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

Correct: Obtaining records from the CPF Board to verify that there are no arrears in contributions is the specific requirement for individuals who were previously self-employed. This check ensures the individual has fulfilled their statutory financial obligations under the CPF Act as part of the financial soundness assessment.

Incorrect: Searching the Ministry of Law’s Insolvency and Public Trustee’s Office portal is a minimum requirement for all representatives, regardless of their previous employment history, to ensure they are not undischarged bankrupts. Requesting credit status from the Credit Bureau (Singapore) is a general financial status check applied to all proposed representatives to evaluate their overall credit history. Performing searches on regulatory and enforcement registers is part of the probity check on past records and regulatory status, rather than a specific financial soundness check unique to self-employed persons.

Takeaway: Firms must conduct specific financial due diligence, such as checking CPF contribution records, for self-employed candidates to ensure they meet the required financial soundness standards.

Correct: The statement regarding manual submission for internal hardware failure is the right answer because the exchange specifically prohibits manual reporting via Form CH31 if the member’s inability to access the electronic system is caused by technical faults with its own equipment or systems. Manual submission is intended for broader system issues or specific circumstances determined by the exchange.

Incorrect: The statement about T+1 session reporting is wrong because it is a true requirement; trades from a T+1 session must be reported within 30 minutes after the close of the next trading day’s T-session. The statement about deterrence fees is wrong because it accurately describes the penalty for manual submissions that fail to meet minimum volume thresholds, which is calculated as S$20 multiplied by the threshold for each leg. The statement about price adjustments is wrong because the exchange does indeed have absolute discretion to adjust or cancel the price of a trade even after registration is complete.

Takeaway: Manual reporting of trades is a discretionary contingency for market-wide issues rather than a solution for a firm’s internal technical failures, and all trades must adhere to strict reporting deadlines to avoid penalties.

Correct: The firm is responsible for paying the standard clearing fees, the NLT facility fee, and a flat deterrence fee of S$5,000. Under the exchange rules, any Negotiated Large Trade (NLT) reported after the specified cut-off time is subject to this flat deterrence fee, although the exchange maintains the absolute discretion to waive the penalty if it deems it appropriate.

Incorrect: The suggestion that the deterrence fee replaces other transaction fees is wrong because the clearing and facility fees are cumulative and mandatory for NLT trades. The idea that the fee is calculated as a percentage of the trade value is incorrect as the rules explicitly define it as a flat dollar amount. The claim that the fee only applies after a one-day delay is wrong because the penalty is triggered immediately upon missing the specific reporting cut-off time requirements.

Takeaway: Late reporting of Negotiated Large Trades results in a significant flat deterrence fee in addition to standard transaction costs, unless the exchange grants a specific waiver.

Correct: Statement III is correct because it provides an inaccurate description of when a Clearing Member’s responsibility for a trade ends. Under the Mutual Offset System rules, the transferring member remains fully responsible for the trade until the transfer is officially confirmed by the Clearing Houses, not merely upon the submission of the transfer memorandum.

Incorrect: Statement I is incorrect because it is a true statement; access to the Mutual Offset System is restricted to Clearing Members who have received specific authorization. Statement II is incorrect because it is a true statement; all trades must be cleared through the standard process at the exchange where they were executed before they can be transferred. Statement IV is incorrect because it is a true statement; the system is only available for specific contracts designated by the Clearing House, which has the authority to update the list.

Takeaway: A Clearing Member’s responsibility for a Mutual Offset System trade persists through the entire transfer process and only ceases once the transfer is successfully confirmed by the relevant Clearing Houses. Therefore, statement III is correct.

Correct: Statement I is correct because the regulations require the Member to provide transparency by listing both the price confirmed to the customer and the actual execution price on the contract note. Statement II is correct because the Exchange mandates a weekly reporting cycle, specifically on the first business day, for all price execution errors where the customer did not accept a cash adjustment. Statement IV is correct because firms must maintain comprehensive internal records that document the error details and the formal approval process conducted by authorized personnel.

Incorrect: Statement III is incorrect because the rules do not require the Member to obtain prior permission or written approval from the Exchange before acceding to a customer’s request; the Member is permitted to make this decision independently as long as they fulfill the specific disclosure and reporting obligations.

Takeaway: When a Member honors a customer’s original price instruction following an execution error, they must ensure full transparency through specific contract note disclosures and maintain rigorous internal and external reporting records. Therefore, statements I, II and IV are correct.

Correct: Notifying the exchange immediately is the required action because members are obligated to report specific events affecting a representative’s financial standing, including any unsatisfied judgment debts. This immediate reporting allows the exchange to assess the representative’s continued suitability for the role.

Incorrect: The option suggesting a 14-day notification window is incorrect because that specific timeframe applies to reporting changes in personal particulars to the regulator, not the immediate reporting of financial legal issues to the exchange. The option regarding an automatic one-year suspension is wrong because the power to suspend for up to one year rests with the exchange, not the member, and is not an automatic requirement for judgment debts. The option mentioning a monetary threshold is incorrect because the reporting duty is triggered by any unsatisfied judgment debt, whether in whole or in part, regardless of the value.

Takeaway: Sponsoring members are required to provide immediate notification to the exchange when a representative faces financial legal issues like unsatisfied judgment debts or bankruptcy.

Correct: Rejecting the application is the right course of action because regulatory requirements for joint accounts specify that no joint account holder can be an undischarged bankrupt. Since the nephew currently holds this status, the account cannot be opened regardless of his age or the identification provided.

Incorrect: The option to approve the account if the nephew is only severally liable is wrong because the bankruptcy status is a fundamental disqualifier that cannot be bypassed by changing the liability structure. The option to approve based on age and identification is wrong because it fails to account for the mandatory solvency requirement for all account holders. The option suggesting joint accounts are limited to married couples is wrong because the rules permit any two individuals to form a joint account as long as they meet the age and bankruptcy criteria.

Takeaway: To comply with know-your-customer and account opening rules, Trading Members must verify that all individuals in a joint account are at least 18 years old and are not undischarged bankrupts.

Correct: Providing securities lending services is legally deemed as dealing in securities. Consequently, any entity that carries out securities lending must possess a Capital Markets Services (CMS) license specifically for dealing in securities to ensure regulatory compliance.

Incorrect: The suggestion that it is a custodial service is incorrect because, although custodians may provide this service, the activity itself is regulated under the dealing category. The claim that it is securities financing is wrong because the regulations explicitly state that securities financing and securities lending are not similar activities and require different license types. The idea that fund management companies are exempt is incorrect because a license for fund management does not cover the separate regulated activity of dealing through securities lending.

Takeaway: Securities lending is classified as dealing in securities and requires a specific CMS license for dealing, regardless of whether the entity provides other services like custody or fund management.

Correct: The statement regarding transacting in listed futures contracts at least 3 times within the preceding 2 years is NOT correct because the regulatory requirement for the Customer Account Review (CAR) specifies that a customer must have transacted in listed Specified Investment Products (SIPs) at least 6 times within the preceding 3 years to meet the transaction history criteria.

Incorrect: The statement regarding professional qualifications is true because holding a professional finance-related designation, such as the Chartered Financial Analyst (CFA) or ACCA, is explicitly recognized as a way to demonstrate sufficient knowledge. The statement regarding educational qualifications is true because a diploma or higher qualification in fields like business management, accountancy, or finance satisfies the knowledge requirement. The statement regarding work experience is true because the rules allow for a minimum of 3 consecutive years of relevant experience in the past 10 years in roles such as investment research or analysis.

Takeaway: To be deemed to have sufficient knowledge for trading listed SIPs, a retail customer must meet specific criteria related to their education, professional certifications, recent transaction frequency (6 times in 3 years), or relevant work history.

Correct: Statement III is correct because management approval for opening a customer account must be obtained in writing before any trade can be executed for the customer, not after. Statement IV is correct because the maximum fine for failing to adhere to requirements regarding Specified Investment Products is $25,000, not $50,000.

Incorrect: Statement I is incorrect because it is a true statement; if a firm does not have a system to identify overseas-listed products as excluded, they must be treated as Specified Investment Products. Statement II is incorrect because it is a true statement; firms are permitted to outsource the classification process but remain legally responsible for the accuracy and implementation of the system.

Takeaway: Trading Members must ensure independent management approval is secured prior to any trading activity and remain strictly responsible for the accurate classification of investment products. Therefore, statements III and IV are correct.

Correct: The firm must conduct a new Customer Knowledge Assessment because the validity for unlisted products is limited to one year. Once this one-year period from the date of the initial assessment has passed, the firm is required to perform a fresh evaluation of the customer’s knowledge and experience before any further transactions in unlisted products can be facilitated.

Incorrect: The claim that the assessment is valid for three years is incorrect as the three-year validity period applies specifically to listed products under the Customer Account Review (CAR) framework. The suggestion that a transaction within the past year extends the validity is wrong because the rule allowing for extensions based on transaction frequency applies only to listed products, not unlisted ones. Obtaining senior management approval is not a regulatory alternative to conducting a mandatory new assessment once the one-year validity period has expired.

Takeaway: Knowledge assessments for unlisted investment products expire after one year, necessitating a full reassessment before the customer can continue trading those specific products.

Correct: The reference price for a designated spot month futures contract, when the underlying cash market is open, is calculated as the average of the highest and lowest prices traded during the one-minute period immediately preceding the error trade. This ensures the reference price is based on the most recent and relevant market activity.

Incorrect: The rule involving the opening price of the contract or the previous day’s closing price is only applied when the underlying cash market is closed. The use of a volume-weighted average price over a thirty-minute period is not a recognized methodology under the exchange’s error trade policy. While the exchange does use a daily broadcast to notify members of the error trade price ranges, this broadcast communicates the range limits rather than the specific reference price calculation for an individual trade.

Takeaway: For spot month designated contracts, the reference price calculation is determined by the status of the underlying cash market, primarily using the average of high and low trades from the minute preceding the error.

Correct: The trade is excluded from the policy because trades involving implied orders resulting from strategy matching are specifically listed as ineligible for error trade relief.

Incorrect: The suggestion that the trade is eligible for price adjustment is wrong because the policy explicitly removes implied orders from the scope of error trade considerations. The claim that mutual agreement allows for cancellation is incorrect because the specific nature of the trade as an implied order overrides general cancellation procedures. The statement regarding designated futures contracts is wrong because the exclusion for strategy-related implied orders applies regardless of whether the contract is designated or not.

Takeaway: Certain trade types, including strategy trades and those arising from implied orders, are strictly excluded from the SGX-DT error trade cancellation and price adjustment framework.

Correct: Statement I is correct because the Exchange maintains ultimate discretion to protect market integrity, allowing it to act even if a trade technically falls within the standard price range. Statement IV is correct because the Exchange evaluates the economic consequences and potential hardship on participants as part of its decision-making process for trade reviews.

Incorrect: Statement II is incorrect because the administration fee is a processing fee that must be paid by the Member regardless of whether the Exchange ultimately decides to adjust or cancel the trade. Statement III is incorrect because for trades excluded from the official policy, any cancellation and subsequent compensation are private matters between the parties, and the Exchange will not participate in or mediate any resulting disputes.

Takeaway: SGX-DT holds broad discretionary powers to maintain market integrity through trade adjustments, while administrative fees for review requests are mandatory regardless of the final regulatory decision. Therefore, statements I and IV are correct.

Correct: Statement I is correct because representatives of SGX-ST members who trade for their own accounts are subject to a stricter reporting timeline, requiring the submission of the account identity form at least one business day before trading commences. Statement II is correct because the regulatory framework dictates that the primary responsibility for the accuracy of account identity reporting remains with the Chief Executive Officer, even if the task is delegated to other senior executives.

Incorrect: Statement III is incorrect because a Member is strictly prohibited from allowing a client to begin trading until they have obtained a signed and dated acknowledgement of the Risk Disclosure Statement. Statement IV is incorrect because account numbers are unique identifiers that must never be assigned to more than one customer to maintain the integrity of market surveillance, even after an account has been closed.

Takeaway: Firms must ensure specific reporting timelines are met for industry professionals and that the CEO maintains oversight of account documentation, which must be fully executed before any trading activity occurs. Therefore, statements I and II are correct.

Correct: Statement I is correct because firms are allowed to share customer data for essential internal functions like risk management and audits without needing specific consent each time. Statement II is correct because the duty of confidentiality extends to the firm ensuring that any authorized recipient of the data is aware of their own legal obligations to protect that information. Statement III is correct because the rules mandate that risk disclosure documents must be physically or digitally maintained within Singapore and must include a clear confirmation of the customer’s understanding.

Incorrect: Statement IV is incorrect because violations of the risk disclosure rules are classified as non-compoundable. In the legal context of these regulations, this means the authorities cannot simply offer a fine to settle the matter out of court; instead, the offence must be dealt with through formal legal proceedings and is subject to a mandatory minimum penalty.

Takeaway: While customer confidentiality is a primary duty, specific exceptions exist for operational and legal necessity, provided the firm maintains local records and ensures third-party recipients understand their secrecy obligations. Therefore, statements I, II and III are correct.

Correct: Requiring immediate cash settlement or restricting trading to closing-only transactions is the right answer because the exchange must manage the exit of participants when a contract is removed from the market. This ensures that existing obligations are resolved fairly even when the contract will no longer be available for standard trading.

Incorrect: The suggestion to designate the contract as dormant is wrong because dormancy is a temporary state for illiquid contracts that may return to trading later, whereas de-listing is a permanent removal. The idea of transferring positions to a new MAS-approved contract is wrong because de-listing requires closing out existing exposure on the exchange rather than an automatic migration to different instruments. The claim that contract specifications override trading rules is wrong because the general rules take precedence in the event of a conflict to ensure consistent regulatory application.

Takeaway: SGX-DT manages the de-listing of contracts with open positions by either mandating cash settlement or limiting trading to the closing of those specific positions.

Correct: All positions in the client accounts, the personal account, and the partner’s accounts must be aggregated together is the right answer because the rules require the summation of all positions owned or controlled by a person, including those where they act in concert with others. This ensures that the total influence one person or group has over a contract is monitored to prevent market cornering and concentration risk.

Incorrect: The claim that client accounts are exempt is wrong because any account controlled by the person, regardless of ownership, must be included in the total aggregation. The idea that client accounts are treated as separate legal entities for limit purposes is incorrect because the regulatory focus is on who controls the trading decisions rather than legal title. The statement that only direct proprietary interests are aggregated is false as it ignores the requirement to include controlled accounts and the positions of those acting together.

Takeaway: To prevent market manipulation, SGX-DT aggregates all positions across accounts owned, controlled, or managed by persons acting in coordination.

Correct: The individual who earned an income of $350,000 is the right answer because they meet the criteria for an accredited investor, which requires an income of at least $300,000 in the preceding 12 months. For customers classified as accredited investors, trading members are only required to provide education on prohibited trading practices and are specifically exempt from providing information on internet trading risks, system functionalities, and contract specifications.

Incorrect: The corporate entity with $9 million in net assets is incorrect because the threshold for a corporation to be classified as an accredited investor is net assets exceeding $10 million. The partnership where a majority of partners are accredited investors is incorrect because the exemption only applies if every single partner in the partnership qualifies as an accredited investor. The individual with $1.8 million in net personal assets is incorrect because the asset threshold for an individual to be classified as an accredited investor is more than $2 million.

Takeaway: While retail investors must receive comprehensive education on risks, systems, and contract details for internet trading, accredited investors are only required to receive guidance on prohibited trading practices.

Correct: Statement I is correct because the Pre-Open session is specifically designed to allow market participants to enter, modify, and cancel orders freely to reflect price discovery before the market opens. Statement III is correct because the Equilibrium Price is the price generated by the system to uncross the market order book, ensuring that the maximum possible volume of trades is executed at the start of the session.

Incorrect: Statement II is incorrect because new orders can still be entered during the Non-Cancel Period; the restriction only applies to the amendment or cancellation of existing orders to prevent price manipulation. Statement IV is incorrect because a Pre-Closing routine is not mandatory for every single contract; some contracts may trade continuously until the market closes if the risk of material gain from price manipulation is low.

Takeaway: The Non-Cancel Period prevents order withdrawal or modification to protect price integrity, while the Equilibrium Price mechanism focuses on maximizing trade volume during market transitions. Therefore, statements I and III are correct.

Correct: Rejecting the request for five contracts and only permitting a maximum of four is the correct action. The rules state that initial margin is the minimum amount that must be deposited by a customer in order to enter into a trade. Since each contract requires $2,000, the customer’s $8,000 equity is only sufficient for four contracts, and the full margin must be in place before the trade is allowed to proceed.

Incorrect: The option regarding the two-day deposit window is wrong because, while there are specific timelines for depositing different currencies, the initial margin must be available before a new position is opened. The option regarding the firm funding the shortfall is wrong because non-bank Trading Members are strictly prohibited from funding customer margins. The option regarding paying the premium is wrong because premiums apply to the purchase of options, where the maximum loss is limited, whereas futures contracts require initial margin.

Takeaway: Customers must have the full initial margin required for a position available in their account before a Trading Member can allow them to enter into a new futures trade.

Correct: Statement I is correct because the default procedure on expiration day is for the Clearing House to automatically exercise any option that is in-the-money to ensure the holder realizes the value, unless the holder provides contrary instructions. Statement IV is correct because the rules permit a Member to liquidate a defaulting client’s open positions in any market to satisfy the outstanding debt resulting from a failed settlement of a cash-settled contract.

Incorrect: Statement II is incorrect because the holder of a deliverable put option who exercises their right will acquire a short position in the underlying instrument, whereas a call option holder would acquire a long position. Statement III is incorrect because conversion ratios are determined by specific contract specifications; while a one-to-one ratio is standard for most instruments, it is not mandatory for all products.

Takeaway: In-the-money options are automatically exercised at expiration to protect holders, and defaults empower Members to cross-liquidate other positions to mitigate financial risk. Therefore, statements I and IV are correct.

Correct: Statement I is correct because modifications to significant contract parameters, such as position limits and delivery obligations, are subject to mandatory public consultation and formal rule amendment procedures. Statement II is correct because in a physical delivery settlement, the holder of a short position is required to deliver the underlying instrument to the Clearing House at the specified location. Statement IV is correct because the exchange is required to provide its members with a minimum of two weeks’ notice before any changes to contract specifications can take effect.

Incorrect: Statement III is incorrect because a Call option is only classified as “in-the-money” when the settlement price of the underlying instrument is higher than the strike price. If the settlement price is lower than the strike price, the option is considered “out-of-the-money” because it would not be profitable to exercise the right to buy at that price.

Takeaway: Key contract modifications require public consultation and formal notice periods, while the classification of options and settlement obligations depends on the price relationship between the strike and the underlying asset. Therefore, statements I, II and IV are correct.

Correct: The SGX-DT Futures Trading Rules are the specific set of requirements that govern how participants conduct trading activities on the derivatives exchange. This ruleset is distinct from those governing securities or the clearing process.

Incorrect: The SGX-ST Rules are incorrect because they apply specifically to the trading of securities, such as stocks and bonds, rather than futures contracts. The SGX-DC Clearing Rules are wrong because they focus on the clearing and settlement of derivatives after a trade has occurred, not the trading activity itself. The CDP Clearing Rules are incorrect as they pertain to the clearing and settlement of securities transactions within the central depository system.

Takeaway: Understanding the distinction between trading and clearing rules, as well as the difference between securities and derivatives markets, is vital for applying the correct regulatory framework to financial activities.

Correct: Accepting orders that reduce maintenance margin requirements is the only permitted action for a customer with an unanswered margin call. This allows the customer to close out existing positions to mitigate risk and lower the required margin level.

Incorrect: The suggestion that proof of remittance is sufficient is wrong because funds must actually be credited to the firm’s accounts before they can be counted toward the customer’s equity. The rule regarding Japanese Yen only pertains to the timeframe allowed to answer a call and does not permit new risk-increasing trades while a call is outstanding. Partial liquidation of positions does not allow for new trades or the deletion of a margin call unless the resulting equity is restored to a level equal to or greater than the initial margin requirement.

Takeaway: When a margin call remains unanswered, a customer is strictly prohibited from entering any new trades except those that serve to reduce their overall maintenance margin requirements.

Correct: Statement I is correct because firms are required to notify clients promptly, specifically within one trading day, when their account value drops below the minimum maintenance threshold. Statement III is correct because clients have the flexibility to either add capital or lower their market exposure by closing out parts of their position to align their required margin with their available equity.

Incorrect: Statement II is incorrect because once a margin call is triggered, the account must be restored to the full initial margin level, not just the lower maintenance level. Statement IV is incorrect because total net equity represents the surplus or excess funds available in the account after the required margins for open positions have been accounted for, rather than being a sum of those margin requirements.

Takeaway: When an account falls below maintenance margin, a call must be issued within one trading day to restore the equity to the initial margin level or reduce the position size. Therefore, statements I and III are correct.

Correct: Suspending all trading in the related options is the right action because although options do not have independent price limits, the exchange mandates a trading halt on options whenever the underlying futures contract hits a price limit. This halt is synchronized with the cooling-off period of the futures contract to maintain an orderly market.

Incorrect: The option to allow normal trading is wrong because it ignores the requirement to halt options when the underlying instrument is restricted. The idea of restricting options to the futures’ price limits is incorrect because the regulation requires a total halt of options trading, not just a price restriction. The claim that trading is terminated for the rest of the session is wrong because the halt only lasts as long as the cooling-off period.

Takeaway: While options do not have their own price limits, their trading is halted for the duration of any cooling-off period triggered by the underlying futures contract.

Correct: Statement II is correct because inter-exchange cross margining is permitted if the contracts are eligible and the Member has established the legal right to offset positions through its contractual agreements with the customer. Statement III is correct because even if a sub-account holder in an omnibus account chooses to keep their identity confidential from the carrying Member, their open positions must still be reported to the exchange using a special identification code.

Incorrect: Statement I is incorrect because the rules strictly prohibit a Member from allowing a customer to carry both speculative long and speculative short positions for the same contract and the same contract month simultaneously. Statement IV is incorrect because the deadline for submitting the daily report on open positions (Form BC3A) is 11:00 a.m. on the following business day, rather than the evening of the same trading day.

Takeaway: Members must prevent customers from holding opposing speculative positions in the same contract month and must adhere to strict next-day reporting deadlines for all open positions. Therefore, statements II and III are correct.

Correct: The statement regarding related corporations is the right answer because it is false. While bank guarantees are acceptable margin instruments, they must be issued by a licensed bank operating in Singapore and cannot be issued by the customer themselves or any of the customer’s related corporations to ensure the independence and reliability of the collateral.

Incorrect: The statement regarding haircuts is wrong as an answer because it is a true rule; Member firms have the discretion to be more conservative than the exchange by applying higher (deeper) haircuts than the minimums specified by the Clearing House. The statement regarding omnibus accounts is wrong because it correctly identifies that gross margining is the default regulatory requirement for same-party positions in such accounts unless the Member has received specific written instructions to close them out. The statement regarding currency controls is wrong because it accurately reflects that instruments in currencies with capital controls are ineligible for margin as they may lack liquidity or legal tender status outside their home country.

Takeaway: Margin collateral must be independent of the customer and liquid, and in the absence of specific instructions, positions must be margined on a gross basis to ensure adequate risk coverage.

Correct: Suspending trading in the market or revoking access to the QUEST system for specific connections are valid actions the exchange can take. These measures are designed to maintain a fair, orderly, and transparent market when technical failures or other emergencies disrupt normal operations.

Incorrect: The suggestion that the exchange would provide a financial guarantee against losses is incorrect, as market participants must bear the risks associated with trading halts and system emergencies. Automatically executing all pending orders at a previous day’s average price is not a permitted emergency action and would undermine market-driven pricing. Permanently closing the market and migrating contracts to another platform is not a standard emergency power and does not reflect the exchange’s role in managing temporary system failures.

Takeaway: SGX-DT has broad discretionary powers to suspend trading or restrict system access during emergencies to ensure market integrity and protect the interests of all participants.