

Correct: SGX will assist with order cancellation on a best-effort basis provided the Clearing Member agrees to indemnify the Exchange against all actions, claims, or damages. This ensures the Exchange is protected while attempting to mitigate the Member’s risk during a connection failure.

Incorrect: The statement that SGX guarantees cancellation is incorrect because the rules explicitly state that cancellation is performed on a best-effort basis and orders may still be executed. The requirement for a cyber-attack proof is not a condition for assistance; the rule applies generally when a Member cannot connect to QUEST. The suggestion that SGX automatically cancels orders upon connection loss is false, as the Member must proactively request the cancellation and SGX must verify the party’s identity and authority.

Takeaway: When a Member cannot connect to QUEST, SGX may assist with order withdrawal on a best-effort basis, subject to identity verification and an indemnity from the Clearing Member.

Correct: Statement I is correct because units in a business trust are explicitly listed as Excluded Investment Products (EIPs) under paragraph (d) of the Annex. Statement III is correct because rights issued by a corporation in respect of its own stocks or shares are classified as EIPs under paragraph (c).

Incorrect: Statement II is incorrect because asset-backed securities are specifically carved out and excluded from the definition of EIP debentures under paragraph (h)(i). Statement IV is incorrect because structured notes are also specifically excluded from being EIPs under paragraph (h)(ii), as these are considered Specified Investment Products (SIPs).

Takeaway: Excluded Investment Products (EIPs) generally include standard securities like business trusts and corporate rights, but specifically exclude complex debt instruments like asset-backed securities and structured notes. Therefore, statements I and III are correct.

Correct: Statement I is correct because the provision of margin collateral in cash exceeding S$20,000 is specifically identified in the guidelines as a suspicious transaction involving large amounts of cash. Statement II is correct because requests for refunds of unaccountable payments to CMI accounts by unknown persons are flagged as suspicious activities involving the intermediary’s accounts. Statement IV is correct because transactions that cannot be reconciled with a customer’s usual activities, such as a sudden shift from penny stocks to blue chips without reason, are considered to lack economic sense.

Incorrect: Statement III is incorrect because providing detailed and easily verifiable information is a standard requirement for account opening; the regulatory concern is actually directed at customers who provide minimal, false, or misleading information that is difficult or expensive to verify.

Takeaway: Capital Markets Intermediaries must monitor for indicators of money laundering, including transactions exceeding S$20,000 in cash, activities lacking economic sense, and unusual refund requests from unknown third parties. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because the source text explicitly states that SGX-DC is now a Qualifying Central Counterparty (CCP). Statement III is correct because the Basel III framework provides the regulatory basis for members of Qualifying CCPs to benefit from lower capital requirements for trade and default fund exposures.

Incorrect: Statement II is incorrect because members of Qualifying CCPs are subject to lower, not higher, capital requirements for their exposures, which results in lower capital costs. Statement IV is incorrect because Futures Clearing Members are specifically governed by the SGX-DC Clearing Rules rather than the SGX-DT Trading Rules for their clearing-related activities.

Takeaway: Membership in a Qualifying CCP like SGX-DC provides financial institutions with capital efficiency benefits under the Basel III framework while requiring adherence to specific clearing rules. Therefore, statements I and III are correct.

Correct: Statement II is correct because the Pro-Rata algorithm allocates fills based on the relative size of orders at a price level, meaning a smaller earlier order may remain partially unfilled while a larger later order receives more lots. Statement III is correct because the primary objective of PPM is to reward those who improve the market price, thereby enhancing liquidity and transparency.

Incorrect: Statement I is incorrect because PPM status is only granted to the first order that improves the prevailing bid or offer price, not those that simply match existing prices. Statement IV is incorrect because the PPM allocation typically involves a set percentage of the incoming order being matched against the PPM order first, with the remainder distributed via the Pro-Rata algorithm, rather than a guaranteed full fill for the PPM order.

Takeaway: SGX-DT uses PPM and Pro-Rata algorithms to prioritize price improvement and volume contribution over simple time priority to enhance market liquidity. Therefore, statements II and III are correct.

Correct: The provision of collateral by way of pledge or guarantee by third parties unknown to the CMI, who have no identifiable close relationship with the customer, is explicitly listed as a suspicious transaction indicator. This is because it obscures the origin of the assets and the identity of the person bearing the risk.

Incorrect: Using a joint account with a spouse is a common and transparent arrangement that does not involve unidentified third parties. A bank guarantee from a local institution is a standard, verifiable financial instrument that does not inherently suggest suspicious activity. Increasing margin deposits in response to market volatility is a legitimate and expected action to meet regulatory and exchange requirements.

Takeaway: CMIs must be vigilant when collateral is provided by unrelated third parties, as this is a key indicator of potential money laundering or hidden beneficial ownership.

Correct: Increasing the order quantity from 50 lots to 70 lots is the right answer because the QUEST system rules state that if a GTC order’s quantity is increased or its price is amended, its priority is updated to the time of the modification.

Incorrect: Reducing the order quantity from 50 lots to 30 lots is wrong because the rules explicitly provide that a reduction in quantity does not cause an order to lose its queue priority. Allowing the order to remain active during a system restart is wrong because GTC orders are specifically reloaded after a system failure and do not lose priority through this process. Carrying the order forward from the T-session to the T+1 session is wrong because GTC orders are intended to remain in the book across sessions, and this transition does not constitute a priority-resetting event.

Takeaway: A GTC order retains its time priority in the central order book unless the trader chooses to increase the quantity or change the price.

Correct: Statement I is correct because the QUEST system allows the “Convert to Series” parameter to be different from the “Stop Series,” meaning a price movement in a futures contract can trigger an order for an option. Statement III is correct because the Stop Price Reference Type is a mandatory parameter that specifies whether the trigger condition should be compared against the Bid Price, Ask Price, or Last Price.

Incorrect: Statement II is incorrect because, according to the regulations, an MIT sell order trigger is placed above the current market price to sell at a higher price, whereas a Stop sell order trigger is placed below the market price. Statement IV is incorrect because MIT orders are not immediately matched; they are held in the system and only submitted as market orders once the trigger price is touched.

Takeaway: Stop and MIT orders are conditional orders held by the system until specific price triggers are met, with the primary difference being their placement relative to the current market price. Therefore, statements I and III are correct.

Correct: Statement I is correct because the board of directors must comprise a minimum of 2 members, with at least one member being a resident in Singapore. Statement III is correct because the Chief Executive Officer of the applicant is specifically required to be a resident in Singapore.

Incorrect: Statement II is incorrect because a CMS licence holder is required to inform MAS within 14 days of any change in the address of its principal place of business, not 30 days. Statement IV is incorrect because the applicant is required to employ at least 2 full-time individuals for each regulated activity, rather than just one.

Takeaway: CMS licence applicants must satisfy specific residency requirements for their board and CEO, while ensuring they maintain a minimum of two representatives per regulated activity and report changes within 14 days. Therefore, statements I and III are correct.

Correct: Statement I is correct because Market to Limit (MTL) orders with Day or GTC validity convert any unmatched portion into a resting Limit Order at the price of the initial match. Statement III is correct because during non-continuous matching states, Market Orders are assigned the Equilibrium Price (EP) and adjust if the EP changes.

Incorrect: Statement II is incorrect because the Fill or Kill (FOK) validity specifically prohibits partial fills; the order must be matched in its entirety or cancelled completely. Statement IV is incorrect because Stop Orders are not shown to the market before they are triggered and converted into Limit, Market, or MTL orders.

Takeaway: Understanding the specific execution logic and visibility of order types like MTL and FOK is crucial for managing execution risk and price slippage on the SGX-DT platform. Therefore, statements I and III are correct.

Correct: Statement I is correct because the SFA specifically classifies options on equity indices as securities, meaning a corporation offering them must be licensed to deal in securities under section 82. Statement III is correct because the Base Capital Requirement (BCR) for a non-clearing member trading in futures contracts is set at S$1 million according to Table 2.2.1. Statement IV is correct because the SFA mandates that individuals acting for CMS license holders in regulated activities must be appointed representatives to ensure proper supervision.

Incorrect: Statement II is incorrect because the regulatory framework explicitly states that Trading Members (both General and Bank) are permitted to conduct trading activities but are not allowed to engage in clearing activities; clearing must be performed by a Clearing Member.

Takeaway: CMS license holders must adhere to specific base capital thresholds based on their membership class and ensure all individuals performing regulated activities are formally appointed as representatives. Therefore, statements I, III and IV are correct.

Correct: For a Bank Trading Member, the SGX Futures Trading Rules specify that the exchange must be notified at least 7 days prior to the appointment of its CEO or deputy CEO. This ensures the exchange is aware of leadership changes in exempt institutions while maintaining a different oversight mechanism than that used for General Trading Members.

Incorrect: The requirement to obtain prior written approval is incorrect because that specific rule applies to General Trading Members, whereas Bank Trading Members only need to provide advance notification. The option mentioning a 14-day report to MAS is wrong because that timeline and reporting body relate to misconduct reporting of representatives, not the appointment of senior management. The suggestion to notify SGX-DT within 14 days after the appointment is incorrect as the regulation mandates a notification period that occurs before the appointment takes effect.

Takeaway: Bank Trading Members are subject to a 7-day prior notification requirement for CEO and Deputy CEO appointments, rather than the prior approval process required for General Trading Members.

Correct: NLTs provide reduced visibility during execution, though details are published by SGX once the trade is registered. This is a key feature of the Negotiated Large Trades facility, which allows for direct negotiation between parties to avoid price slippage and market impact, while maintaining transparency through post-trade publication by the exchange.

Incorrect: The statement that NLTs must be routed through the QUEST system is incorrect because the facility is specifically designed to allow orders to be negotiated directly between a buyer and seller instead of using the central order book. The claim that NLTs are exempt from all reporting requirements is false, as the SGX-DT rules explicitly state that trade details are published after registration. The assertion that NLTs are only for retail investors with small orders is wrong because the facility is restricted to transactions that meet specific minimum volume thresholds.

Takeaway: The NLT facility enables the execution of large-volume trades with price certainty and temporary anonymity, provided they meet minimum volume thresholds and are reported to the exchange for publication.

Correct: The mandatory minimum penalty of $10,000 is the right answer because SGX Futures Trading Rule 3.2.5(i) explicitly mandates this specific minimum fine for any Member firm that conducts business in a market that has been prohibited by the Exchange.

Incorrect: The option regarding a compoundable fine based on prior violations is incorrect because that penalty applies to non-compliance with the rules of other markets or reporting breaches under Rule 3.2.5(ii) and 3.2.4, rather than trading in prohibited markets. The option mentioning a fine not exceeding $50,000 is incorrect as this refers to general offences under SFR(LCB)13 regarding the duties of a CMS license holder. The option about a discretionary fine based on the offender type is incorrect because it describes the penalty structure for breaches of general duties of integrity and fair dealing under Rule 3.2.1.

Takeaway: Trading in a market specifically prohibited by SGX-DT carries a strict mandatory minimum penalty of $10,000 for Member firms.

Correct: The rule states that Session State Orders (SSOs) and their triggered orders are not visible to other market participants until the triggering occurs. Furthermore, once triggered, these orders are always assigned a lower priority than normal resting orders already in the order book at the same price level.

Incorrect: The assertion that SSOs are visible to all participants upon entry is incorrect because the system purposefully hides these orders until the specified session state is reached to prevent information leakage. The claim that SSOs maintain higher priority than standard limit orders based on entry time is false; standard resting orders at the same price always take precedence over triggered SSOs regardless of entry time. The statement that SSOs cannot be carried forward from the T session to the T+1 session is inaccurate, as the regulations explicitly allow for this carry-forward if the order remains untriggered.

Takeaway: Session State Orders remain hidden from the market until their trigger condition is met and will always yield priority to existing resting orders at the same price point.

Correct: Statement I is correct because the regulations state that if a Member is a counterparty to a customer’s NLT, they must inform the customer and obtain written approval prior to execution. Statement II is correct because the rules require that verbal approvals for NLT execution must be supported by a tape recording for record-keeping purposes.

Incorrect: Statement III is incorrect because an NLT cannot have the same buyer and seller, which specifically includes different accounts belonging to the same beneficial owner. Statement IV is incorrect because the Member must enter the order on QUEST for execution first, before attempting to secure a counterparty, to ensure the customer does not miss execution opportunities.

Takeaway: NLT execution requires strict adherence to customer approval protocols and beneficial ownership rules to maintain market integrity and ensure client protection. Therefore, statements I and II are correct.

Correct: Statement II is correct because for multi-leg NLTs, the requirement is satisfied if at least one leg meets its specific minimum volume threshold as per SGX-DT rules. Statement III is correct because members are permitted to aggregate orders that already meet the minimum volume threshold individually to fulfill a larger trade, provided each is reported separately.

Incorrect: Statement I is incorrect because SGX-DT rules strictly prohibit combining orders from different customers that are below the minimum volume threshold to reach the threshold, regardless of whether they are in the same contract. Statement IV is incorrect because trades failing to meet the minimum volume threshold are rejected for registration as NLTs rather than being automatically placed in the central limit order book.

Takeaway: The NLT facility requires individual customer orders to meet minimum volume thresholds independently, though multi-leg transactions only require one leg to qualify for registration. Therefore, statements II and III are correct.