Securities Regulation Code (SRC) Rules on Business Conduct

Conduct of Business Principles

• These principles govern the activities of market intermediaries to protect clients' interests and preserve market integrity.
• Market intermediaries should conduct themselves in a way that protects clients' interests and helps preserve market integrity.

Ethical Standard Rule (SRC Rule 30.2.1)

• A registered person shall act honestly, fairly, and in the best interest of clients and the market.
• They should ensure representations or communications made to clients are accurate and not misleading.
• They should not violate SRC Rule 24.1(d).

Honesty and Fairness

• All communications with the public should be based on principles of fair dealing and good faith.
• No material fact or qualification may be omitted if the omission would cause the advertising or sales literature to be misleading.
• Exaggerated, unwarranted, or misleading statements or claims are prohibited in public communications.
• Communications should not contain promises of specific results, exaggerated or unwarranted claims, unwarranted superlatives, or forecasts of future events.
• In judging whether a communication may be misleading, consider the overall context, audience, and overall clarity.

Diligence

• A registered person should act with due skill, care, and diligence in the best interests of clients and the market.
• They should take all reasonable steps to execute client orders promptly and in accordance with instructions.
• They should ensure client orders are executed on the best available terms and allocate transactions fairly to client accounts.
• When providing advice, they should act diligently and ensure recommendations are based on thorough analysis and consider available alternatives.

Capabilities

• A registered person should employ or appoint only qualified persons.
• They should ensure they have adequate resources to supervise diligently and satisfactory internal control procedures and financial and operational capabilities.

Information About Clients

• A registered person should seek relevant information from clients, including financial situation, investment experience, and investment objectives.
• They should treat client information with utmost confidentiality and not disclose it to unauthorized persons.
• They should establish the true and full identity of clients and take reasonable steps to verify information.
• They should ensure suitability of recommendations or solicitations for clients based on their individual circumstances.

Information For Clients

• A registered person should make adequate disclosure of material information to clients.
• They should provide a written agreement to clients before providing services.
• They should confirm transactions promptly in writing and provide client account statements.
• They should disclose their financial condition to clients upon request and any material changes to their financial condition.

Conflicts of Interest

• A registered person should avoid conflicts of interest and ensure fair treatment of clients.
• They should disclose material interests or conflicts to clients and take reasonable steps to ensure fair treatment.
• They should handle client orders fairly and in the order received.
• They should ensure client assets are accounted for properly and promptly.

Compliance

• A registered person should comply with all regulatory requirements applicable to their business activities.
• They should comply with the Code, rules, and regulations adopted thereunder, and rules of any Exchange, clearing agency, or other SRO of which they are a member or participant.
• They should have a policy on whether employees are permitted to deal for their own accounts in securities.### Transactions and Responsibilities of Broker Dealers
• Employees who are permitted to deal with customers must comply with conditions set out in writing, including those imposed under SRC Rule 34.1.1 ("Customer First" Policy).

Ethical Standard Rule (SRC Rule 30.2.1)

• Compliance:
  • A registered person must ensure that complaints from clients are adequately addressed in compliance with SRC Rule 30.2.6.2.7 (BD System of Supervision) and sufficient records of such complaints are made.
  • A registered person is responsible for the acts or omissions of their employees and agents in respect of their business.
• Undertaking:
  • All registered persons must undertake in writing to uphold the Code, and rules and regulations adopted thereunder.

Confirmation of Customer Orders (SRC Rule 30.2.2)

• A Broker Dealer must report to its customers all transactions entered into for the customer's account, and send a written confirmation of purchases and sales as promptly as possible.
• The written confirmation can be in electronic format (e.g. email, facsimile) or any other means approved by the Commission.
• The Broker Dealer must adopt written procedures to ensure that written confirmations are received promptly by the customer.
• An employee or salesman of a Broker Dealer cannot accept a confirmation for or on behalf of a customer.

Confirmation of Customer Orders (SRC Rule 30.2.2)

• If a customer requests a confirmation in paper format, the Broker Dealer must provide it.
• The Broker Dealer must keep electronic copies of the confirmation receipt or its equivalent, and make them available to the Commission, Exchange, or SRO concerned.
• The Broker Dealer must prepare or print hard copies of the document and submit them without delay if requested.

Confirmation of Customer Orders (SRC Rule 30.2.2)

• The Broker Dealer must send confirmations to clients during office hours and on the day of the transactions, but not later than the next business day after the transaction.
• Clients must attest to the accuracy of the information communicated in the confirmation not later than the next business day after receiving it.
• The Broker Dealer must keep a printout of the reply together with the file notifications and transaction data being confirmed.

Confirmation of Customer Orders (SRC Rule 30.2.2)

• The minimum content of a confirmation order includes:
  • A reminder that clients must confirm their orders not later than the next business day after receiving the confirmation.
  • A requirement for the Broker Dealer to submit a report of its commission or remuneration on a particular transaction if necessary.
  • A requirement for all payments to customers to be made through electronic fund transfer or checks issued in the name of the payee customer and/or the beneficial owner indicated in the CAIF.

Client Agreement (SRC Rule 30.2.3)

• A Broker Dealer and its registered persons must ensure that a written agreement (Client Agreement) is entered into with a client before any service is provided.
• The Client Agreement must be in a language understood by the client.
• The registered persons must explain the contents of the agreement to the client.

Client Agreement (SRC Rule 30.2.3)

• The minimum content of the Client Agreement includes:
  • The nature of the account, whether discretionary or non-discretionary.
• The registered person must ensure that they comply with their obligations under the rule and the Client Agreement.

Suitability Rule (SRC Rule 30.2.4)

• A Broker Dealer or associated person must have reasonable grounds for believing that a recommendation is suitable for a customer based on the facts disclosed by the customer.
• Prior to the execution of a transaction, a Broker Dealer must execute a customer account information form that complies with SRC Rule 52.1.6.

Customer Account Statements (SRC Rule 52.1.8)

• A Broker Dealer must send a statement of account to each customer at least once a month, containing a description of any securities positions, money balances, or account activity.
• The Broker Dealer may issue quarterly statements in lieu of monthly statements, provided the customer has made a written request.

Customer Account Statements (SRC Rule 52.1.8)

• A Broker Dealer may use electronic format for the statement of account, subject to prior approval by the Commission.
• The Broker Dealer must provide a statement of account in paper format if requested by the customer.

Charges for Services Performed (SRC Rule 30.2.5)

• Charges by a Broker Dealer for services performed, including miscellaneous services, must be reasonable.
• The Broker Dealer must file a schedule of its minimum commission rates with the Commission.
• No discounts and/or rebates are permitted from the minimum rates.

Charges for Services Performed (SRC Rule 30.2.5)

• A Broker Dealer must disclose and explain to the customer the various fees involved in effecting a transaction, and obtain the customer's written agreement.
• The fees must be presented in the confirmation advice in an unbundled manner.

Customer Complaint Rule (SRC Rule 52.1.9)

• A Broker Dealer must keep a separate file of all written complaints of customers received by each of its offices, and the action taken by the Broker Dealer.
• The Broker Dealer must keep a separate record of complaints, properly indexed and referenced to the files containing the correspondence connected with the complaint.

Customer Complaint Rule (SRC Rule 52.1.9)

• A Broker Dealer must notify the SRO and the Commission of any written complaints received from clients, and the action taken, every 15th of the month.
• Duplicate copies of the complaint must be attached to the report.

Customer Complaint Rule (SRC Rule 52.1.9)

• A complaint is defined as any written statement and/or a transcript/written summary of the oral/verbal statements of a customer or any person acting on behalf of a customer, alleging a grievance involving the activities of those persons under the control of the Broker Dealer.

Securities Regulation Code (SRC) Rules on Business Conduct

• The SRC Rules on Business Conduct aim to protect the interests of customers and the integrity of the market.
• The rules are based on the International Conduct of Business Principles published by the Technical Committee of IOSCO in 1990.

History of Business Conduct Rules

• The International Conduct of Business Principles contain 7 rules of conduct:
  • Honest and Fairness
  • Diligence
  • Capabilities
  • Information about Customers
  • Information for Customers
  • Conflict of Interest
  • Compliance

Conduct of Business Principles

• These principles aim to protect the interests of customers and preserve the integrity of the market.
• Market intermediaries should conduct themselves in a way that protects their clients and preserves the integrity of the market.

SRC Rules

• SRC Rule 30.2 covers transactions and responsibilities of broker-dealers, including:
  • Ethical Standard Rule
  • Confirmation of Customer Orders
  • Client Agreement
  • Suitability Rule
• SRC Rule 52.1.8 covers customer account statements.
• SRC Rule 30.2.5 covers commissions and charges for services performed by a broker-dealer.
• SRC Rule 52.1.9 covers customer complaints.

Ethical Standard Rule (SRC Rule 30.2.1)

• A registered person must act honestly, fairly, and in the best interest of their client and the integrity of the market.
• In advising or acting on behalf of a client, they must ensure that representations or communications are accurate and not misleading.
• They must not violate SRC Rule 24.1(d).

Honesty and Fairness

• Statements made in a communication should be applicable to all audiences, and additional information may be necessary for other audiences.
• The overall clarity of the communication is important, and a complex or overly technical explanation may be worse than too little information.

Diligence

• A registered person should act with due skill, care, and diligence, in the best interests of their clients and the integrity of the market.
• They should:
  • Take all reasonable steps to execute promptly client orders in accordance with the instruction of clients (Prompt Execution Rule).
  • Execute client orders on the best available terms in compliance with SRC Rule 30.2.13 (Best Execution Rule).
  • Ensure that done transactions are promptly and fairly allocated to the accounts of the clients.