Capital Markets in Singapore Chapter 1

CMFAS Examination RES 1B - Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members

• The objective of the CMFAS RES 1B Exam is to test candidates on their knowledge and understanding of the regulatory framework, including laws and regulations, and associated codes, notices, practice notes, and guidelines governing securities dealing, ethical codes, standards of professional conduct, and fundamental skills relating to securities dealing.

• Candidates are required to pass the relevant modules of the CMFAS examinations pertaining to the regulated activity that they intend to conduct.

• Once they have passed the relevant CMFAS examinations, candidates must ensure that their notification to act as an appointed representative is lodged with the Monetary Authority of Singapore (MAS) on the Public Register via the Representative Notification Framework (RNF), before they can commence any dealings in regulated activities.

Study Guide Overview

• The Study Guide consists of 7 chapters, covering rules and regulations governing securities dealings, ethical codes and conduct, and elementary skills relating to securities dealings in Singapore.

• Chapter 1: The Capital Markets Industry in Singapore and Participants in the Capital Markets provides an overview of the capital markets eco-system, regulatory bodies, and the relevant legislation and rules governing the conduct of capital markets activities in Singapore.

• Chapter 2: Licensing and Business Operations outlines the obligations and regulatory requirements governing the business operations of Capital Markets Services licence holders and representatives in securities dealing.

• Chapter 3: Market Conduct provides an overview of the rules and regulations prohibiting market misconduct in relation to securities dealing.

• Chapter 4: Ethics, Codes and Standards of Professional Conduct for Securities Dealing defines ethics and ethical behavior in the context of securities dealing, discusses ethical issues or ethical dilemmas faced by securities dealing representatives, and the applicable ethical codes and professional standards of conduct that securities dealing representatives should uphold in their professional capacities.

• Chapter 5: Securities Dealing Practices and Skills describes key aspects of the client onboarding process, client servicing and communication requirements, best execution practices, and some aspects of risk management and internal controls to securities dealing.

• Chapter 6: Central Provident Fund Investment Scheme (CPFIS) provides an overview of CPFIS.

• Chapter 7: Prevention of Financial Crimes provides an overview of the relevant legislation, rules, and regulations for the prevention of money laundering and countering the financing of terrorism.

Study Guide Updates and Exam Information

• The Study Guide is updated at appropriate intervals to reflect changes and developments in the financial industry.

• The RES 1B Exam is conducted at the IBF Assessment Centre and includes questions that test candidates' knowledge, understanding, and application of the relevant rules, ethics, and skills for securities exchange dealing.

• The examination comprises 60 multiple-choice questions and multiple response questions for a duration of 1 hour 30 minutes.

• The passing mark is 75%.### The Capital Markets Industry in Singapore and Participants in the Capital Markets

Introduction

• The capital markets provide opportunities for businesses to raise capital to fund their business activities.
• The primary market involves the issuance of securities instruments, such as shares, bonds, and company warrants.
• Investors buy these instruments, taking on risk as the price of financial instruments fluctuates with the company's performance.

The Primary Market

• The primary market is where businesses raise capital through the issuance of securities instruments.
• Examples of securities instruments include:
  • Shares / common stock / equity securities
  • Bonds / fixed income securities
  • Company warrants

The Secondary Market

• The secondary market is where trading activity takes place outside of the initial capital-raising activities.
• It allows investors to manage or transfer their risk to other parties.
• Risk transfer or risk management can also be achieved by trading in futures or derivatives products.

Exchanges

• Primary and secondary market activities can take place in the over-the-counter (OTC) markets or on regulated exchanges.
• The OTC market is also known as the "call around" market.
• An exchange provides a centralized market where buyers and sellers can congregate to discover prices and quantities.

Financial Intermediaries

• Financial intermediaries connect businesses that need to raise capital with public investors.
• Examples of financial intermediaries include:
  • Banks or financial institutions with a capital markets services (CMS) licence to advise on corporate finance.
• They help businesses raise capital through new securities, such as through an Initial Public Offering (IPO).### Capital Markets Industry in Singapore
• The capital markets industry in Singapore has various financial intermediaries, including banks, broker/dealer companies, and providers of custodial services.

Banks

• There are three types of banks licensed under the Banking Act 1970:
  • Qualifying Full Banks/Full Banks: provide the whole range of banking business, including capital markets products, custodial business, underwriting, corporate finance activities, and insurance products.
  • Wholesale Banks: provide the full range of banking business, but are restricted in their deposit-taking activities.
  • Merchant Banks: licensed under section 55S of the Banking Act, and are not allowed to accept Singapore deposits or borrow Singapore dollars from the public.

Capital Markets Services (CMS) Licence Holders

• CMS licence holders include:
  • Broker/dealer companies: do not engage in deposit-taking activities, but specialise in matching buyers with sellers.
  • Corporate finance advisory companies: provide corporate finance advisory services, including acting as issue managers or sponsors for listings.
  • Providers of custodial services: required to hold a CMS licence, serve institutional and individual clients, and provide general custodial services.

Others (Non-CMS Licence Holders)

• Finance companies: licensed under the Finance Companies Act 1967, and are not required to apply for a CMS licence for regulated activities.
• Remote trading and clearing members: exempted from holding a CMS licence, provided they meet certain criteria, such as being incorporated outside of Singapore and not serving customers resident in Singapore.

Regulatory Framework and Regulatory Bodies

• Singapore's regulatory framework for capital markets seeks to promote a sound, stable, and progressive financial services sector.
• The regulatory framework aims to:
  • Keep risks at acceptable levels
  • Maintain a safe and efficient financial market infrastructure
  • Ensure fair, orderly, and transparent organised markets
  • Keep customers well-informed and empowered
• Regulatory bodies responsible for the trading and clearing of securities and derivatives include:
  • Monetary Authority of Singapore (MAS)
  • Singapore Exchange Limited (SGX)
  • SGX RegCo
  • SGX-ST
  • CDP
  • SGX-DT
  • SGX-DC

Roles of the Regulatory Bodies

• Monetary Authority of Singapore (MAS):
  • Acts as the central bank of Singapore
  • Conducts integrated supervision of financial services and financial stability surveillance
  • Manages the official foreign reserves of Singapore
  • Develops Singapore as an international financial centre
  • Responsible for administering the Securities and Futures Act (SFA) and other relevant legislations
• Singapore Exchange Limited (SGX):
  • Operates equity, fixed income, and derivatives markets
  • Provides listing, trading, clearing, settlement, depository, and data services
  • Has six guiding principles for its regulation:
    • Disclosure-based regulation
    • Comprehensive risk management
    • Risk-based targeting of regulatory activities
    • Balanced approach to international best practice
    • Transparency
    • SGX as a frontline regulator and managing regulatory conflict
• Singapore Exchange Securities Trading Limited (SGX-ST):
  • Undertakes the day-to-day regulation of the securities market
  • Administers the SGX-ST rules
  • Sets the rules and membership and trading requirements of the exchange
  • Allows companies and investors to achieve capital-raising and investment objectives
• The Central Depository (Pte) Limited (CDP):
  • Provides integrated clearing, settlement, and depository facilities for the securities market
  • Holds the book-entry securities deposited with it as a bare trustee for the collective benefit of depositors
  • Immobilizes securities and facilitates settlement of trades through book-entry

This quiz covers the introduction to the capital markets industry in Singapore, institutional participants, and the regulatory framework. Test your knowledge of the capital markets in Singapore!