CMFAS Examinations Study Guide RES 1B PDF

CAPITAL MARKETS AND FINANCIAL ADVISORY SERVICES (CMFAS) EXAMINATIONS STUDY GUIDE RES 1B RULES, ETHICS AND SKILLS FOR SECURITIES DEALERS OF NON-EXCHANGE MEMBERS i| © ALL RIGHTS RESERVED The Institute of Banking and Finance February 2024 (Version 1.0) No part of this Study Guide may be reproduced, stored in a retrieval system, or transmitted in any form by or any means, electronic, electrical, chemical, mechanical, optical, photocopying, recording or otherwise, without the prior permission of The Institute of Banking and Finance (IBF). IBF shall not be responsible or liable for any loss or damage whatsoever that may be caused by or suffered as a result of reliance on any statement, error or omission contained in this Study Guide. This Study Guide contains information believed to be correct, current or applicable as of 30 September 2023. For the latest set of rules and regulations, the reader or user is advised to refer to the latest set of rules and regulations issued by the relevant regulatory authorities. You shall not modify, remove, delete, augment, add to, publish, transmit, sell, resell, license, create derivative works from, or in any way exploit any of the study guide content, in whole or in part, in print or electronic form, and you shall not aid or permit others to do so. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Acknowledgements | ii Acknowledgements IBF would like to express its gratitude to all members of the CMFAS Examinations Board and CMFAS Examinations Industry Panel – Securities for their contributions and support in the development of CMFAS Study Guides and Examinations. Study Guide Writers IBF would like to thank the following study guide writers* for reviewing and updating the Study Guide text: Mr Jeth Lee, Vice President and Lead Counsel, Singapore Exchange Limited Ms Yvette Cheak, ACE Compliance Pte Ltd [*Information accurate as at date of appointment.] Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted iii | Preface Preface RES 1B – Rules, Ethics and Skills for Securities Dealers of Non- Exchange Members The objective of the CMFAS RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members (RES 1B) Exam is to test candidates on their knowledge and understanding of the regulatory framework including the 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. For details, please refer to the relevant MAS Notice on Competency Requirements for Representatives of Holders of Capital Markets Services Licence and Exempt Financial Institutions under the Securities and Futures Act (SFA 04-N22). The Study Guide contains regulatory requirements for Capital Markets Services licence holders and their representatives conducting regulated activities of dealing in capital markets products under the Securities and Futures Act 2001 (SFA). Candidates should take note that some of the regulatory requirements, in particular, the business conduct requirements, are also applicable to exempt financial institutions (EFIs), such as banks and their representatives, who conduct the same type of regulated activities. For example, Regulation 54 of the Securities and Futures (Licensing and Conduct of Business) Regulations applies certain provisions of the SFA to EFIs and their representatives. Candidates who have passed the CMFAS Examinations are encouraged to continue their learning journey by attending IBF accredited programmes. For more information, please visit https://www.ibf.org.sg. Organisation of the Study Guide The Study Guide consists of 7 chapters, starting with rules and regulations governing securities dealings, followed by the ethical codes and conduct and elementary skills relating to securities dealings in Singapore. The emphasis in each Chapter is to ensure that candidates have a good understanding of the rules and regulations, ethical principles and skills relevant to perform their roles effectively. Examples and case studies are also used where appropriate in the Study Guide to enhance candidates’ understanding of key learning points and application of the topics discussed. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Prefaces |iv A summary of each Chapter is provided below: 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 behaviour 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. The Chapter also discusses 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. To assist candidates in their preparation of the examination, we have included a set of Review Questions with the answers highlighted in bold. A list of essential readings is also provided in Appendix H. Candidates should ensure that they complete the essential readings before attempting the examination. The Appendices are provided for candidates’ reference and to enhance their understanding of the important concepts covered in this Study Guide. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted v | Preface Study Guide Updates The Study Guide is updated at appropriate intervals to reflect changes and developments in the financial industry. Candidates should ensure that they have the latest version of the Study Guide before sitting for the examination. Please refer to the Updates to the Study Guides Page on the IBF website to check for the latest updates. Important Notes about the Exam The RES 1B Exam is conducted at the IBF Assessment Centre. The examination 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 mins. The passing mark is 75%. Candidates should note that they will NOT be tested on the amount of penalties applicable under the laws and regulations, associated codes, notices and guidelines governing dealing in capital markets products. For more information on the examination rules, regulations and other administrative procedures, please refer to the IBF website at https://www.ibf.org.sg. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Table of Contents |vi Table of Contents Acknowledgements............................................................................................................................................ ii Preface............................................................................................................................................................... iii RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members........................................ iii Organisation of the Study Guide....................................................................................................................... iii Study Guide Updates.......................................................................................................................................... v Important Notes about the Exam....................................................................................................................... v Chapter 1: The Capital Markets Industry in Singapore and Participants in the Capital Markets....................... 1 1.1 Introduction............................................................................................................................................. 2 1.2 Institutional Participants in the Capital Markets..................................................................................... 3 1.3 The Regulatory Framework and Regulatory Bodies................................................................................. 5 1.4 SGX Listing Framework........................................................................................................................... 10 Chapter 2: Licensing and Business Operations................................................................................................. 22 2.1 Introduction........................................................................................................................................... 22 2.2 Grant of Capital Markets Services Licence............................................................................................. 23 2.3 Registration of Representatives............................................................................................................. 27 2.4 Regulatory Requirements for Advertising.............................................................................................. 31 2.5 Customer Accounts................................................................................................................................ 32 2.6 Privacy of Customer Information........................................................................................................... 36 2.7 Management of Customers’ Trading Accounts...................................................................................... 38 2.8 Keeping of Books and Audit Trails.......................................................................................................... 40 2.9 Customers’ Moneys and Assets............................................................................................................. 43 Chapter 3: Market Conduct.............................................................................................................................. 54 3.1 Introduction........................................................................................................................................... 54 3.2 Market Misconduct under the SFA........................................................................................................ 55 3.3 False Trading and Market Rigging Transactions..................................................................................... 56 3.4 Securities Market Manipulation............................................................................................................. 57 3.5 Dissemination of False or Misleading Statements and Information...................................................... 58 3.6 Fraudulently Inducing Persons to Deal in Capital Markets Products..................................................... 58 3.7 Employment of Manipulative and Deceptive Devices........................................................................... 59 3.8 Dissemination of Information about Illegal Transactions...................................................................... 59 3.9 Insider Trading........................................................................................................................................ 60 Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted vii | Table of Contents 3.10 Securities Hawking..................................................................................................................... 64 3.11 Other Market Conduct Rules and Guidelines............................................................................... 64 3.12 Penalties for Misconduct under the SFA...................................................................................... 67 Chapter 4: Ethics, Codes and Standards of Professional Conduct for Securities Dealing................................ 69 4.1 Introduction............................................................................................................................... 69 4.2 The Ethical Framework............................................................................................................... 71 4.3 Ethical Dilemmas........................................................................................................................ 74 4.4 Professional Ethics, Codes and Standards of Professional Conduct for.......................................... 75 Securities Dealing................................................................................................................................ 75 4.5 Applying the Ethical Framework to Resolve Ethical Dilemmas...................................................... 89 Chapter 5: Securities Dealing Practices and Skills............................................................................................ 91 5.1 Introduction to the On-boarding and Advisory Process................................................................ 91 5.2 Client On-boarding Process......................................................................................................... 92 5.3 Present Coherent View of Investment and Trading Strategies.....................................................101 5.4 Best Execution Practices for Securities Dealing...........................................................................101 5.5 Risk Management and Internal Controls for Securities Dealing...................................................106 5.6 Types of Accounts......................................................................................................................109 5.7 Developing a Strong Client Relationship Built on Trust................................................................111 5.8 Credit Risk Management............................................................................................................113 Chapter 6: Central Provident Fund Investment Scheme (CPFIS).................................................................... 114 6.1 General Information and History of CPFIS...................................................................................114 6.2 Differences between CPFIS-OA and CPFIS-SA..............................................................................115 6.3 What is a CPF Investment Account?...........................................................................................116 6.4 Eligibility Criteria.......................................................................................................................116 6.5 Opening a CPFIS Investment Account.........................................................................................117 6.6 Processes for Purchase and Sale of Investments (CPFIS-OA only)................................................117 6.7 Service Providers under the CPFIS..............................................................................................118 6.8 Criteria for Inclusion of Investment Products under CPFIS...........................................................119 6.9 Transfer of Monies from CPF Investment Account to CPF Ordinary.............................................122 Account..............................................................................................................................................122 6.10 Dividends and Profits Earned.....................................................................................................122 6.11 Charges.....................................................................................................................................123 6.12 Release of Investment Holdings.................................................................................................123 6.13 Bankruptcy................................................................................................................................123 Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Table of Contents |viii 6.14 Death........................................................................................................................................124 Chapter 7: Prevention of Financial Crimes..................................................................................................... 125 7.1 Introduction to Prevention of Financial Crimes...........................................................................126 7.2 Anti-Money Laundering and Counter-Terrorism Financing Regime in..........................................132 Singapore...........................................................................................................................................132 7.3 The Regulatory Framework of Financial Crimes – Rules and........................................................133 Regulations.........................................................................................................................................133 7.4 MAS Notices and Regulations on Prevention of Money Laundering and Countering the Financing of Terrorism..................................................................................................................................140 7.5 Targeted Financial Sanctions related to Anti – Money Laundering and........................................141 Terrorism Financing............................................................................................................................141 7.6 Designation of Tax Crimes as Money Laundering Predicate Offences...........................................142 in Singapore........................................................................................................................................142 7.7 The Three Lines of Defence........................................................................................................144 7.8 Governance...............................................................................................................................146 7.9 Client Onboarding.....................................................................................................................147 7.10 Enterprise-Wide Risk Assessment..............................................................................................166 7.11 Risk Controls for New Products, Practices and Technologies.......................................................167 7.12 Operational Risk Controls to Prevent Financial Crimes................................................................168 7.13 Reporting and Filing Requirements............................................................................................169 7.14 Penalties and Risks for Non- Compliance....................................................................................169 7.15 Internal Policies, Compliance, Audit and Training.......................................................................170 7.16 Effectiveness of AML/CFT Framework........................................................................................171 Appendix A: Guidelines on Fit and Proper Criteria........................................................................................ 174 Appendix B: Criteria for the Assessment of a Customer Account Review.................................................... 179 Appendix C: Criteria for the Satisfaction of the Customer Knowledge Assessment..................................... 180 Appendix D: Risk Warning Statement for Overseas-Listed Investment Products......................................... 182 Appendix E: Excluded Investment Products.................................................................................................. 185 Appendix F: Examples of Suspicious Transactions........................................................................................ 187 Appendix G: Review Questions..................................................................................................................... 192 Appendix H: Essential Readings...................................................................................................................... 200 Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted 1 | Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets Chapter 1: The Capital Markets Industry in Singapore and Participants in the Capital Markets Learning Objectives The candidate should be able to understand the: ✓ Basic features of the capital markets, including primary and secondary markets, exchanges (over the counter and regulated) and financial intermediaries. ✓ Different business activities undertaken by institutional participants in the capital markets. ✓ Roles of each regulatory body and self-regulating organisation in the regulation of the capital markets industry: Monetary Authority of Singapore (MAS); Singapore Exchange Securities Trading Limited (SGX-ST); The Central Depository (Pte) Limited (CDP); Singapore Exchange Derivatives Trading Limited (SGX-DT); Singapore Exchange Derivatives Clearing Limited (SGX-DC); and Singapore Exchange Regulation Pte Ltd (SGX RegCo). ✓ Origin of the relevant rules and requirements governing securities and derivatives trading and clearing including: Securities and Futures Act 2001 (SFA); Securities and Futures Regulations (SFR); SGX-ST Mainboard and Catalist Rules; SGX-ST Rules; CDP Clearing Rules; CDP Settlement Rules; CDP Depository Rules; SGX Futures Trading Rules; and SGX-DC Clearing Rules. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets |2 1.1 Introduction 1.1.1 The Capital Markets in Singapore 1.1.1.1 The Primary Market An important function of the capital markets is to provide opportunities for businesses to raise capital to fund their business activities. These capital-raising activities take place in the primary market. Businesses raise capital through the issuance of various securities instruments such as shares / common stock / equity securities, bonds / fixed income securities and company warrants. Investors would then provide the capital by buying these instruments. When investors buy these instruments, they are taking on risk as the price of financial instruments fluctuates in accordance with the company’s performance. Changes in the value of the instruments would eventually lead to the investors wishing to sell their holdings, either to realize a profit, or to remove a poorly performing instrument from their investment portfolio. 1.1.1.2 The Secondary Market Trading activity that takes place outside of the initial capital-raising activities (i.e. in the primary market) take place in the secondary market. As such, it can be said that the secondary market 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 instead of simply selling the shares or bonds. Some examples of derivatives include futures, options, issuer or company warrants and leverage certificates. The markets operated by the Singapore Exchange Limited (SGX) and its subsidiaries provide capital-raising and risk management opportunities to the global market through their product offerings (refer to Table 1.1.1). Table 1.1.1: Examples of Products Offered by SGX for Capital Raising and Risk Management Capital Raising Risk Management Shares Issuer Warrants SGX-ST Bonds Leverage Certificates Company Warrants SGX-DT Futures - Options 1.1.2 Exchanges Primary and secondary market activities can either take place in the over-the-counter (OTC) markets or on regulated exchanges. The OTC market is also known as the “call around” market, because market participants call each other directly to determine each other’s interest to buy or sell any given capital markets product. An exchange provides a centralized market where buyers and sellers can congregate. This allows for the efficient discovery of the prices and quantities at which each participant is interested to buy or sell capital Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted 3 | Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets markets products. To trade on an exchange, the buyer or seller needs to either be a Trading Member of the exchange, or a customer of a Trading Member of the exchange. 1.1.3 Financial Intermediaries There are different types of financial intermediaries that connect the businesses that need to raise capital with public investors. In the primary market, the process of raising capital through new securities is a complex process through which businesses can reach out to potential investors. For example, in the equity market, new shares are issued through a process termed the Initial Public Offering (IPO) where a business is required to present investors with accurate information on its financial standing, future potential and any other relevant information. Financial intermediaries such as banks or financial institutions with a capital markets services (CMS) licence to advise on corporate finance are usually appointed as issue managers, as most businesses are unlikely to have such expertise in-house. In the secondary market, it would be difficult for an investor who is holding a security to directly find a buyer for the same security. In this case, other financial intermediaries such as brokers function as middle agents to match selling interest and buying interest or route sell or buy orders to an exchange for matching. 1.2 Institutional Participants in the Capital Markets 1.2.1 Banks There are different types of banks licensed under the Banking Act 1970 which may provide capital markets services, e.g. dealing in capital markets products1. The types of banking licences include: i. Qualifying Full Banks/ Full Banks; ii. Wholesale Banks; and iii. Merchant Banks. 1.2.1.1 Qualifying Full Banks/Full Banks Qualifying Full Banks and Full Banks provide the whole range of banking business approved under the Banking Act and are allowed to take deposits of any amount in any currency, including offering savings accounts. They also provide capital markets products, custodial business, underwriting, corporate finance activities and some even offer insurance products as distributors for insurance companies. As they do not have restrictions in offering deposit products, many of the Qualifying Full Banks or Full Banks are also in the retail banking business as well. Their clientele base is more diversified with mass retail, private banking and accredited and institutional clients. 1 SFA Second Schedule, Part II – Interpretation-“Dealing in capital markets products” means (whether as principal or agent) making or offering to make with any person, or inducing or attempting to induce any person to enter into or to offer to enter into any agreement for or with a view to acquiring, disposing of, entering into, effecting, arranging, subscribing for, or underwriting any capital markets products. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets |4 1.2.1.2 Wholesale Banks Wholesale Banks provide the full range of banking business but are restricted in their deposit taking activities. Wholesale Banks are allowed to take foreign currency deposits in any amount but are restricted to take deposits in Singapore dollars. They can accept Singapore dollar fixed deposits of at least S$250,000. While they may operate Singapore dollar saving or current accounts, such Singapore dollar savings or current account should not be interest-bearing when such account is opened for a Singapore resident who is a natural person except with prior approval of MAS. Many wholesale banks therefore prefer to solicit business from high net-worth individuals through their private banking arms. Such clients are usually more interested in capital markets products for investment. 1.2.1.3 Merchant Banks Merchant Banks are licensed under section 55S of the Banking Act since 1 July 2021. They are not allowed to accept Singapore deposits or borrow Singapore dollars from the public in any form except from banks, finance companies, their shareholders and companies controlled by their shareholders. Merchant banks are not found in the retail space but can undertake banking business or deposit taking business in accordance with the Banking Act and Banking (Merchant Banks) Regulations 2021. 1.2.2 Capital Markets Services (CMS) Licence Holders CMS licence holders which deal in capital markets products include (amongst others): i. Broker / dealer companies; ii. Corporate finance advisory companies; and iii. Providers of custodial services for capital markets products 1.2.2.1 Broker / Dealer Companies Apart from banks, broker/dealer companies are another class of financial intermediaries. Unlike banks, these companies do not engage in deposit-taking activities like banks, but instead specialise in matching buyers with sellers. In the context of the capital markets eco-system, broker/dealer companies would also be Trading or Clearing Members which provide trading or clearing services to their customers, allowing the customers to trade on the exchange2. 1.2.2.2 Corporate Finance Advisory Companies Corporate finance advisory companies provide corporate finance advisory services including acting as issue managers or sponsors for listings on the Mainboard or Catalist of SGX-ST, as the case may be. They also advise on arrangements, reconstructions and take-overs, acquisitions and disposals. 1.2.2.3 Providers of Custodial Services for Capital Markets Products These entities are required to hold a CMS licence in providing custodial services. Custodians serve institutional clients, as well as individual clients. Besides providing general custodial services, custodians maintain records 2 Refer to Sections 1.3.1.2 to 1.3.1.7 for details about the Trading and Clearing Members of the SGX securities and futures markets. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted 5 | Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets of the movement of capital markets products to and from their clients’ accounts and are the interface for their clients to the exchanges for the settlement and delivery of capital markets products. Some custodians also provide product financing3 and specified products lending4 services. Specified products lending is deemed as dealing in capital markets products and consequently, an entity which carries out specified products lending is required to have a CMS licence in respect of dealing in capital markets products. Product financing and specified products lending are not similar activities and require a different type of CMS licence. 1.2.2.4 Others (Non-CMS Licence Holders) – Finance Companies or Remote Trading and Clearing Members5 Finance companies are licensed under the Finance Companies Act 1967 and therefore are not required to apply for a CMS licence for regulated activities which are not prohibited by the Finance Companies Act or where the finance company has been granted an exception under Section 25(2) of the Finance Companies Act and are exempted institutions. In providing such financing services, finance companies also provide custodial services to their clients and thus are responsible for the records of movement in the custodian accounts. Finance companies are subject to MAS’ regulation, supervision and inspections. Overseas-based remote trading and clearing members of a Singapore exchange, recognised market operator or clearing house are exempted from holding a CMS licence6. This is provided that the remote member: i. is incorporated outside of Singapore; ii. is a member of an approved exchange or clearing house or recognised market operator or clearing house under the SFA, as the case may be, on which the relevant securities or derivatives are traded or cleared; iii. does not serve any customer resident in Singapore; iv. is not a regulated financial institution in Singapore; v. carries on business in a jurisdiction where the relevant regulator has an arrangement with the MAS for information exchange and co-operation in respect of derivatives supervision; and vi. is regulated in respect of such activities by the relevant regulator in its home jurisdiction In addition, a SGX remote clearing member cannot have FI affiliate regulated by MAS. This criterion does not apply to a remote trading member. 1.3 The Regulatory Framework and Regulatory Bodies Singapore’s regulatory framework for capital markets seeks to promote a sound, stable and progressive financial services sector through regulation and supervision. Specifically, it seeks to safeguard interests of investors and maintain confidence and stability in the market by: i. Keeping risks at acceptable levels to maintain both the stability of the financial system as a whole and the soundness of individual institutions; ii. Maintaining a safe and efficient financial market infrastructure; 3 SFA Second Schedule, Part II – Interpretation. 4 SFR (LCB) Regulation 45 – Specified Products Borrowing and Lending. 5 Securities and Futures (Exemption from Requirement to Hold Capital Markets Services Licence) Regulations. 6 Securities and Futures (Exemption from Requirement to Hold Capital Markets Services Licence) Regulations, Regulation 4. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets |6 iii. Ensuring fair, orderly and transparent organised markets; and iv. Keeping customers well-informed and empowered. To achieve these objectives, the securities and derivatives markets, in particular, are regulated by regulatory bodies including: MAS; SGX; SGX RegCo; SGX-ST; CDP; SGX-DT; and SGX-DC. These regulatory bodies are responsible for originating and issuing the relevant rules and requirements governing the trading and clearing of securities and derivatives trading, including: SFA and SFR; SGX-ST Mainboard and Catalist Rules; SGX-ST Rules; CDP Clearing Rules; CDP Settlement Rules; CDP Depository Rules; SGX Futures Trading Rules; and SGX-DC Clearing Rules. 1.3.1 Roles of the Regulatory Bodies 1.3.1.1 Monetary Authority of Singapore (MAS) MAS was established under the MAS Act, which came into force in 1972. Its mission is to promote sustained non-inflationary economic growth, and a sound and progressive financial centre. Its functions are to: i. Act as the central bank of Singapore, including the conduct of monetary policy, the issuance of currency, the oversight of payment systems and serving as banker to and financial agent of the Government; ii. Conduct integrated supervision of financial services and financial stability surveillance; iii. Manage the official foreign reserves of Singapore; and iv. Develop Singapore as an international financial centre. MAS is responsible for, amongst others, the administration of the following legislations which are relevant to the capital markets industry, including: SFA, the main legislation governing the capital markets industry in Singapore; Securities and Futures (Licensing and Conduct of Business) Regulations (SFR(LCB)); Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted 7 | Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets Securities and Futures (Organised Markets) Regulations; Securities and Futures (Clearing Facilities) Regulations; Securities and Futures (Financial and Margin Requirements for Holders of Capital Markets Services Licence) Regulations (SFR(FMR)); Securities and Futures (Corporate Governance of Approved Exchanges, Approved Clearing Houses and Approved Holding Companies) Regulations; and Financial Services and Markets Act 2022. The SFA gives MAS a wide range of powers to enable the sound development of the capital markets. These include (but are not limited to) the power to: Approve exchanges and clearing houses; Review any amendments to rules and regulations of the exchanges and clearing houses; Take disciplinary actions (such as warning, fine, reprimand, suspension of licence, revocation of licence and issuance of prohibition order) if the licensed person contravenes any condition or restriction imposed on its licence, or any direction issued to it by MAS under the SFA, or any provision in the SFA; Inspect the books of an exchange, a person operating an exempt market, a clearing house, a person operating an exempt clearing facility, a holder of a CMS licence, an exempt person or a representative; and Conduct investigation into alleged or suspected contravention of any provision of the SFA or written direction issued under the SFA. 1.3.1.2 Singapore Exchange Limited (SGX) SGX is Asia’s leading and trusted market infrastructure, operating equity, fixed income and derivatives markets to the highest regulatory standards. As Asia’s most international, multi-asset exchange, SGX provides listing, trading, clearing, settlement, depository and data services, with a large proportion of listed companies and bonds originating outside of Singapore. SGX is the world’s most liquid offshore market for the benchmark equity indices of China, India, Japan and ASEAN and offers commodities and currency derivatives products. Headquartered in AAA-rated Singapore, SGX is globally recognised for its risk management and clearing capabilities. SGX offers a fully integrated value chain from trading and clearing, to settlement and depository services. In conducting its regulation of the markets, SGX has adopted six guiding principles: i. Guiding Principle One: Disclosure-Based Regulation – The facilitation of fair access to information for all market users for achieving a fair, orderly, and transparent market. ii. Guiding Principle Two: Comprehensive Risk Management - SGX focuses regulatory attention on the safe and efficient operation of its clearing houses and requires a comprehensive, integrated, and reliable approach to the management of the counterparty risks from clearing and trading members as well as other risks within the clearing houses. iii. Guiding Principle Three: Risk-Based Targeting of Regulatory Activities - SGX adopts a pragmatic risk- based approach. Supervisory activities focused on Guiding Principles One and Two are tailored according to risk profiles developed for issuer sponsors and Member firms. Resources are allocated to those matters Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets |8 it considers as posing the greatest risks to achieving a fair, orderly, and transparent market and safe and efficient clearing outcomes. iv. Guiding Principle Four: Balanced Approach to International Best Practice - SGX aims to ensure that its rules and regulatory activities are consistent with international best practice for exchanges and clearing houses, striking an appropriate balance between internationally recognised practices and local needs and conditions. v. Guiding Principle Five: Transparency - SGX seeks to be open and transparent in all its regulatory operations to the extent consistent with its statutory obligations and the public interest. vi. Guiding Principle Six: SGX as a Frontline Regulator and Managing Regulatory Conflict - MAS is the statutory regulator and has oversight over SGX’s regulatory responsibilities. SGX performs a frontline regulatory role in maintaining fair, orderly, and transparent markets, as well as safe and efficient clearing facilities. SGX maintains a close collaborative relationship with other regulatory and enforcement agencies such as the MAS, Commercial Affairs Department (CAD) of the Singapore Police Force and the Accounting and Corporate Regulatory Authority (ACRA) on matters such as regulatory policies, risk management, regulatory oversight, and enforcement actions. 1.3.1.3 Singapore Exchange Securities Trading Limited SGX-ST is a subsidiary of SGX which is incorporated under the Companies Act 1967. It undertakes the day-to- day regulation of the securities market and administers the SGX-ST rules, which governs the access to and conduct in the securities market of the SGX-ST. SGX-ST Members are required to adhere to the SGX-ST Rules. SGX-ST is the only approved securities exchange in Singapore and is responsible for setting the rules and membership and trading requirements of the exchange. SGX-ST can mete out disciplinary action for non- compliance with any of the requirements. SGX-ST allows companies and investors to achieve capital-raising and investment objectives through its rules, such as the listing requirements for companies that wish to raise capital and to have their securities traded on SGX-ST. Companies which are already listed can also raise further capital through the market and SGX-ST. Companies can choose to be listed on the SGX Mainboard or Catalist. The Mainboard caters to the needs of more established companies, with higher entry and listing requirements such as minimum profit and market capitalisation levels. Catalist caters to the needs of smaller or fast-growing companies and has a different model where companies must be brought to list by approved Sponsors via an initial public offering (IPO). For these companies to be listed on Catalist, there is no quantitative entry criteria required by SGX. Instead, Sponsors will decide if the listing applicant should be listed. The listing requirements applicable to all companies that wish to be listed on the SGX-ST platforms are covered in the SGX-ST Listing Manual7, which contains the rules and regulations for among others: i. Listing requirements; ii. Acquisitions; iii. Realizations; 7 The SGX-ST Listing Manual contains the Mainboard Listing Rules and the Catalist Listing Rules. Refer to the SGX website for further details https://rulebook.sgx.com/. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted 9 | Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets iv. Takeovers; and v. Timely disclosure of corporate information. 1.3.1.4 The Central Depository (Pte) Limited CDP, established in 1987, is a wholly owned subsidiary of SGX. It provides integrated clearing, settlement and depository facilities for the securities market, including equities, fixed income instruments and funds. CDP principally serves the Singapore market but has links with other central depositories to support settlement of cross-border trades. CDP holds the book-entry securities deposited with it as a bare trustee for the collective benefit of depositors. Securities are immobilized at CDP where ownership is transferred via book-entry. The physical certificates of immobilized instruments are safe kept with a CDP nominated custodian bank. All trades executed on SGX are required to be settled on T+28. Each trade is settled on a gross basis during an end-of-day settlement run. During the run, securities are transferred from a seller's securities account to that of the buyer and vice versa. SGX has introduced, in 2021, an Intra-day Settlement Run, to facilitate earlier settlement of securities, thereby reducing counterparty risks in the securities clearing system. For investors who hold direct accounts with CDP, they should ensure that their trading accounts maintained with SGX-ST members are linked to their direct securities accounts before trading. The linkage effectively is a standing instruction from the investor to CDP, to act upon the sole instruction of the SGX-ST member to debit securities from and credit securities into the securities account pertaining to SELL and BUY contracts executed through that trading account. In 2008, CDP launched the Pre-Settlement Matching Service (PSMS) to replace the manual processes where depository agents and SGX-ST members agree trade details over the phone before manually affirming the transaction settlement details in CDP. PSMS positions Singapore securities processing in line with global markets by introducing a straight-through-processing environment to automate the pre-settlement matching process prior to settlement at the CDP. This automation, through PSMS, improves operational efficiency and minimizes operational risk by eliminating errors and delays associated with manual processing and mitigates the risk of settlement failures through the early matching of settlement instructions. Depository agents and SGX-ST members will either upload a data file or manually input settlement instructions into PSMS without prior communication with their settlement counterparts. Participants can choose to settle their transaction on a Delivery-versus-Payment (DVP) or Free-of-Payment (FOP) basis. For DVP transactions, CDP acts as central counterparty between participants and ensures there is a simultaneous exchange of cash and securities. For transactions settled on a FOP basis, participants make their money settlement without involving CDP. DVP rules govern the settlement of trades on a delivery-versus- payment basis through CDP. Clearing Members of CDP must adhere to the following applicable CDP Rules: CDP Clearing Rules; CDP Settlement Rules; and 8 SGX-ST Rule 9.2 – Settlement Basis and Eligibility for Clearing by CDP. Refers to 2 exchange business days after the trade day. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets |10 CDP Depository Rules. 1.3.1.5 Singapore Exchange Derivatives Trading Limited (SGX-DT) SGX-DT, established in 1978, is a wholly owned subsidiary of SGX. It carries on the business of establishing, conducting and regulating a futures market with underlying assets including commodities and financial instruments under the SFA. SGX-DT lays down the rules and requirements to ensure orderly trading and settlement of futures and options on various products, including interest rates, equity and equity indices and energy, covering major markets such as Asia, Europe and the United States. These are contained in the Futures Trading Rules, which govern SGX-DT Trading Members. 1.3.1.6 Singapore Exchange Derivatives Clearing Limited (SGX-DC) SGX-DC is a wholly owned SGX subsidiary, and provides clearing for: Products listed and traded on SGX-DT; and OTC commodity and financial derivatives trades registered for clearing via the SGX Titan OTC platform. SGX-DC is now a Qualifying Central Counterparty (Qualifying CCP). Bank members and subsidiaries of a banking group (which are SGX-DC Members) are subject to lower capital requirement for their trade and default fund exposures under the Basel III framework introduced by the Basel Committee on Banking Supervision (BCBS). Similarly, this means that as an SGX-DC bank member or participant, one will benefit from lower capital costs. SGX-DC Clearing Members are governed by the SGX-DC Clearing Rules. 1.3.1.7 Singapore Exchange Regulation Pte Ltd (SGX RegCo) In 2017, SGX established SGX RegCo as an independent regulatory subsidiary of SGX to enhance the governance of SGX as a self-regulatory organisation and explicitly segregate the exchange’s regulatory functions from its commercial and operating activities. SGX RegCo undertakes all the front-line regulatory functions and has a separate board of directors from SGX. 1.4 SGX Listing Framework SGX-ST provides an avenue for companies to raise capital for their businesses. It also sets the rules for this avenue through its listing requirements. 1.4.1 Listing Process A company seeking listing on SGX-ST must first apply for listing to SGX-ST. Before making the application, the company will first have to engage an adviser as the issue manager to prepare for the listing application. Such services are usually provided by a bank or a financial institution with a CMS licence that allows it to advise on corporate finance matters. The company then authorises the issue manager to deal with SGX-ST on its behalf. The issue manager plays an active role in the listing process. It will gather the required information, liaises with SGX-ST on matters relating to the application and makes the final submission. Services of legal and Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted 11 | Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets accounting firms are usually engaged to oversee the legal and accounting aspects of the application, especially on the factual and legal representation and disclaimers. 1.4.2 Initial Public Offer (IPO) Timeline 1.4.2.1 Main Board A company seeking to list on the Main Board of the SGX-ST must appoint an accredited issue manager to act as the sponsor for the applicant's listing on SGX-ST. The issue manager lodges the listing application and liaises with SGX-ST on all matters relating to the listing application. There are two parts to the timeline: pre- submission preparation, when diligence is undertaken and materially completed and post-submission approval and listing. Prior to the submission of the full listing application, the issue manager, on behalf of the company, may submit a pre-consultation application to SGX-ST to consult on specific issues that may materially affect the issuer’s eligibility to list. The submission process comprises two stages, which should be submitted sequentially to the SGX-ST: Section (A), which sets out general information of the company and highlights the key matters relating to the issuer (e.g., board of directors and key management, corporate structure and business model, regulatory compliance and historical financials) for SGX-ST's attention; and Section (B), which sets out additional information on the company and the invitation structure and which should be submitted together with the full listing application (including the relevant undertakings/confirmations required under the Listing Manual and the prospectus/shareholders' circular). The average timeline from submission to listing approval and trading is as follows: i. Review of Section (A) by SGX-ST – 4 to 6 weeks if there are no material issues; ii. Review of Section (B) by SGX-ST and concurrent pre-lodgement review of the draft prospectus by the MAS - typically 4 weeks; iii. Research blackout (if any) – 2 weeks; iv. Lodgement and public exposure on MAS Offers and Prospectuses Electronic Repository and Access (OPERA) - minimum 7 calendar days; v. Registration and launch – 1 to 2 weeks; and vi. Listing and trading commences. 1.4.2.2 Catalist A company seeking to list on Catalist must appoint a full sponsor. The sponsor submits the pre-admission notification and listing confirmation to SGX-ST, lodges the offer document with SGX-ST (acting as agent on behalf of the MAS) on behalf of the company and liaises with SGX-ST on all matters relating to the listing. There are two parts to the timeline: pre-submission preparation and post-submission approval and listing. Prior to the submission of the pre-admission notification, the sponsor may consult SGX-ST to seek pre-clearance on any material issues to reduce any delays in the processing of the pre-admission notification. The pre-admission notification is then submitted to the SGX-ST with the full listing application (including the relevant undertakings/confirmations required under the Listing Manual and the offer document). Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets |12 The average timeline from pre-admission to listing approval and trading is as follows (refer to Figure 1.4.2): i. SGX-ST review of the pre-admission notification – 2 weeks to 4 weeks; ii. Lodgement and public exposure on SGX-ST’s website – 2 weeks; iii. Registration and launch – 1 to 2 weeks; and iv. Listing and trading commences. Figure 1.4.2: Timeline to Launch ii) Lodgement and Public i) MAS or SGX-ST iii) Registration and iv) Trading Exposure on MAS OPERA/ approval Launch Commences SGX-ST Website 1.4.3 Listing Requirements 1.4.3.1 Methods of Listing Primary Listing - Companies must meet SGX-ST’s initial listing requirements outlined below for either a Mainboard or Catalist Listing. After listing, companies must comply with all of SGX-ST’s continuing listing obligations. Secondary listing - Companies that are already listed on an acceptable exchange (referred to as the “home exchange”) may seek a secondary listing on SGX-ST Mainboard without having to comply with SGX-ST’s continuing listing obligations. Secondary-listed companies must make announcement to SGX-ST and provide all information and documents to it at the same time as they are released to the home exchange. They must comply with all the rules of the home exchange and the laws of the jurisdiction in which the company is incorporated. 1.4.3.2 Global Depositary Receipts (GDRs) A company that is already listed on an overseas exchange must abide by the rules of its home exchange. It can also choose to list and raise funds via GDRs on SGX-ST’s Mainboard. GDRs are specialist products offered only to institutional and accredited investors. GDR issuers must provide all information and documents (in English) to SGX-ST at the same time as such information are released to the home exchange. 1.4.4 Initial Public Offering or Introduction A company seeking listing on SGX-ST, whether on a primary or secondary listing basis, should at the beginning indicate its listing preference and at the point of application do the following: i. For an IPO – The company should indicate whether it intends to issue new shares or offer existing shares to the investing public. It should then lodge a prospectus with MAS prepared in accordance with the relevant regulations. During the listing process, the prospectus will be subject to public comments for up to 2 weeks. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted 13 | Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets ii. For an Introduction - If the intention is to list by way of introduction, no shares will be offered to the investing public. This route is suitable for companies that do not require funds at the point of listing but needs to pave the way i.e. by introducing itself in the market. An introductory document has to be submitted to SGX-ST which is to be prepared based on the requirements in the relevant regulations. The introductory document will not be subjected to public comments. 1.4.5 Mainboard Admission Requirements An entity seeking to list on the Mainboard via an IPO must meet the admission requirements9 summarized in the Table 1.4.5. Review of (i) the listing documents is done by SGX-ST; and (ii) the prospectus is done by SGX- ST and MAS. Table 1.4.5: Mainboard Admission Criteria Entities intending to join SGX-ST’s Mainboard must meet one of the following quantitative requirements: Minimum consolidated pre-tax profit of at least S$30 million for the latest financial year with operating track record of at least 3 years; Profitable in the latest financial year, and has a market capitalization of not less than S$150 million based on the issue price and post-invitation issued Quantitative share capital with operating track record of at least 3 years; or Requirements Operating revenue in the latest completed financial year and a market capitalization of not less than S$300 million based on the issue price and post- invitation issued share capital. Real Estate Investment Trusts and Business Trusts who have met the S$300 million market capitalization test but do not have historical financial information may apply under this rule if they are able to demonstrate that they will generate operating revenue immediately upon listing. The entity must be in a healthy financial position, having regard to whether its group has a positive cashflow from operating activities. Financial Position and Liquidity Prior to listing, all debts owing to the group by its directors, substantial shareholders, and companies controlled by the directors and substantial shareholders must be settled. A MOG listing aspirant unable to satisfy the Quantitative Requirements and/or the positive cashflow requirement for listing, may list its securities if they satisfy the following additional conditions: Mining, Oil and Gas Has market capitalisation of not less than S$300 million based on the issue (MOG) price and post-invitation issued share capital; and Requirements Discloses its plans, milestones and capital expenditure to advance to production stage. These plans must be substantiated by the opinion of an independent qualified person. 9 Refer to SGX website: https://www.sgx.com/securities/mainboard Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets |14 Requirement for all MOG companies: Have established existence of a meaningful portfolio of reserves in a defined area, which must be substantiated by an independent qualified person’s report; Have sufficient working capital for 18 months from listing; and Have at least one independent director with appropriate industry experience and expertise. For market capitalisation < S$300 million, 25% of issued shares are in the hands of at least 500 shareholders (For market capitalisation > S$300 million, shareholding spread varies between 12-20%); and Shareholder Spread At least 500 shareholders worldwide in the case of a secondary listing and where the exchange and the primary home exchange do not have an established framework and arrangement to facilitate the movement of shares, at least 500 shareholders are in Singapore or 1,000 shareholders worldwide. At least 2 independent directors for all issuers. Independent For foreign issuers, there must be at least 2 Singapore resident independent Directors directors. Where an issuer satisfies the profitability test, promoters cannot sell any of their shareholdings for 6 months after listing. Where an issuer satisfies the market capitalisation test, promoters cannot sell any of their shareholdings for 6 months after listing, and 50% of their shareholdings thereafter for the next 6 months. Moratorium For pre-IPO investors who had acquired their shares within the 12-month period prior to IPO and hold ≥ 5% shareholding, the “profit portion” of their shareholdings are subjected to a moratorium period of 6 months after IPO. The profit portion is calculated by multiplying the percentage difference between the IPO price and price paid by the investor for the shares, by the number of shares held. IPO Documentation Prospectus to be lodged on MAS OPERA website. Accounting Singapore Financial Reporting Standards (International), International Financial Standard Reporting Standards, or US Generally Accepted Accounting Principles10. Domicile At the discretion of the issuer. Trading and At the discretion of the issuer. Reporting Currency Business Operations No requirement for operations in Singapore. 10 Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations, 5th Schedule, Part 9 – Financial Information, paragraph 8(a); SGX Mainboard Rule 220 – Chapter 2 Equity Securities, Part V Listing Requirements for Foreign Issuers. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted 15 | Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets Rules relating to disclosure of material information, periodic reporting, additional Continuing share issuance, corporate transactions, corporate governance guidelines, interested Obligations persons transaction and free float will apply. 1.4.6 Catalist Listing 1.4.6.1 Sponsorship A company seeking a listing on Catalist can only choose the primary listing route. The company must also have a full sponsor for the Catalist listing, who has been authorised by SGX-ST. Full and Continuing Sponsors are authorised by SGX-ST based on stringent eligibility criteria which include experience in corporate finance and compliance advisory work, and they are closely supervised and regulated through the continuing obligation route. They are required to employ a minimum number of qualified professionals who must be registered by SGX-ST as “Registered Professionals”. Full Sponsors are responsible for the admission of listing applicants for listing on Catalist. Continuing Sponsors are responsible for advising Catalist companies on the interpretation and compliance with their continuing obligations under the Catalist Rules as SGX-ST no longer undertakes direct supervision over admission and continuing obligations of companies listed on Catalist. Such admission and supervision have been transferred to the sponsors. A company seeking listing through Catalist must comply with listing requirements even though there is no minimum quantitative entry criteria set by SGX-ST. The admission of the company is based on the sponsor’s assessment of its suitability for listing. SGX-ST will normally admit a listing applicant to Catalist on receipt of conforming documents from the Full Sponsor. However, SGX-ST may impose conditions on an admission, or delay or refuse an admission. A company on Catalist must engage a Continuing Sponsor on an ongoing basis for as long as they are listed on Catalist. Continuing Sponsors take direct supervision responsibility of the company listed on Catalist, but SGX- ST retains the power to discipline them for breaches of rules and regulations. Refer to Table 1.4.6.1 on the summary of Catalist Admission Criteria. Table 1.4.6.1: Catalist Admission Criteria Quantitative No minimum quantitative criteria required by SGX-ST. Requirements Have established existence of resources in a defined area, which must be Mining, Oil and Gas substantiated by an independent qualified person’s report. The resources (MOG) must be at least Inferred Resources (for minerals) or Contingent Resources Requirements (for oil and gas); and Have sufficient working capital for 18 months from listing. 15% of post-invitation share capital in public hands; Shareholder Spread At least 200 shareholders. Independent At least 2 independent directors for all issuers. Directors Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets |16 For foreign issuers, there must be at least 1 Singapore resident independent director. At the time of IPO, if promoters as a group hold more than 50% of the post- invitation share capital, they may sell but must retain at least 50%. If they hold less than 50% of the post-invitation share capital at IPO, they may not sell any shares at the time of IPO. After IPO, promoters cannot sell any of their shareholdings for 6 months. They may sell up to 50% of their shareholdings thereafter for the next 6 months. Moratorium For Pre-IPO investors who had acquired their shares within the 12-month period prior to IPO, the “profit portion” of their shareholdings is subjected to a moratorium period of 12 months after IPO. The profit portion is calculated by multiplying the percentage difference between the IPO price and price paid by the investor for the shares, by the number of shares held. Promoters of an MOG company are not to sell any of their shareholdings for 12 months after IPO. They may sell up to 50% of their shareholdings for the next 6 months. Offer document; IPO Documentation Lodged on SGX Catalodge website. Accounting Singapore Financial Reporting Standards (International), International Financial Standard Reporting Standards, or US Generally Accepted Accounting Principles Domicile At the discretion of the issuer. Business Operations No requirement for operations in Singapore. Rules relating to disclosure of material information, periodic reporting, additional share issuance, corporate transactions, corporate governance Continuing guidelines, interested persons transaction and free float will apply. Obligations Additional requirement to retain a Sponsor at all times will apply to Catalist companies. 1.4.6.2 Offer Document Before registering with Catalist, the company has to lodge an Offer Document on SGX’s Catalodge website. The Offer Document must comply with the same disclosure requirements as a prospectus prepared in accordance with the Securities and Futures (Offer of Investments) (Securities and Securities-based Derivatives Contracts) Regulations. This includes the provisions relating to civil and criminal liability under the SFA. The Offer Document is to be lodged with SGX-ST, acting as agent of MAS. The Offer Document will be posted on the SGX’s Catalodge website for a period of at least 14 days for public comments providing an avenue for public to air any concerns they may have of the company and its status. 1.4.6.3 Differences between the Mainboard and Catalist Listing Requirements Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted 17 | Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets The main differences between the Mainboard and Catalist Listing requirements are shown in Table 1.4.6.3: Table 1.4.6.3: Differences between the Mainboard and Catalist Listing Requirements Mainboard Catalist Target Companies Established Companies Fast Growing Companies Regulatory Approach Exchange-regulated and supervised Exchange-regulated, sponsor -supervised Review of IPOs and SGX-ST Sponsors Post-IPO Supervision Key Advantages to Established Mainboard branding Faster time to market Companies Access to wider range of Easier subsequent fundraising, institutional investors acquisitions and disposals Open to more product type Ongoing Sponsor guidance Quantitative Yes No admission criteria For IPOs For IPOs Maximum thresholds There is no maximum allocation for fund-raising Nil to retail investors but a minimum of 5% of the number, For Secondary Offerings or S$50 million in value, of the Non-Pro-rata: 50% to 100% securities offered, whichever is lower, must be allocated to the Pro-rata: 100% public subscription tranche11 For Secondary Offerings Non-pro-rata (not offered to existing shareholders): 20% Pro-rata (offered to existing shareholders in proportion to their shareholdings): 50% Thresholds for 20% or more of ratios calculated in Acquisition: 75% or more of Shareholder Approval comparison to specified benchmarks Benchmarks for Acquisitions and (Benchmarks) Disposal: 50% or more of Benchmark Disposals 11 SGX Mainboard Rule 233A (1) – Chapter 2 Equity Securities, Part IX Methods of Offering, Public Subscription Tranche. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets |18 Mainboard Catalist Fundamental change in business 1.4.7 Mainboard and Catalist Continuing Listing Obligations obligations that survive the termination of the Company Existing Credit Documents and repayment of Indebtedness Both methods of listing require similar continuing listing obligations. thereunder for which no claim has been asserted and which is not then due and owing. 1.4.8 Roles and Responsibilities of the Sponsor and SGX-ST regarding Catalist 1.4.8.1 Sponsors’ Roles and Responsibilities SGX-ST may authorise a sponsor to act as a full sponsor or continuing sponsor12. Full sponsors may undertake activities relating to bringing an applicant to list on Catalist, including IPO, and post-IPO continuing sponsorship. Continuing sponsors only undertake sponsorship of issuers already listed on Catalist. The sponsor’s main obligations are summarized below and include: i. Ensuring that it continues to fulfil the eligibility criteria or conditions imposed by SGX-ST; ii. Seeking SGX-ST’s advice if a situation may adversely affect the reputation of the Exchange or the integrity of the market; iii. Seeking SGX-ST’s advice about the application or interpretations of rules; iv. Notifying SGX-ST promptly on the employment of new professionals to be registered and the resignation of registered professionals; v. Having adequate systems and resources to discharge its obligations including having sufficient number of registered professionals who are “Fit and Proper”; vi. Acting professionally, transparently and efficiently in its dealings with the listing applicants or companies as follows: a. Exercising due care and professionalism; b. Maintaining regular contact with the companies; c. Seeking assistance of other appropriately qualified and suitable professionals such as specialist in law and accounting whilst retaining its overall management and responsibility of the activity; d. Avoiding conflict of interest situations and remaining independent in its relations with the listing applicant; and e. Accepting sponsorship of companies that are willing to submit to SGX-ST’s rules and thus allowing itself to discharge its obligations under the rules. 1.4.8.2 SGX’s Role and Responsibilities SGX-ST’s role is to lay down the rules and review the performance, processes and controls of the sponsors against these rules. In carrying out their reviews, they ascertain: i. The quality and due diligence standards of the sponsor’s assessment process; 12 SGX-ST Catalist Rule 203 – Chapter 2 Sponsors, Part I Scope of Chapter. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted 19 | Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets ii. The quality of its continuing activities; and iii. Whether there are breaches of the rules. 1.4.8.3 SGX’s Actions for Non-Compliance on Sponsors and Registered Professionals In the event of breaches of the rules by the sponsors or its registered professionals, SGX-ST can take the following actions: i. Reprimand the sponsor or registered professionals privately or publicly; ii. Require the sponsor or registered professionals to attend an education program focused on complying with the rules; iii. Require rectification measures to be taken by the sponsor or registered professionals; iv. Impose conditions and restrictions on the activities of the sponsor or registered professionals; or v. Suspend the sponsor or registered professionals from carrying out some or all its activities for a period of time, with the suspension possibly being announced to the market. 1.4.9 Explanation of Terms The term “Listing” means being listed on the official boards of SGX-ST and issuers “listed” will appear on the official list of the SGX-ST. “Quotation” refers to companies that are quoted, may be dealt with over- the- counter (OTC) and may not be listed on the SGX-ST’s official list. In such instances where companies are quoted but not listed, SGX-ST acts only as a platform provider for the trades and the prices of these companies are quoted on the SGX GlobalQuote platform. These companies are not required to meet listing requirements or continuing listing requirements. 1.4.10 Access to Material Information about Listed Issuers Listed issuers must announce all material information which investors would reasonably require to have to make informed decisions on listed securities. They are to do this through the SGXNet system which is accessible by the public on SGX website https://www.sgx.com/. Such information includes information about its subsidiaries and associated companies which are necessary to be reported to avoid the establishment of a false market or would likely to materially affect the price or value of the listed company’s shares. Apart from this general obligation to announce all material information, listed issuers are required to make specific disclosures, for example in the case of a major acquisition or a major disposal. 1.4.11 Shareholders’ Rights to Vote at Meeting Notices convening meeting shall specify the place, day and hour of the meeting and a meeting to consider special businesses shall be accompanied by a statement regarding the effect of any proposed resolution in respect of such businesses. Notices shall be given to all shareholders at least 14 days before the meeting for ordinary resolutions and 21 days for special resolutions. At least 14 days’ notice of every such meeting shall Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets |20 be given by advertisement in the daily press. Listed issuers are required to hold all general meetings in Singapore, unless prohibited by laws and regulations in the jurisdiction of incorporation. A holder of ordinary shares shall be entitled to be present and to vote at any general meeting. Shareholders who are unable to attend a shareholders meeting may appoint a proxy to attend and vote on their behalf. All resolutions at general meetings shall be voted by poll. 1.4.12 SGX’s Actions on Breaches whether on Mainboard or Catalist 13 Breaches of the SGX-ST Mainboard Rules or Catalist Rules may be investigated by SGX-ST and further disciplinary actions may be brought after a disciplinary hearing process. The enforcement actions that SGX-ST may take include but are not limited to the following: i. issuing a private warning to an issuer, its directors, executive officers and issue managers (Relevant Persons); ii. offering a composition sum to an issuer; iii. requiring an issuer to implement an effective education or compliance programme or undertake an independent review of internal controls and processes; iv. requiring a Relevant Person to perform remedial actions to rectify the consequences of contraventions; v. suspending or restricting the activities of an issue manager if the integrity of the market may be adversely affected or if the Exchange thinks it necessary in the interests of the public or for the protection of investors; vi. halting or suspending trading of listed securities of an issuer; vii. removing an issuer from the Official List; and/or viii. imposing any other requirements on a Relevant Person which the Exchange considers appropriate. The Disciplinary Committee may impose a range of sanctions against a Relevant Person, including issuing public reprimands against a Relevant Person14. 1.4.13 Listing of Debt Securities on SGX-ST Besides listing on SGX-ST Mainboard and Catalist, entities can list debt securities on SGX-ST, which gives them access to the debt capital markets in Singapore. Types of debt securities listed on SGX-ST include fixed and floating-rate bonds, convertible and exchangeable bonds, covered bonds, asset-backed securities, loan participation notes, and hybrid capital securities (e.g. preference shares). The listing of debt securities is similarly subject to listing requirements regarding the issuer’s profile, trustee and trust deed, offering memorandum, listing fees and continuing obligations15. 13 SGX Mainboard Rule 1405(3)(c) – Chapter 14 Disciplinary and Appeals Procedures, and Enforcement Powers of the Exchange, Part III Administrative and Enforcement Powers of the Exchange. 14 SGX Mainboard Rule 1417(2) – Chapter 14 Disciplinary and Appeals Procedures, and Enforcement Powers of the Exchange, Part IV Disciplinary Proceedings, The written grounds of the Disciplinary Committee and sanctions. 15 Refer to SGX website for further info: https://www.sgx.com/fixed-income/listing-debt-securities. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted 21 | Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets 1.4.14 Listing of Special Purpose Acquisition Companies (SPACS) on SGX-ST Early 2022, SGX introduced the Special Purpose Acquisition Companies (SPACs) Framework to introduce a new listing vehicle to the Singapore market. SPACs are formed to raise capital through IPOs for the sole purpose of acquiring operating business(es) or asset(s) (i.e. business combination). Such acquisitions may be in the form of a merger, share exchange or other similar business combination methods. Prior to a business combination, SPACs are listed investment vehicles with no prior operating history and revenue-generating business/asset at IPO. Unlike traditional IPOs, SPAC listings have a shorter time to market due to the absence of business fundamental operations and financials at IPO. SPACs have no historical financial results to disclose, assets description, and minimal business-related risks at IPO. More information on a SPAC’s target assets/business can be found upon announcement of a proposed business combination agreement (i.e. a proposal to acquire or combine with an operating company. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Chapter 2 –– Licensing and Business Operations | 22 Chapter 2: Licensing and Business Operations Learning Objectives The candidate should be able to understand: ✓ The regulatory requirements for the grant of a Capital Markets Services Licence. ✓ The requirements for notification as appointed representatives under MAS Representative Notification Framework. ✓ The regulations and guidelines for advertising. ✓ The regulations and guidelines for opening of customer trading accounts. ✓ The laws and regulations for safeguarding the confidentiality of customer information. ✓ The rules and regulations on managing customer trading accounts. ✓ The rules and regulations on record keeping, audit and the protection of customers’ moneys and assets. 2.1 Introduction This Chapter focuses on the regulatory requirements16 governing the business operations of Capital Markets Services (CMS) licence holders and Individual Representatives. CMS licence holders are licensed and regulated under the SFA. A corporation may make an application for a CMS licence17 to carry on business in one or more of the regulated activities as specified in the SFA. Individuals acting for CMS licence holders to carry out the regulated activities are required to be appointed, provisional or temporary representatives under the SFA18, unless otherwise exempted. MAS supervises CMS licence holders and their representatives via a framework of legal and regulatory requirements to ensure that they are well-managed and resilient against systemic risks. 16 These include transitional requirements that could apply to obligations specified in this Chapter. 17 SFA Section 86(1) - Grant of CMS Licence. 18 SFA Section 99B – Acting as representative. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted 23 | Chapter 2 –– Licensing and Business Operations Confidence and stability are core to an efficient and well-functioning capital markets. Therefore, in addition to requiring CMS licence holders to be licensed, MAS requires them to conduct their business professionally and act responsibly by having adequate resources, tools, systems, processes and controls in place to provide efficient and quality services. CMS licence holders must also ensure that their representatives are properly trained and competent to give fair and professional advice to their clients. 2.2 Grant of Capital Markets Services Licence A CMS licence will only be granted to a corporation. A corporation proposing to conduct regulated activities under the SFA would need to hold a CMS licence under the SFA unless it is exempted under the Third Schedule to the SFA19 or is an exempt institution20. The minimum licensing admission criteria for corporations applying for a CMS licence ensure that only financially sound and reputable corporations that are prudently managed and directed by officers who are competent and have integrity, are granted a CMS licence. 2.2.1 Base Capital Requirements A corporation granted a CMS licence needs to satisfy the Base Capital Requirements (BCR)21 for its proposed regulated activities22. The BCR for dealing in capital markets products that are securities, units in Collective Investment Scheme (CIS) and/or exchange-traded derivatives are in Table 2.2.1: Table 2.2.1: Entity Classification and Base Capital Requirements Entity classification BCR (S$) Clearing member23 5 million Trading member24 1 million Non-member25 1 million Introducing broker26 500,000 19 SFA Third Schedule – Specified Persons. 20 SFA Section 99 – Exemptions from requirement to hold CMS Licence; SFR (LCB) – Second Schedule (Exemptions from Section 82(1) and 99B(1) of the Act; SFR (Exemption from Requirement to Hold CMS Licence) Regulations. 21 SFR (Financial and Margin Requirements for Holders of CMS Licences) First Schedule – Base capital requirements; MAS Guidelines on Criteria for the Grant of a CMS licence other than for Fund Management and Real Estate Investment Trust Management (SFA04- G01) - Annex 1(AA). 22 Where more than one BCR is applicable, the amount of BCR required shall be the highest of the applicable BCRs. 23 Refers to a corporation which is a member of an approved clearing house. 24 Refers to a corporation (not being an introducing broker or a corporation who qualifies for S$50,000 base capital under table AA) which is a member of an approved exchange. 25 Refers to a corporation (not being an introducing broker or a corporation who qualifies for S$50,000 base capital under table AA) which is not a member of an approved exchange. 26 Refers to a corporation that does not carry any customer’s positions in those capital markets products, margins or accounts in its own books, and either (i) carries on the business only of soliciting or accepting orders for the purchase or sale of any of those capital markets products from any customer; or (ii) accepts money or assets from any customer as settlement of, or a margin for, or to guarantee or secure, any contract for the purchase or sale of those capital markets products by that customer. Capital Markets and Financial Advisory Services Examination RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members Restricted Chapter 2 –– Licensing and Business Operations | 24 Entity classification BCR (S$) Others27 50,000 CMS licen

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