RES 2B Study Guide: 60 Key Concepts

For RES 2B, distinguish the principal's exchange membership from the product's trading venue. The module covers rules, ethics and skills for derivatives dealers of non-exchange members, with an OTC derivatives domain that connects contractual exposure to practical dealing responsibilities. Ask who owes performance, what the customer has authorised and which protections depend on the agreement. The sixty concepts examine these questions alongside licensing, market conduct, ethics and financial crime prevention. Examples show why economic risk, regulatory scope and contractual protection need separate assessment. Use the current official study guide to check detailed coverage, and retain the relevant client category and institutional status when applying a requirement.

Exam and assessment essentials

Official module: RES 2B — Rules, Ethics and Skills for Derivatives Dealers of Non-Exchange Members.[1]
Format: 60 multiple-choice questions, computer based.[1]
Duration: 1.5 hours.[1]
Pass mark: 75%.[1]
Exemptions: IBF states that there are no exemptions for RES 2B because it is a Rules, Ethics and Skills examination.[1]
Results: Results are displayed on the computer screen after the examination. Result slips can be printed from the IBF Portal account on the next business day.[1]
Published examination fees: IBF's published fees, checked on 10 October 2026, are S$207.10 for corporate members and S$250.70 for non-corporate members, inclusive of GST. Confirm the applicable fee when registering.[1]
Non-exchange derivatives pathway: IBF lists RES 2B or RES 12B, together with CM-EIP and/or CM-SIP, or CM-CMP. The relevant product knowledge combination depends on the activity and products concerned.[1]
Official study guide: Successfully registered candidates receive access to a PDF study guide through the IBF Portal. Access expires on the registered examination day. IBF advises candidates to use the latest relevant version; the public update list does not establish a RES 2B version number.[2]

What the syllabus covers

This study map groups the official scope into revision themes. It is not an official chapter list or a prediction of question weightings.

The capital markets industry in Singapore and participants in the capital markets

Distinguish regulatory and examination roles, dealing capacity, market participants, regulated activities and the significance of the principal’s exchange membership.[1]

Licensing and business operations

Connect institutional authorisation, representative status and fitness with supervision, records, asset handling and operational resilience.[1]

Market conduct

Recognise artificial activity, price distortion, information abuse and deceptive communications without treating every suspicious pattern as a proven offence.[1]

Over-the-counter derivatives

Understand bilateral and cleared structures, contractual obligations, leverage, collateral, counterparty exposure and the limits of hedging.[1]

Ethics, codes and standards of professional conduct for derivatives dealing

Apply fair treatment, conflict controls, confidentiality, competence and honest disclosure to concrete dealing decisions.[1]

Derivatives dealing practices and skills

Establish client authority and understanding, capture instructions accurately, explain execution terms and manage confirmations, settlement, errors and complaints.[1]

Prevention of financial crimes

Connect ownership and funding checks with ongoing monitoring, risk-sensitive review, sanctions assessment and confidential escalation of suspicion.[1]

60 key concepts to understand

Regulation and examination administration serve different purposes
Identify the activity behind the product name
Principal and agent roles change the dealing relationship
Different participants carry different commercial exposures
Exchange membership belongs to the principal
A licence and an exemption are different authorisation routes
Representative status must match the current role
Fitness and propriety require continuing assessment
Separate dealing from independent checking
Limits need an enforceable breach response
Records must explain how the transaction happened
Client money and collateral need separate treatment
Continuity planning must preserve trading control
Artificial activity can mislead without genuine demand
Price distortion differs from ordinary market impact
Derivatives can transmit insider information into trading gains
Information abuse can occur through another person’s trade
Client order information must not fund personal advantage
A sales statement must survive a factual check
Repeating a rumour can amplify market harm
Market misconduct concerns need preserved evidence
OTC customisation creates contractual dependence
Central clearing changes the route of counterparty exposure
A forward commits both parties to performance
A forward quotation is not a currency forecast
Interest rate swaps alter cash-flow exposure
Currency swaps can include principal exchanges
An option buyer purchases a contractual choice
Writing an option creates a contingent obligation
Leverage separates committed margin from economic exposure
Margin protects performance but creates funding pressure
Collateral quality matters as well as collateral value
Positive contract value identifies a credit exposure
Close-out netting depends on enforceable arrangements
A hedge can leave basis risk behind
Exit liquidity differs from the ability to enter
OTC reporting requires accurate data and a scope check
Fair treatment must reflect the firm’s actual role
Conflict disclosure may need stronger controls
Gifts and incentives can distort judgement
Confidentiality permits controlled, authorised disclosure
Competence includes recognising the limits of knowledge
Personal account controls address hidden competing interests
Honest escalation prevents an error becoming concealment
Account authority must be verified separately from identity
Knowledge assessment and suitability answer different questions
Match the trade to the actual commercial need
Risk disclosure should explain adverse consequences
An instruction needs complete executable terms
Execution terms determine what an order promises
Confirmation checks catch economic disagreements
Settlement instructions require independent verification
Errors and complaints need an authorised resolution
Laundering disguises origin; terrorism financing concerns purpose
Beneficial ownership looks beyond the named customer
Source of funds differs from source of wealth
Ongoing monitoring tests behaviour against the relationship
Higher risk calls for deeper enquiry
Sanctions screening requires a real match assessment
Suspicion requires confidential escalation and proper reporting

Capital markets industry and participants

1. Regulation and examination administration serve different purposes

MAS regulates financial institutions and the conduct of regulated activities, while IBF administers the relevant licensing examinations. An examination result demonstrates that a candidate has met an assessment requirement. It does not establish that the candidate or employer has completed the regulatory steps needed for the proposed dealing activity.[1]

Apply it: An employer checks a new dealer’s regulatory status and appointment before assigning client orders, even though the dealer has already passed the examination.

Common mistake: Treating an examination result as permission to conduct any capital markets activity.

Capital markets industry and participants

2. Identify the activity behind the product name

Regulatory scope depends on what a person actually does, the product involved and the capacity in which they act. Arranging or executing derivatives business can raise different questions from merely describing a market. Assess the substance of the service rather than assuming a job title or product label determines authorisation.[1]

Apply it: Someone described as an account coordinator begins negotiating derivative terms and accepting orders; the firm reviews whether those tasks involve regulated dealing.

Common mistake: Assuming an administrative job title prevents the underlying work from being regulated.

Capital markets industry and participants

3. Principal and agent roles change the dealing relationship

A principal enters the transaction as the client’s counterparty, whereas an agent acts on the client’s behalf within an agreed mandate. This distinction affects credit exposure, pricing and conflicts. A dealer should make the firm’s capacity clear rather than allowing the client to assume every quoted transaction is agency execution.[1]

Apply it: An exporter accepts a bank’s forward quotation and contracts with the bank itself, rather than appointing it to find another counterparty.

Common mistake: Assuming a dealer’s quoted spread is an agency commission in every transaction.

Capital markets industry and participants

4. Different participants carry different commercial exposures

Corporates may use derivatives to manage business cash flows, investors may seek market exposure, and dealers may provide liquidity while managing their own positions. The same contract can serve different purposes for each participant. Understanding that purpose helps distinguish a genuine hedge from a position that adds an unrelated risk.[1]

Apply it: An importer buys foreign currency forward to cover a supplier payment, while an investor takes the same currency exposure expecting appreciation.

Common mistake: Inferring a transaction’s purpose solely from the type of derivative being traded.

Capital markets industry and participants

5. Exchange membership belongs to the principal

The published derivatives pathways distinguish principals that belong to an approved exchange from those that do not. That institutional distinction is separate from whether a particular contract is traded on an exchange. Non-exchange membership should therefore not be used as shorthand for a business that can deal only in bilateral contracts.[1]

Apply it: A firm without approved-exchange membership considers an exchange-traded derivatives service and checks its authorisation and applicable competency pathway before offering it.

Common mistake: Equating the principal’s membership status with the trading venue of every product.

Licensing and business operations

6. A licence and an exemption are different authorisation routes

An institution may conduct an activity under a relevant licence or an applicable exemption. The exemption must actually cover the institution and activity concerned; it is not a general release from regulation. Conduct and operational requirements can still apply, although their precise application may differ between institutional categories.[1]

Apply it: A derivatives desk in an exempt institution checks the conditions governing its business instead of assuming all capital markets services are covered.

Common mistake: Reading exemption from licensing as exemption from every conduct or operational requirement.

Licensing and business operations

7. Representative status must match the current role

Examination completion and representative notification address different parts of entry into regulated activity. Relevant status must correspond to the institution and activities for which the person acts. Moving employers or changing duties therefore requires a fresh status check rather than reliance on an appointment associated with a previous role.[1]

Apply it: A dealer moving to another institution waits for the new employer to verify the applicable notification and appointment before handling regulated orders.

Common mistake: Assuming representative status automatically transfers unchanged when a dealer changes employers or duties.

Licensing and business operations

8. Fitness and propriety require continuing assessment

Fitness and propriety concern matters such as integrity, competence and financial soundness, rather than examination performance alone. Relevant developments can require disclosure and reassessment after appointment. The proper response is to examine the facts and applicable criteria, without treating every personal difficulty as automatic evidence of unfitness.[1]

Apply it: An existing representative reports a serious disciplinary finding so the firm can assess its significance under the applicable fitness and propriety criteria.

Common mistake: Treating initial acceptance as permanent proof of fitness, regardless of later developments.

Licensing and business operations

9. Separate dealing from independent checking

Separating trade initiation from confirmation, settlement and independent review reduces opportunities to conceal mistakes or unauthorised positions. Effective separation concerns actual access and authority, not departmental names. Where staffing limits prevent complete separation, management needs compensating checks that genuinely challenge the dealer’s records and decisions.[1]

Apply it: Operations reconciles a dealer’s trade record against the counterparty confirmation and investigates a mismatch without allowing the dealer to approve their own correction.

Common mistake: Assuming separate department names provide control when the dealer retains overriding system access.

Licensing and business operations

10. Limits need an enforceable breach response

Position, credit and product limits define the risk a dealer may take within delegated authority. Monitoring is useful only when exceptions trigger review and corrective action. A profitable trade can still exceed authority, and an informal assurance from a colleague does not replace approval from the responsible decision-maker.[1]

Apply it: A desk stops adding exposure after a counterparty limit is reached and seeks authorised review rather than relying on the position’s recent profitability.

Common mistake: Using favourable trading performance to justify exceeding the authority granted to the desk.

Licensing and business operations

11. Records must explain how the transaction happened

A useful audit trail connects the client’s instruction, quotation, execution, amendments and final confirmation. This allows reviewers to distinguish an authorised trade from a booking mistake or disputed instruction. Records should preserve the history of changes, with access and retention governed by applicable requirements and firm procedures.[1]

Apply it: A disputed forward is reconstructed using the recorded instruction, accepted quotation and amendment history, rather than relying on the dealer’s recollection alone.

Common mistake: Keeping only the final trade ticket and losing the evidence explaining subsequent amendments.

Licensing and business operations

12. Client money and collateral need separate treatment

Cash held for a client and collateral transferred under a derivatives agreement may have different legal treatment. Protection depends on the applicable rules and contractual structure, including ownership and permitted use. Dealers should understand those arrangements before describing funds as segregated, protected or freely available for withdrawal.[1]

Apply it: Before accepting margin, the firm explains the applicable custody or collateral arrangement instead of describing every transfer as a protected client deposit.

Common mistake: Assuming all money paid to a derivatives dealer receives identical protection on insolvency.

Licensing and business operations

13. Continuity planning must preserve trading control

A disruption can leave a firm unable to receive instructions, value positions or move collateral while market exposure continues. Continuity arrangements should provide controlled alternatives for these functions, with clear authority and records. Outsourcing a function does not remove the need to understand and oversee its operational risks.[1]

Apply it: When the primary dealing system fails, the desk uses an approved alternative instruction channel and reconciles all trades before normal processing resumes.

Common mistake: Restoring trading access without checking whether instructions, positions and collateral records remain consistent.

Market conduct

14. Artificial activity can mislead without genuine demand

Coordinated transactions can create a misleading appearance of market activity without reflecting independent demand. Common control, circular trading and the absence of commercial purpose warrant investigation. Whether conduct meets a particular prohibition depends on the relevant legal elements; a pattern should be assessed rather than labelled solely from appearances.[1]

Apply it: Related accounts repeatedly reverse derivative positions while communications suggest the purpose is to make market interest appear stronger than it really is.

Common mistake: Assuming every transaction between related accounts proves misconduct without examining purpose and circumstances.

Market conduct

15. Price distortion differs from ordinary market impact

A genuine transaction can move prices simply because it consumes available liquidity. Manipulation concerns conduct that meets the applicable prohibition on artificial or deceptive price influence. Assess the trading pattern, communications and economic purpose rather than treating either a large price movement or a completed trade as conclusive.[1]

Apply it: A dealer investigates coordinated transactions apparently designed to distort a reference price, distinguishing them from a genuine customer order that moved the market.

Common mistake: Treating any price movement caused by a large transaction as proof of manipulation.

Market conduct

16. Derivatives can transmit insider information into trading gains

Information about an underlying asset can affect a derivative referencing that asset. Using information that meets the applicable insider-dealing conditions may therefore raise concerns even without buying the underlying itself. Analyse availability, materiality and the relevant knowledge conditions instead of assuming every confidential fact is legally inside information.[1]

Apply it: An employee learns confidential takeover information and considers buying an option linked to the target, recognising that derivative exposure does not avoid scrutiny.

Common mistake: Assuming insider-dealing concerns disappear when the position references shares through a derivative.

Market conduct

17. Information abuse can occur through another person’s trade

Market-conduct concerns are not confined to the informed person’s own account. Encouraging another person to trade or communicating information can engage relevant prohibitions when their legal conditions are met. A dealer should seek guidance before sharing sensitive information, rather than assuming the absence of personal profit makes disclosure harmless.[1]

Apply it: A dealer hints to a friend that an issuer announcement will change option values, although the dealer places no trade personally.

Common mistake: Believing information misuse requires the person sharing the information to make a personal profit.

Market conduct

18. Client order information must not fund personal advantage

Advance knowledge of a client’s planned trade can give a dealer an unfair opportunity to profit from expected market impact. Taking a personal position ahead of the order misuses that information. Legitimate principal risk management needs separate assessment under agreed terms, information controls and the applicable conduct framework.[1]

Apply it: After receiving a substantial currency order, a dealer considers buying personally before execution and recognises the conflict created by privileged order information.

Common mistake: Calling personal trading risk management merely because it precedes a genuine client order.

Market conduct

19. A sales statement must survive a factual check

A product description can mislead through an incorrect statement or by omitting a material qualification. Describing a derivative as safe because it hedges a business exposure ignores collateral, liquidity and counterparty risks. Separate verified features from opinions and explain qualifications needed to understand the claim.[1]

Apply it: A dealer revises a forward presentation that promises certainty, explaining that settlement obligations remain even if the expected commercial receipt never arrives.

Common mistake: Assuming technically accurate wording cannot mislead when material qualifications are left out.

Market conduct

20. Repeating a rumour can amplify market harm

Unverified information becomes more persuasive when repeated by someone perceived to have market expertise. Dealers should distinguish evidence, inference and speculation, and consider whether dissemination could mislead others into trading. Naming another person as the original source does not automatically remove responsibility for the dealer’s own communication.[1]

Apply it: A desk hears an unsupported claim about a currency intervention and avoids presenting it to customers as confirmed official action.

Common mistake: Attributing a rumour to another person as though attribution makes its dissemination harmless.

Market conduct

21. Market misconduct concerns need preserved evidence

Suspicious trading patterns require informed review, not an improvised accusation or silent acceptance. Preserve relevant orders, communications and account relationships, then follow the firm’s escalation process. Distinguishing an indicator from a conclusion supports proper investigation and avoids warning suspected participants in ways that compromise further review.[1]

Apply it: A surveillance analyst flags linked trading accounts; the dealer preserves communications and refers the pattern for review rather than confronting the customers.

Common mistake: Deleting awkward messages or privately challenging suspected participants before the concern receives proper review.

Over-the-counter derivatives

22. OTC customisation creates contractual dependence

An OTC contract can tailor settlement, underlying exposure and other terms to a commercial need. That flexibility makes the agreed documentation particularly significant: similar product names need not mean identical obligations. OTC trades may also be centrally cleared, so bilateral negotiation should not be confused with an inevitable absence of clearing.[1]

Apply it: An exporter negotiates a forward matching its expected receipt, then checks the settlement terms rather than relying on the dealer’s standard product description.

Common mistake: Assuming all OTC contracts remain uncleared or share identical terms within a product category.

Over-the-counter derivatives

23. Central clearing changes the route of counterparty exposure

Where a derivative is centrally cleared, the clearing arrangement changes how obligations and default risk are managed. Collateral and default procedures provide protection, but do not eliminate all credit, liquidity or operational risk. Access through a clearing member also creates dependencies that differ from direct bilateral dealing.[1]

Apply it: An institution clears an eligible swap but still assesses margin funding needs and the consequences of disruption at its clearing service provider.

Common mistake: Describing a cleared derivative as risk-free because a central counterparty stands within the arrangement.

Over-the-counter derivatives

24. A forward commits both parties to performance

A forward fixes contractual terms for a future exchange or settlement. Unlike an option, it generally obliges both parties to perform even when market movements make the agreement unattractive. Its usefulness as a hedge comes from stabilising an exposure, with the trade-off that favourable market movements may no longer benefit the hedger.[1]

Apply it: An importer fixes its currency purchase through a forward and remains bound even after the market offers a more attractive exchange rate.

Common mistake: Treating an unfavourable forward as something the buyer can simply choose not to exercise.

Over-the-counter derivatives

25. A forward quotation is not a currency forecast

Currency forward pricing is linked to spot exchange rates and the relative financing conditions of the currencies, with other market and contractual influences affecting executable quotes. A forward premium or discount therefore should not be read as a dealer’s prediction of the future spot rate or a guaranteed investment advantage.[1]

Apply it: A treasurer sees a forward rate differing from spot and asks about financing conditions rather than treating the difference as a currency forecast.

Common mistake: Reading a currency’s forward premium as reliable evidence that its spot value will rise.

Over-the-counter derivatives

26. Interest rate swaps alter cash-flow exposure

A conventional interest rate swap exchanges interest cash flows calculated by reference to a notional principal, which is generally not exchanged. A borrower can overlay fixed payments and floating receipts on an existing floating-rate loan. The loan and swap remain separate contracts: the lender retains its rights, and ending the loan does not automatically end the swap.[1]

Apply it: A borrower repays its loan after selling a business but discovers that the associated swap remains outstanding and requires separate termination arrangements.

Common mistake: Assuming repayment or amendment of the loan automatically changes the separate swap contract.

Over-the-counter derivatives

27. Currency swaps can include principal exchanges

A currency swap exchanges agreed cash flows in different currencies and may include exchanges of principal. Its obligations depend on the specific structure, rather than a universal rule that swaps exchange only interest differences. Currency, funding and settlement exposures should be considered together when explaining its effect.[1]

Apply it: A company transforms foreign-currency borrowing into domestic-currency payments through a swap whose documentation also specifies exchanges of principal between the parties.

Common mistake: Applying the usual interest-rate-swap treatment of notional principal to every currency swap.

Over-the-counter derivatives

28. An option buyer purchases a contractual choice

A purchased option gives its holder a contractual right rather than the seller’s contingent performance obligation. The contract determines exercise and settlement, including any automatic exercise provisions. Loss on a standalone purchased option is generally limited to the premium and associated costs, but physical exercise can create an underlying position with its own obligations and risks.[1]

Apply it: An investor exercises a purchased call and acquires the underlying asset. The option’s limited downside does not protect the acquired asset against subsequent market losses.

Common mistake: Extending the purchased option’s loss limit to an underlying position acquired through exercise.

Over-the-counter derivatives

29. Writing an option creates a contingent obligation

An option seller receives a premium in return for an obligation if the contract’s exercise conditions are met. Loss can substantially exceed that premium, although its extent depends on the option and any associated hedge. Assess the resulting exposure rather than assuming premium income makes the position defensive.[1]

Apply it: A customer sells a currency option for income but must perform when exchange rates move adversely and the buyer exercises its contractual right.

Common mistake: Calling option-writing income conservative without assessing the contingent obligation and any associated hedge.

Over-the-counter derivatives

30. Leverage separates committed margin from economic exposure

A leveraged position creates market exposure larger than the funds initially committed. Gains and losses follow the position’s economic exposure, while margin provides support for contractual performance. The deposit therefore should not be treated as the purchase price or an automatic ceiling on losses unless specific terms provide that protection.[1]

Apply it: A modest adverse currency movement consumes much of an account’s margin because the underlying leveraged position is substantially larger than the deposit.

Common mistake: Assuming the initial deposit defines either the full exposure or the maximum possible loss.

Over-the-counter derivatives

31. Margin protects performance but creates funding pressure

Margin arrangements require funds or assets to support exposures as defined by the contract and applicable framework. Initial support and subsequent collateral adjustments serve different purposes. A position may remain economically sensible while demanding additional liquidity, and the agreement determines the consequences of failing to provide required support.[1]

Apply it: A company’s hedge offsets a future commercial receipt but moves against it first, creating a collateral demand before that receipt becomes available.

Common mistake: Assuming a commercially effective hedge cannot create an immediate cash-funding problem for its holder.

Over-the-counter derivatives

32. Collateral quality matters as well as collateral value

Collateral reduces exposure only to the extent that it can be valued, accessed and realised when needed. Eligibility terms and valuation adjustments reflect concerns such as price volatility and liquidity. Assets linked to the counterparty’s own financial health may weaken protection precisely when that counterparty is most likely to default.[1]

Apply it: A dealer questions collateral concentrated in assets tied to the counterparty’s business because their value may fall alongside the counterparty’s creditworthiness.

Common mistake: Treating collateral’s quoted market value as the amount certainly recoverable after a default.

Over-the-counter derivatives

33. Positive contract value identifies a credit exposure

A party with positive replacement value is exposed to the risk of losing that value if its counterparty defaults. Market movements can reverse which party is exposed. This direction matters when explaining collateral requests: protection is generally sought by the exposed party under the agreed collateral arrangement.[1]

Apply it: A forward becomes valuable to an exporter, so the exporter assesses its exposure to the dealer’s ability to honour the contract.

Common mistake: Reversing the exposure direction and assuming the out-of-the-money party always bears current replacement risk.

Over-the-counter derivatives

34. Close-out netting depends on enforceable arrangements

Under an applicable close-out arrangement, a specified event can lead to termination and valuation of covered transactions, with amounts consolidated into a net obligation owed by a party. This differs from payment netting during ordinary performance. Protection depends on which transactions are covered and whether the arrangement is enforceable, including in insolvency.[1]

Apply it: A dealer has valuable and loss-making swaps with a defaulting counterparty. It checks the covered agreements and enforceability before treating those values as a net claim.

Common mistake: Assuming economic offsets guarantee legal netting across every trade with the same counterparty.

Over-the-counter derivatives

35. A hedge can leave basis risk behind

Basis risk arises when a hedge and the exposure being hedged do not move together as expected. Differences in reference assets, currencies, settlement terms or payment profiles can leave a residual exposure. A derivative should therefore be evaluated against the actual business risk, rather than judged only by its broad product category.[1]

Apply it: A company hedges borrowing with a swap referencing a different interest benchmark, leaving it exposed when the benchmarks move apart.

Common mistake: Calling a hedge complete because its product name resembles the risk being managed.

Over-the-counter derivatives

36. Exit liquidity differs from the ability to enter

A dealer’s willingness to quote a new OTC transaction does not guarantee attractive terms for unwinding it later. Bespoke features, market stress and credit changes can make replacement or termination costly. Exit arrangements should be understood before execution, including whether consent is needed and how termination value will be determined.[1]

Apply it: A bespoke hedge becomes unnecessary after a commercial contract is cancelled, but unwinding it requires a negotiated price in a stressed market.

Common mistake: Assuming an OTC position can always be closed at its latest indicative valuation.

Over-the-counter derivatives

37. OTC reporting requires accurate data and a scope check

Regulatory reporting helps authorities examine covered derivative activity and exposures. Whether an obligation applies depends on the relevant entity, product and transaction rules. Reported data must represent the agreed trade accurately and reflect applicable changes. A regulatory submission serves a different purpose from a counterparty confirmation and does not by itself establish public access to individual trade details.[1]

Apply it: A swap amendment appears in the booking system, but operations finds that the reporting record still describes the original terms and arranges correction through the approved process.

Common mistake: Assuming an accepted submission proves the data is correct or replaces agreement of terms with the counterparty.

Ethics and professional conduct

38. Fair treatment must reflect the firm’s actual role

Fair treatment requires the firm to honour its stated service and explain material terms honestly. A principal dealer may earn a spread, but should not exploit a customer’s misunderstanding or selectively disregard agreed dealing conditions. Where clients compete for limited execution capacity, decisions should follow defensible criteria rather than personal favour or undisclosed commercial pressure.[1]

Apply it: During limited market liquidity, a dealer follows the firm’s established order-handling criteria rather than favouring a customer who offers personal benefits.

Common mistake: Treating commercial discretion as permission to disregard agreed conditions or conceal unfair preferences.

Ethics and professional conduct

39. Conflict disclosure may need stronger controls

A conflict exists when competing interests could influence a decision or the treatment of a client. Disclosure helps the client understand the issue, but some conflicts also require restriction, independent oversight or refusal to act. The response should address the source of compromised judgement rather than merely record that disclosure occurred.[1]

Apply it: A dealer discloses a personal connection to a proposed counterparty and is removed from the approval decision so another person assesses it independently.

Common mistake: Treating disclosure as a universal cure while leaving the conflicting influence fully operative.

Ethics and professional conduct

40. Gifts and incentives can distort judgement

Benefits from clients, counterparties or internal sales incentives can influence decisions without an explicit bargain. Assess their purpose, context and potential effect on independence, then apply the firm’s approval and disclosure controls. A benefit should not be accepted merely because the recipient believes their judgement will remain unchanged.[1]

Apply it: A counterparty offers hospitality while seeking more favourable dealing terms, prompting the dealer to refer the invitation under the firm’s gifts policy.

Common mistake: Using personal confidence in impartiality as a substitute for the firm’s inducement controls.

Ethics and professional conduct

41. Confidentiality permits controlled, authorised disclosure

Client identity, positions and instructions should be protected against unauthorised use or disclosure. Confidentiality does not prevent every internal or legally required disclosure; permitted sharing depends on purpose, authority and applicable requirements. The practical question is who needs the information and whether they are entitled to receive it.[1]

Apply it: A dealer shares relevant records with authorised compliance staff investigating a concern but declines to discuss the customer’s positions with an unrelated colleague.

Common mistake: Assuming confidentiality either bans all internal sharing or allows unrestricted discussion within the firm.

Ethics and professional conduct

42. Competence includes recognising the limits of knowledge

Competent dealing requires enough understanding to explain obligations, material risks and the controls relevant to the role. When unfamiliar terms change the product’s behaviour, the dealer should obtain qualified support before acting. Confidence, previous experience with a similar product and a sales summary are insufficient substitutes for understanding.[1]

Apply it: A familiar-looking currency product contains unfamiliar exercise conditions, so the dealer obtains specialist review before explaining it or accepting an order.

Common mistake: Assuming experience with a simpler product provides competence for every variation bearing its name.

Ethics and professional conduct

43. Personal account controls address hidden competing interests

Personal trading can create conflicts with client orders, employer positions or confidential information. Approval, disclosure and monitoring arrangements help identify those conflicts before they become misconduct. Economic benefit can also arise through connected accounts, so assessing personal interests may require looking beyond accounts held directly in the dealer’s own name.[1]

Apply it: A dealer discloses an account controlled through a family arrangement rather than excluding it simply because another person appears as the account holder.

Common mistake: Treating account registration in another person’s name as proof that no personal interest exists.

Ethics and professional conduct

44. Honest escalation prevents an error becoming concealment

A mistake creates a need for prompt, accurate disclosure to the responsible people. Concealment can produce further unauthorised trades, false records and misleading explanations. Ethical judgement means reporting what is known, preserving evidence and allowing an authorised response, rather than waiting to see whether market movements erase the problem.[1]

Apply it: A dealer reports an accidental position immediately instead of taking another speculative trade in the hope of recovering the resulting loss.

Common mistake: Delaying disclosure because an unauthorised recovery trade might make the original error disappear.