RES 2A – Rules and Regulations for Trading in Futures Contracts (SGX-DT Members) Set Two

According to the Securities and Futures Act 2001, derivatives dealers have a duty to act in the best interests of their clients and provide suitable investment advice. Recommending high-risk derivatives without considering Mr. Tan’s financial situation, risk tolerance, and investment objectives would violate this duty.Option B is the correct choice as it aligns with the ethical standards of providing suitable advice and ensuring the client understands the risks involved.

As per the Securities and Futures Act 2001, derivatives dealers have a duty to execute client orders promptly, but they must also consider market conditions and act in the best interests of their clients. Option A is the correct choice as it demonstrates Sarah’s responsibility to inform the client about the market volatility and recommend a prudent course of action, which aligns with the duty of care expected from derivatives dealers.

The Securities and Futures Act 2001 prohibits insider trading, which involves trading securities or derivatives based on material, non-public information. Mr. Wong should refrain from using the confidential information for personal gain and report the situation to the compliance department or relevant authorities to ensure compliance with ethical standards and legal obligations. Option C is the correct choice as it reflects Mr. Wong’s duty to act with integrity and avoid conflicts of interest.

Derivatives dealers are required to execute client orders accurately and in accordance with their instructions. However, if there are concerns about potential errors or unintended consequences, it is essential to communicate with the client and seek clarification to ensure the order is executed correctly. Option B is the correct choice as it demonstrates Emily’s commitment to fulfilling her duty to act in the best interests of the client and maintain the integrity of the market.

Accepting lavish gifts from clients can create conflicts of interest and undermine the integrity of the derivatives market. Mr. Lim should politely decline the gift and inform the client about the company’s policy on accepting gifts, which aligns with ethical standards and regulatory requirements. Option D is the correct choice as it demonstrates Mr. Lim’s commitment to maintaining professional integrity and avoiding situations that could compromise his independence and objectivity as a derivatives dealer.

Sharing confidential information about a competitor’s trading strategies without authorization violates ethical standards and could potentially breach laws related to insider trading or trade secrets. Rachel should refuse the client’s request and inform them about the unethical and illegal nature of such actions. Option A is the correct choice as it aligns with Rachel’s duty to maintain confidentiality and integrity in her professional conduct as a derivatives dealer.

Derivatives dealers have a duty to execute client orders accurately and in accordance with their instructions. If an error is identified during the execution process, it is essential to inform the client promptly and seek their consent to proceed with the corrected trade. Option B is the correct choice as it demonstrates Alex’s commitment to acting in the best interests of the client and maintaining the integrity of the market.

Front-running client orders is a serious breach of ethical standards and regulatory requirements. Lisa has a duty to report such misconduct to the compliance department or relevant authorities to uphold the integrity of the derivatives market and protect clients’ interests. Option C is the correct choice as it reflects Lisa’s responsibility to act with integrity and maintain trust in the financial industry.

Derivatives dealers are responsible for executing client orders promptly and accurately. If technical issues prevent timely execution, it is essential to inform the client about the situation and seek their consent to execute the trade at a later time. Option D is the correct choice as it demonstrates Michael’s commitment to fulfilling his duty to the client while maintaining transparency and integrity in the trading process.

Sharing insider information with others, even if promised confidentiality, is a violation of securities laws and ethical standards. Sophia should refuse to disclose any insider information and explain the legal and ethical implications to her friend. Option A is the correct choice as it reflects Sophia’s duty to maintain integrity and avoid participating in illegal activities such as insider trading.

Derivatives dealers have a duty to act in the best interests of their clients and provide suitable investment advice. If a trade cannot be executed at a fair price due to illiquidity, it is essential to inform the client about the situation and recommend alternative strategies. Option B is the correct choice as it aligns with David’s duty to provide suitable advice and ensure transparency in the trading process.

Non-compete agreements are common in the financial industry to protect intellectual property and prevent employees from sharing sensitive information with competitors. Alice should carefully review the terms of the non-compete agreement and consider consulting with legal counsel to understand her rights and obligations before making a decision. Option C is the correct choice as it reflects Alice’s responsibility to make informed decisions and ensure compliance with legal and ethical standards.

Derivatives dealers have a duty to ensure that investment products are suitable for their clients’ investment objectives and risk tolerance. If a product is deemed unsuitable, it is essential to inform the client about the situation and recommend alternative investment options. Option D is the correct choice as it reflects Olivia’s commitment to acting in the best interests of the client and maintaining the integrity of the market.

Wash trading, which involves artificially creating trading activity to deceive market participants, is illegal and violates ethical standards. Jack should refuse the client’s request and inform them about the legal and ethical implications of such actions. Option A is the correct choice as it demonstrates Jack’s commitment to maintaining integrity in his professional conduct as a derivatives dealer and upholding regulatory requirements.

When a potential conflict of interest arises, derivatives dealers have a duty to disclose the conflict to the client and obtain their informed consent before proceeding with the trade. Michelle should disclose the conflict of interest to the client and seek their consent to proceed with the trade, ensuring transparency and maintaining trust in the client-dealer relationship. Option B is the correct choice as it reflects Michelle’s commitment to acting in the best interests of the client and upholding ethical standards in derivatives dealing.

In Singapore, under the Securities and Futures Act (SFA) and Financial Advisers Act (FAA), derivatives exchange dealers are required to ensure that any recommendation or advice provided to clients is suitable for their financial situation, investment objectives, and knowledge level. This entails conducting a thorough assessment of the client’s investment knowledge, financial circumstances, and investment objectives before recommending any derivative products. Providing clients with a risk disclosure statement is also essential to ensure they are fully informed about the risks associated with trading derivatives.

n Singapore, derivatives exchange dealers are mandated by the Monetary Authority of Singapore (MAS) to implement robust anti-money laundering (AML) measures to prevent financial crimes such as money laundering. One of the fundamental AML measures is the implementation of stringent know-your-customer (KYC) procedures. KYC procedures involve verifying the identity of clients, understanding the nature of their transactions, and assessing the risk associated with their activities. By implementing thorough KYC procedures, dealerships can effectively identify and mitigate the risks of money laundering activities within their operations.

In this scenario, Mr. Tan should prioritize the client’s best interests and compliance with regulatory requirements. Given the client’s minimal trading experience and limited knowledge of derivatives, proceeding with the transaction without considering the client’s suitability would pose significant risks. According to the Securities and Futures Act (SFA), derivatives exchange dealers are obligated to ensure that any recommendations or transactions are suitable for the client’s financial situation, investment objectives, and knowledge level.

Detecting and preventing market manipulation is crucial for maintaining market integrity and investor confidence. One of the most effective measures in this regard is monitoring trading activities for suspicious patterns or unusual trading volumes. By closely monitoring trading activities, derivatives exchange dealerships can identify potential instances of market manipulation, such as wash trades, spoofing, or layering. This aligns with the regulatory expectations outlined in the Securities and Futures Act (SFA) and contributes to the overall efforts to prevent financial crimes.

Conducting due diligence on counterparties before engaging in derivative transactions is essential for mitigating counterparty risk and ensuring the integrity of the transaction process. The primary purpose of due diligence is to verify the identity of counterparties and assess their financial stability. This involves gathering information about the counterparty’s financial standing, reputation, and regulatory compliance history. By conducting thorough due diligence, derivatives exchange dealerships can make informed decisions regarding counterparties and minimize the risk of default or financial loss.

Maintaining an appropriate risk management framework is crucial for derivatives exchange dealerships to safeguard against potential losses and maintain financial stability. The framework includes processes for identifying, assessing, and managing various risks associated with derivatives trading, such as market risk, credit risk, and operational risk. By implementing effective risk management practices, dealerships can mitigate the impact of adverse market movements and ensure they have adequate capital to support their trading activities. This aligns with regulatory expectations outlined in the Securities and Futures Act (SFA) and contributes to the overall stability of the financial markets.

Transaction monitoring plays a critical role in preventing money laundering within derivatives exchange dealerships by helping to identify suspicious activities and transactions that may indicate potential illicit behavior. Through the continuous monitoring of trading activities, dealerships can detect unusual patterns, such as large transactions without apparent economic justification or frequent transfers between accounts with no logical business rationale. Identifying these red flags allows dealerships to investigate further and report suspicious activities to regulatory authorities, as required by anti-money laundering (AML) regulations.

In this scenario, Ms. Lee should prioritize the client’s best interests and compliance with regulatory requirements. Before executing the transaction, she should consider factors such as the client’s investment objectives, risk appetite, and knowledge of derivatives. This aligns with the requirements outlined in the Securities and Futures Act (SFA) for assessing client suitability before recommending or executing transactions involving complex derivative products. By evaluating these factors, Ms. Lee can ensure that the transaction aligns with the client’s financial goals and risk tolerance level.

Preventing insider trading is essential for maintaining market integrity and investor confidence. One of the most effective measures in this regard is monitoring employee trading activities and restricting access to sensitive information. By monitoring employee trading activities, derivatives exchange dealerships can identify potential instances of insider trading and take appropriate action to prevent market abuse. Additionally, restricting access to sensitive information helps mitigate the risk of unauthorized disclosure of material non-public information. These measures align with regulatory expectations outlined in the Securities and Futures Act (SFA) and contribute to the overall efforts to prevent financial crimes.

Conducting stress testing in derivatives trading is essential for identifying vulnerabilities within the trading portfolio and assessing the potential impact of adverse market conditions. Stress testing involves subjecting the portfolio to various hypothetical scenarios, such as market downturns or extreme volatility, to evaluate its resilience and determine whether it can withstand adverse conditions. By identifying potential weaknesses or areas of concern, derivatives exchange dealerships can take proactive measures to mitigate risks and enhance their risk management practices. This aligns with regulatory expectations outlined in the Securities and Futures Act (SFA) and contributes to the overall stability of the financial markets.

Customer due diligence (CDD) plays a crucial role in combating money laundering within derivatives exchange dealerships by facilitating the identification and verification of clients’ identities. CDD involves gathering information about clients, verifying their identities, and assessing the risks associated with their transactions. By conducting thorough CDD, dealerships can ensure that they know their clients and can detect any potential red flags indicative of money laundering activities. This aligns with regulatory expectations outlined in the Securities and Futures Act (SFA) and contributes to the overall efforts to prevent financial crimes.

In this scenario, Mr. Lim should consider various factors before executing the transaction to ensure it aligns with the client’s best interests and regulatory requirements. This includes assessing the client’s investment objectives, risk tolerance, and knowledge of derivatives. By evaluating these factors, Mr. Lim can determine whether the transaction is suitable for the client and provide appropriate guidance or recommendations. This aligns with regulatory expectations outlined in the Securities and Futures Act (SFA) for assessing client suitability in derivatives trading.

Preventing front-running is essential for maintaining market integrity and investor confidence within derivatives exchange dealerships. One of the most effective measures in this regard is implementing robust controls and monitoring systems to detect suspicious trading activities. Front-running occurs when dealers or employees exploit their access to privileged information to execute trades ahead of client orders, thereby profiting from the subsequent price movements. By implementing controls such as trade surveillance systems and transaction monitoring tools, dealerships can detect and deter front-running activities, thereby safeguarding market fairness and integrity. This aligns with regulatory expectations outlined in the Securities and Futures Act (SFA) and contributes to the overall efforts to prevent market abuse.

Margin requirements in derivatives trading serve the primary purpose of ensuring that clients have sufficient funds to cover potential losses associated with their positions. Margin acts as collateral and provides a cushion against adverse market movements, thereby reducing the risk of default for both the client and the dealership. By setting appropriate margin requirements, derivatives exchange dealerships can mitigate counterparty risk and maintain the integrity of the trading process. This aligns with regulatory expectations outlined in the Securities and Futures Act (SFA) and contributes to the overall stability of the financial markets.

Preventing market abuse is essential for maintaining market integrity and investor confidence within derivatives exchange dealerships. One of the most effective measures in this regard is implementing robust compliance policies and procedures. Compliance policies should cover various aspects, including insider trading, front-running, and other forms of market manipulation. By establishing clear guidelines and procedures, derivatives exchange dealerships can ensure that employees understand their obligations and adhere to regulatory requirements. This aligns with regulatory expectations outlined in the Securities and Futures Act (SFA) and contributes to the overall efforts to prevent market abuse.