RES 2B – Rules, Ethics and Skills for Derivatives Dealers of Non-Exchange Members

Correct: According to the SGX Listing Manual, for an ETF to be listed and maintained on the exchange, the issuer must ensure there is a designated market maker (DMM). The DMM’s role is to provide continuous two-way quotes (bid and ask) during the trading day, which ensures that there is sufficient liquidity for investors to buy or sell units at prices that closely track the fund’s Net Asset Value (NAV).

Incorrect: The Singapore Exchange (SGX) provides the platform for trading but does not act as the custodian for the underlying assets; that role is held by an independent trustee or custodian bank. The Monetary Authority of Singapore (MAS) is the regulator and does not provide liquidity backstops or price guarantees for commercial investment products. While ETFs have redemption mechanisms, there is no SGX or MAS requirement for a fixed twenty percent cash reserve specifically for daily redemptions, as liquidity is primarily managed through the creation and redemption process with Participating Dealers.

Takeaway: A key requirement for listing an ETF on the SGX is the appointment of a designated market maker to ensure continuous liquidity and price discovery in the secondary market.

Correct: According to the Securities and Futures Act (SFA), the Code on Collective Investment Schemes (CIS Code) issued by the Monetary Authority of Singapore (MAS) does not have the force of law. However, Section 321 of the SFA specifies that a failure to comply with the Code may be relied upon by any party in civil or criminal proceedings to establish or negate liability. Furthermore, MAS has the power to revoke or suspend the authorization or recognition of a CIS if the Code is breached, and such breaches can impact the ‘fit and proper’ status of the managers.

Incorrect: The suggestion that the Code is subsidiary legislation is incorrect as it is a set of administrative requirements issued under the SFA rather than a statute or regulation. The idea that it is purely voluntary is also incorrect because MAS can take significant regulatory actions, such as revoking a fund’s authorization, for non-compliance. Finally, the Code does not have the same legal standing as the SFA itself, as it specifically lacks the force of law and does not automatically create statutory duties or private rights of action in the same manner as the Act.

Takeaway: While the CIS Code does not have the force of law, non-compliance carries significant regulatory risks including the revocation of a scheme’s authorization by MAS and potential use as evidence in legal proceedings.

Correct: In the Singapore retail fund context, the primary distinction is the source of the security. A capital guaranteed scheme must have a formal, legally binding guarantee provided by a third party (the guarantor), which is typically a financial institution. In contrast, a capital protected scheme uses a specific investment structure (such as zero-coupon bonds combined with derivatives) to aim for capital preservation. Therefore, the protection in a capital protected scheme is subject to the credit risk of the issuers of the underlying assets, whereas a guaranteed scheme provides an additional layer of recourse against a guarantor.

Incorrect: The suggestion that capital guaranteed schemes are governed by the Banking Act is incorrect because both are Collective Investment Schemes (CIS) regulated under the Securities and Futures Act (SFA). The claim that guarantees apply at any point is false, as most guarantees and protection mechanisms are only effective if the investment is held until maturity. The assertion that capital protected schemes require a 90 percent investment in Singapore Government Securities or that MAS provides letters of credit is factually incorrect and does not reflect Singapore regulatory requirements.

Takeaway: The fundamental difference is that capital guaranteed schemes have a third-party legal guarantee, while capital protected schemes rely on the fund’s internal asset structure and issuer credit stability.

Correct: Under the MAS Code on Collective Investment Schemes (Appendix 1), the global exposure of a scheme to financial derivative instruments (FDIs) should not exceed 100% of its net asset value (NAV). Additionally, the underlying assets of the FDIs must be those that the scheme is permitted to invest in directly according to its investment objective and the general guidelines of the Code.

Incorrect: The suggestion that FDIs are restricted only to hedging is incorrect because the Code allows FDIs for both efficient portfolio management and investment purposes, provided they are disclosed in the prospectus. The claim that the commitment approach is the only method is false, as the Value-at-Risk (VaR) approach is also an acceptable alternative for calculating global exposure. Finally, it is incorrect to suggest that derivatives can be used to bypass investment restrictions on underlying assets; the underlying assets of any FDI must always align with the scheme’s permitted investment universe.

Takeaway: Under the MAS CIS Code, global exposure to financial derivatives is capped at 100% of NAV and the underlying assets must always be within the scheme’s permitted investment scope.

Correct: In Singapore, under the MAS guidelines and the Securities and Futures Act, a Product Highlights Sheet (PHS) is mandatory for all retail collective investment schemes. It must be a clear and concise document (typically 4 to 8 pages) that follows a prescribed template to ensure consistency. Its purpose is to highlight key features and risks to investors, and it must be provided to them at the same time as the prospectus to facilitate informed decision-making.

Incorrect: The PHS is not a voluntary document or a summary of an annual report; it is a mandatory pre-investment disclosure. It does not depend on whether the prospectus has been updated recently, as it is required for all retail offers. Furthermore, the PHS is intended to complement the prospectus by highlighting risks and features, not to serve as a vehicle for performance data that is prohibited in the prospectus.

Takeaway: The Product Highlights Sheet is a mandatory, concise summary of key fund information and risks that must be provided to retail investors in Singapore alongside the prospectus.

Correct: Under Section 2 of the Securities and Futures Act (SFA), a Collective Investment Scheme (CIS) is defined by several key characteristics: the participants must not have day-to-day control over the management of the property, and the property must be managed as a whole by or on behalf of the manager, or the contributions and profits/income must be pooled. In this scenario, the bank’s total control over the investment decisions and the centralized management of the rare metals pool satisfy these statutory criteria.

Incorrect: The classification of a CIS is not triggered simply because an asset is physical; the SFA definition of property is broad and focuses on the structure of the arrangement rather than the asset class itself. Providing quarterly reports is a transparency requirement but does not define the legal nature of a CIS. Finally, pooling alone is not the only factor; the lack of day-to-day control by participants is a mandatory element of the definition under Section 2 of the SFA.

Takeaway: A Collective Investment Scheme is defined under the SFA by the participants’ lack of day-to-day control and the centralized management or pooling of property for the purpose of generating profits or income.

Correct: Under the Securities and Futures Act (SFA), fund management is a regulated activity. The Monetary Authority of Singapore (MAS) requires entities to either be a Licensed Fund Management Company (LFMC) holding a Capital Markets Services (CMS) license or a Registered Fund Management Company (RFMC). An RFMC is subject to specific limits, including managing assets for no more than 30 qualified investors (of which no more than 15 can be collective investment schemes) and maintaining a total AUM of not more than S$250 million. Exceeding these limits requires the entity to transition to a CMS license to ensure appropriate regulatory oversight.

Incorrect: Relying on exemptions for related corporations is a high-risk strategy if there is no verification that third-party assets are excluded, as the SFA exemption is strictly for intra-group management. Operating as an RFMC with an unlimited number of accredited investors or an AUM of S$500 million violates the SFA’s specific thresholds for registration (30 qualified investors and S$250 million AUM). Holding a license under the Financial Advisers Act (FAA) is insufficient for discretionary fund management of collective investment schemes, as that activity specifically requires a CMS license under the SFA.

Takeaway: Fund management companies in Singapore must strictly monitor their investor count and AUM thresholds to ensure they hold the correct category of license or registration required by the MAS under the Securities and Futures Act.

Correct: Under the Securities and Futures Act (SFA) and the Code on Collective Investment Schemes (Code on CIS) issued by the Monetary Authority of Singapore (MAS), a trustee for an authorized retail scheme must be independent of the manager. Independence is a fundamental requirement to ensure that the trustee can effectively oversee the manager’s activities and safeguard the assets for unitholders. A trustee is generally not considered independent if it is a subsidiary or a holding company of the manager, or if they share significant common shareholdings.

Incorrect: The suggestion that physical separation and a declaration to the SGX suffice is incorrect because the SGX is not the primary regulator for CIS authorization, and structural independence is required by MAS. The claim that independence is based on a S$100 million NAV threshold is false, as the requirement is a structural prerequisite for authorization regardless of fund size. Appointing a subsidiary with independent directors does not satisfy the legal requirement for the trustee entity itself to be structurally independent of the manager entity.

Takeaway: For authorized retail collective investment schemes in Singapore, the trustee must be structurally independent of the fund manager to ensure effective oversight and asset protection.

Correct: According to the Code on Collective Investment Schemes and the Securities and Futures Act (SFA) in Singapore, the Prospectus and the Product Highlights Sheet (PHS) must provide a balanced and clear explanation of all material risks. This includes specific risks such as the use of financial derivative instruments (FDI), which can involve leverage and counterparty risk, as well as liquidity risks that might affect the fund’s ability to meet redemption requests during market volatility. The PHS is specifically designed to highlight these key risks to retail investors in a concise yet comprehensive manner.

Incorrect: Omitting significant risks like credit or derivative risks from the PHS to save space is a violation of MAS requirements, as the PHS must contain all key information that is vital for an informed decision. Relying solely on historical volatility is insufficient because it does not account for prospective risks or specific structural risks like liquidity and credit events. Classifying a fund as low risk and deferring risk disclosure to periodic reports is misleading; even if derivatives are used for hedging, the associated counterparty and operational risks must be disclosed in the initial offering documents to ensure transparency.

Takeaway: In Singapore, risk disclosure for CIS must be fund-specific, balanced, and prominently featured in both the Prospectus and the Product Highlights Sheet to ensure retail investors understand the potential impact of market, credit, liquidity, and derivative risks before investing.

Correct: According to the MAS Code on Collective Investment Schemes (CIS Code), a feeder fund is a scheme that invests at least 90% of its net asset value in a single underlying fund (the master fund). Furthermore, the MAS requires that the manager of the master fund be reputable and subject to adequate supervision by a regulatory authority that is acceptable to the MAS, ensuring a baseline of global regulatory standards.

Incorrect: The requirement is generally at least 90%, not 100%, as feeder funds need to maintain some liquidity for redemptions and expenses. Master funds do not have to be Singapore-constituted; many feeder funds in Singapore invest in offshore UCITS funds or other recognized schemes. All retail CIS offered in Singapore, including feeder funds, must provide a Product Highlights Sheet (PHS) to ensure clear disclosure of key risks and features to retail investors.

Takeaway: A Singapore feeder fund must invest at least 90% of its assets in a single master fund managed by an appropriately regulated entity as per the MAS CIS Code requirements.

Correct: According to the Code on Collective Investment Schemes (CIS Code) issued by the Monetary Authority of Singapore (MAS), MAS may waive or modify compliance with any provision of the Code. The application for such a waiver must be made in writing, stating the reasons for the request and demonstrating that the waiver or modification would not be prejudicial to the interests of the participants of the scheme.

Incorrect: Requiring a legal opinion from a Senior Counsel is not a standard procedural requirement for a CIS Code waiver application. While participant approval is required for certain fundamental changes to a scheme, a waiver application to MAS is a regulatory process where the primary burden is on the manager to justify the request to the regulator based on participant interests. MAS does not require, nor would it accept, a guarantee of higher returns as a basis for granting a regulatory waiver, as investment performance cannot be guaranteed.

Takeaway: To obtain a waiver from the CIS Code, a manager must provide MAS with a written justification proving that the deviation does not prejudice the interests of the scheme’s participants.

Correct: According to the MAS Code on Collective Investment Schemes (Appendix 1), if a spread limit is breached due to circumstances beyond the manager’s control (such as a merger or market appreciation), the manager must rectify the breach within three months from the date of the breach. The trustee has the discretion to extend or shorten this period if it is deemed to be in the best interest of the scheme’s participants.

Incorrect: The requirement to sell within five business days is not the standard for passive breaches under the CIS Code. Maintaining a breach indefinitely is prohibited as the Code requires active rectification of all limit violations. Suspending redemptions and notifying the SGX is an extreme measure typically reserved for liquidity crises, not a standard passive spread limit breach, and the 15% threshold mentioned is not the standard group limit for a core retail CIS.

Takeaway: In Singapore, passive breaches of CIS spread limits must generally be rectified within three months unless the trustee approves an alternative timeframe in the interest of investors.

Correct: Under Section 272B of the Securities and Futures Act (SFA), an offer of units in a CIS is exempt from prospectus requirements if it is a private placement. The two primary conditions for this exemption are that the offer is made to no more than 50 persons within any 12-month period and that the offer is not accompanied by an advertisement.

Incorrect: Restricting the offer only to institutional investors refers to the exemption under Section 274 of the SFA, which is distinct from the Section 272B private placement exemption. Registration with the Singapore Exchange (SGX) is not a requirement for obtaining a prospectus exemption under the SFA. The mention of a SGD 1 million limit is a confusion with the Small Offer exemption under Section 272A, which has a total limit of SGD 5 million, rather than the person-count limit used for private placements.

Takeaway: The Section 272B private placement exemption in Singapore requires that the offer be made to no more than 50 persons in a 12-month period and prohibits any advertising of the offer.

Correct: Under the Variable Capital Companies Act in Singapore, a key benefit of the umbrella VCC structure is the statutory segregation of assets and liabilities. This means that the assets of one sub-fund are ring-fenced and are not available to meet the liabilities of another sub-fund or the umbrella VCC itself. This protects investors in one sub-fund from the financial risks or insolvency of other sub-funds within the same corporate structure.

Incorrect: While sub-funds are treated as separate for the purposes of asset and liability segregation, they are not separate legal entities; the VCC itself is the single legal entity. Statutory segregation strictly prohibits the use of one sub-fund’s assets to cover another’s liabilities, even as a temporary loan or for redemption purposes. Creditors only have recourse to the assets of the specific sub-fund they have contracted with, and they cannot claim against the general assets of the umbrella VCC or other sub-funds.

Takeaway: The Singapore VCC framework ensures statutory segregation of assets and liabilities between sub-funds, preventing cross-contamination of financial risks within an umbrella structure.

Correct: Under Section 274 of the Securities and Futures Act (SFA), offers of units in a Collective Investment Scheme (CIS) made to institutional investors are exempt from the prospectus registration requirements. Because the Product Highlights Sheet (PHS) is a mandatory requirement specifically designed to accompany a prospectus for retail offerings to summarize key information, it is not required for offers made under the institutional investor exemption.

Incorrect: The suggestion that a Product Highlights Sheet must be lodged for institutional offers is incorrect as the PHS is a retail-specific disclosure document. The requirement for a simplified prospectus or profile statement does not apply to institutional exemptions under Section 274, which provide full prospectus relief. The S$5 million limit refers to the Small Offers exemption under Section 272A of the SFA, which is a separate exemption from the one based on the status of the investor as an ‘Institutional Investor’.

Takeaway: Offers of Collective Investment Schemes to institutional investors in Singapore are exempt from both prospectus registration and Product Highlights Sheet requirements under the Securities and Futures Act.

Correct: Under the Securities and Futures Act (SFA), a recognized foreign scheme must appoint a Singapore representative to perform specific functions, which include facilitating the subscription and redemption of units and handling queries and complaints from participants. Furthermore, as a data intermediary or organization under the Personal Data Protection Act (PDPA), the representative must ensure that any personal data handled or transferred to the foreign operator meets Singapore’s data protection standards, including the Transfer Limitation Obligation.

Incorrect: The suggestion that a representative is merely a document repository is incorrect because the SFA mandates an active role in facilitating investor queries and complaints. Redirecting investors to the Monetary Authority of Singapore (MAS) is inappropriate as the representative is specifically appointed to be the point of contact for such matters. Requiring a liability waiver is not a regulatory requirement and does not exempt the representative from their statutory duties under the SFA or PDPA.

Takeaway: The Singapore representative of a recognized foreign scheme is legally mandated to handle investor queries and must ensure all data processing adheres to the PDPA requirements for cross-border data transfers.

Correct: In the context of Singapore’s regulatory framework for Collective Investment Schemes (CIS), the Investment Committee (IC) or the board of the fund manager is responsible for the oversight of the fund’s investment strategy and risk management. This includes ensuring that any models used for valuation or risk assessment are robust, subject to independent validation (separate from the model developers), and that the fund’s activities remain consistent with the investment objectives and risk limits disclosed in the prospectus authorized by the Monetary Authority of Singapore (MAS).

Incorrect: Delegating the entire validation process to external auditors is incorrect because the fund manager and its IC retain ultimate responsibility for the adequacy of risk management systems. Focusing only on historical performance is insufficient as it fails to address the forward-looking risks and assumptions inherent in complex models. Dynamically adjusting risk limits beyond those disclosed in the prospectus is a breach of the manager’s duty to adhere to the fund’s stated mandate and could mislead retail investors.

Takeaway: The Investment Committee must provide robust oversight of valuation models and ensure strict adherence to the risk parameters and investment strategies disclosed in the fund’s prospectus.

Correct: Under the Code on Collective Investment Schemes (Appendix 1: Core Investment Guidelines) issued by the Monetary Authority of Singapore (MAS), a retail scheme is generally restricted from investing more than 10% of its Net Asset Value (NAV) in unlisted securities. Unlisted securities are those that are not traded in an organized market, and this limit is imposed to manage liquidity risk and ensure that the fund can meet redemption requests from retail investors.

Incorrect: The 15% and 20% thresholds are incorrect as they exceed the standard regulatory limit for unlisted securities in a retail CIS under the Core Investment Guidelines. While certain specialized funds or professional-only schemes may have different risk profiles, retail funds must adhere to the 10% cap. The 5% threshold is incorrect because, while it may represent a common internal risk limit for a single issuer, the aggregate regulatory limit for the unlisted asset class as a whole is 10%.

Takeaway: In Singapore, retail collective investment schemes must limit their total investment in unlisted securities to 10% of the fund’s NAV to ensure portfolio liquidity and investor protection.

Correct: Under the Variable Capital Companies Act in Singapore, an umbrella VCC is required to segregate the assets and liabilities of its sub-funds. To protect this ring-fencing, the law requires that any person dealing with an umbrella VCC be informed of the sub-fund’s identity. Specifically, the VCC must disclose the sub-fund’s name and registration number in its transactions and include a statement regarding the segregated nature of the liabilities to prevent creditors from claiming against the assets of other sub-funds.

Incorrect: The suggestion that total umbrella assets serve as secondary collateral directly contradicts the ring-fencing principle where assets of one sub-fund cannot discharge the liabilities of another. There is no requirement to register individual service contracts with MAS for ring-fencing to be effective, as it is a statutory right under the VCC Act. Pooling assets during insolvency is prohibited for umbrella VCCs as each sub-fund is wound up as a separate legal person to protect the integrity of the other sub-funds.

Takeaway: In a Singapore Umbrella VCC, strict statutory segregation and clear disclosure of sub-fund identity in contracts are essential to prevent the liabilities of one sub-fund from impacting the assets of others.

Correct: According to the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore (MAS), the name of a scheme must not be misleading. If a name implies a specific investment focus, such as a particular asset class or geographic region, the scheme’s investment policy must ensure that the portfolio is substantially invested in that area to avoid misrepresenting the risk-return profile to investors.

Incorrect: Relying on disclaimers in the PHS or prospectus is insufficient because the name itself must not be misleading under MAS guidelines. Using terms like ‘Guaranteed’ or ‘Capital Protected’ without a legally enforceable guarantee from a substantial financial institution is a violation of the Code. Names should not be promotional or suggest performance outcomes based on indices if the fund does not follow that specific strategy, as this can mislead retail investors.

Takeaway: A CIS name must accurately reflect its investment strategy and objectives to prevent misleading retail investors about the fund’s actual holdings and risks as required by the MAS Code on CIS.

Correct: According to MAS regulations regarding the sale of unlisted Specified Investment Products (SIPs), if a retail client fails the CKA, the financial institution is required to provide advice to the client. If the client chooses to proceed with the transaction despite the advice (or if the advice was not to proceed), the firm must ensure that a senior management staff member, who is not involved in the transaction, confirms that the client has been informed of the risks and still wishes to proceed.

Incorrect: The other options are incorrect because MAS guidelines do not allow for a simple waiver or indemnity form to bypass the CKA results for unlisted SIPs. While the CKA is mandatory, it does not act as an absolute block on transactions; rather, it triggers a requirement for advice and senior management oversight. Internal quizzes or informal training modules are not recognized substitutes for the specific education, work experience, or transaction history criteria defined in the CKA framework.

Takeaway: For retail clients who fail the CKA for unlisted CIS, the financial institution must provide advice and obtain senior management confirmation before proceeding with the transaction.

Correct: According to the Code on Collective Investment Schemes (Code on CIS) issued by the Monetary Authority of Singapore (MAS), if a valuation error is material (generally defined as 0.5% or more of the NAV), the manager must notify the trustee and the MAS. Furthermore, the manager is required to compensate the scheme or the unitholders for any loss resulting from the error to ensure fair treatment and maintain the integrity of the pricing mechanism.

Incorrect: Adjusting the next day’s NAV without notification is a violation of the transparency and reporting standards set out in the Code on CIS. Requesting a waiver from the SGX is inappropriate as unit trust valuation requirements are primarily governed by the MAS Code on CIS rather than exchange listing rules for non-listed funds. FIDReC is an independent body for resolving disputes between consumers and financial institutions; it is not the primary regulatory contact for reporting valuation errors or determining mandatory compensation under the Code on CIS.

Takeaway: Under the MAS Code on CIS, material valuation errors must be reported to the trustee and MAS, and the manager must ensure that affected unitholders are compensated for losses.

Correct: Under the guidelines issued by the Monetary Authority of Singapore (MAS), financial institutions are prohibited from offering incentives, whether in the form of cash, credits, or gifts, to retail investors for trading in Contracts for Difference (CFDs). This is because such incentives can distract investors from the significant risks and complexities of the product, potentially inducing them to trade beyond their means or risk appetite.

Incorrect: While risk warnings are a regulatory requirement in Singapore, they do not address the specific prohibition against aggressive incentive-based marketing. Restricting marketing only to Accredited Investors is a business strategy but does not address the conduct rules for retail marketing. Technical training for staff is important for competency but is not a direct control for preventing the use of prohibited promotional incentives.

Takeaway: MAS prohibits the use of promotional incentives for CFD trading to ensure retail investors make decisions based on product risk rather than short-term rewards or gifts.

Correct: Under Section 99 of the Securities and Futures Act (SFA), certain entities are considered exempt persons regarding the requirement to hold a Capital Markets Services (CMS) license. This includes banks licensed under the Banking Act, as they are already subject to prudential oversight and regulation by the Monetary Authority of Singapore (MAS). While they do not need a CMS license to conduct regulated activities like dealing in capital markets products (including SIPs), they are still required to comply with various business conduct rules, such as those relating to the treatment of customer assets and the filing of representative notifications.

Incorrect: The suggestion that a bank must obtain a separate CMS license is incorrect because the SFA specifically provides exemptions for banks to prevent duplicative licensing for entities already supervised by MAS. The claim that the SFA does not regulate activities with institutional investors is false; while certain conduct requirements are relaxed for institutional investors, the activity itself remains regulated and the entity must still be either licensed or exempt. The idea that a bank must use a separate subsidiary for derivatives to qualify for an exemption is incorrect, as the SFA allows the bank itself to operate as an exempt person for these activities.

Takeaway: Banks licensed in Singapore are exempt from CMS licensing under the SFA because they are already regulated by MAS, but they must still comply with statutory business conduct standards and representative notification requirements.

Correct: Under the MAS Notice on the Sale of Investment Products (SFA04-N12), for unlisted Specified Investment Products (SIPs), if a retail client fails the Customer Knowledge Assessment (CKA), the financial institution is required to provide advice to the client. If the institution advises that the product is not suitable but the client still intends to proceed, the institution must ensure the client confirms in writing that they have received the advice, understand the risks, and still wish to proceed with the transaction.

Incorrect: Mandatory cooling-off periods and SGX-administered assessments are not the standard regulatory requirement for failing a CKA for unlisted SIPs; SGX portals are typically associated with listed SIPs. Upgrading a client to Expert Investor status without meeting the legal criteria under the Securities and Futures Act is a regulatory violation. Offering a simplified product or requiring physical briefings are internal risk management choices but do not satisfy the specific MAS requirement to provide advice and obtain written acknowledgement upon CKA failure.

Takeaway: For unlisted SIPs, a failure of the Customer Knowledge Assessment (CKA) necessitates the provision of advice by the financial institution before a retail client can proceed with the transaction.

Correct: According to the MAS Notice on the Sale of Investment Products, for listed Specified Investment Products (SIPs), a Customer Account Review (CAR) is required. If a retail client is assessed not to have the relevant knowledge or experience (based on education, work experience, or investment experience), the intermediary must not allow the client to trade listed SIPs unless the client completes the SGX Online Education Module and passes the associated assessment.

Incorrect: The option regarding a one-time waiver is incorrect because the CAR is a mandatory regulatory requirement for retail investors that cannot be waived by the client. The option regarding the Customer Suitability Assessment (CSA) and mandatory advice refers to the process for unlisted SIPs, not listed SIPs. The option regarding an income override is incorrect as it confuses the criteria for Accredited Investors with the remedial actions required for a retail client who fails the CAR.

Takeaway: Retail clients who fail the Customer Account Review for listed SIPs must successfully complete the SGX Online Education Module before they are permitted to trade.

Correct: Under the risk management guidelines issued by the Monetary Authority of Singapore (MAS) and the Securities and Futures Act (SFA), financial institutions are expected to have robust systems that can handle market stress. For Specified Investment Products (SIPs) like derivatives, this involves using models that are not merely backward-looking but incorporate stress-testing and dynamic adjustments. This ensures that the close-out process remains effective even when historical volatility parameters are exceeded, thereby protecting the firm from excessive counterparty credit risk.

Incorrect: Delaying the close-out process by 24 hours during high volatility increases the risk of the firm incurring losses beyond the available collateral. Suspending automated models for manual execution is often impractical in fast-moving markets and may lead to greater operational risk. Applying a flat 100% margin requirement for all SIPs is an overly restrictive commercial decision that does not address the underlying requirement for sophisticated model risk management and risk-sensitive liquidation processes.

Takeaway: Singapore regulations require that liquidation models for derivatives be sensitive to real-time market stress and supported by rigorous stress-testing to ensure effective risk mitigation during volatile periods.

Correct: Under Section 287 of the Securities and Futures Act (SFA), the Monetary Authority of Singapore (MAS) may recognize a foreign-constituted collective investment scheme if it is satisfied that the regulatory framework (laws and practices) of the home jurisdiction provides a level of protection to investors that is at least equivalent to the protection provided to investors in Singapore-constituted ‘authorized’ schemes.

Incorrect: Listing on the Singapore Exchange (SGX) is not a prerequisite for the recognition of a foreign fund for retail offer, nor is there a requirement to hold a specific percentage of assets in Singapore securities. While the manager must be fit and proper and regulated in its home jurisdiction, there is no requirement to relocate the primary investment team to Singapore or hold a local CMS license for the fund to be recognized. A foreign fund does not need to be restructured as a Singapore Variable Capital Company (VCC); the VCC is a local corporate structure, whereas recognized schemes are by definition constituted outside of Singapore.

Takeaway: For a foreign fund to be recognized for retail offer in Singapore, its home jurisdiction must offer investor protections equivalent to those found in the Securities and Futures Act (SFA).

Correct: According to the MAS Code on Collective Investment Schemes (CIS Code), specifically regarding investment limits, the net exposure to a counterparty of an OTC derivative should not exceed 10% of the NAV of the CIS. This exposure must be calculated on a marked-to-market basis to ensure the valuation reflects current market conditions and the true risk to the fund’s assets.

Incorrect: Holding 50% physical assets is not a requirement for synthetic ETFs, which by definition use derivatives for replication. MAS does not waive counterparty exposure limits based solely on the licensing status or credit rating of the counterparty; the 10% limit remains a fundamental safeguard. There is no specific regulatory requirement to use exactly five counterparties; rather, the focus is on the total net exposure limit to any single counterparty.

Takeaway: Under the MAS CIS Code, synthetic ETFs must limit their net counterparty exposure for OTC derivatives to 10% of the fund’s Net Asset Value on a marked-to-market basis.

Correct: Under Section 339 of the Securities and Futures Act (SFA), Singapore employs an extra-territorial approach. If a person or entity performs an act outside Singapore (such as marketing derivatives) that has a substantial and reasonably foreseeable effect in Singapore, that act is treated as if it were committed in Singapore. Consequently, the entity would generally require a Capital Markets Services (CMS) license for dealing in capital markets products unless a specific exemption applies.

Incorrect: The physical location of servers or the legal booking location of a contract does not exempt an entity from the SFA if they are targeting the Singapore market. The currency of settlement (e.g., SGD) is not the primary trigger for licensing; rather, it is the nature of the activity and its impact on Singapore residents. The absence of a physical office does not preclude the application of the SFA, as the law specifically addresses cross-border activities that affect the Singapore public through digital or remote means.

Takeaway: The SFA’s extra-territoriality principle ensures that offshore entities targeting Singapore investors are subject to local licensing requirements if their actions have a substantial effect within Singapore.