MAS and SGX RegCo jointly publish “MAS-SGX Trade Surveillance Practice Guide”: Rahmat Lim & Partners

29 August 2019

The Monetary Authority of Singapore (“MAS”) and Singapore Exchange Regulation (“SGX RegCo”) have jointly published the “MAS-SGX Trade Surveillance Practice Guide” (“Guide”). This was announced on 5 August 2019. The Guide aims to assist brokers in developing and implementing good practices in their trade surveillance operations.

While the Guide may be based largely on findings and observations in relation to the trade surveillance operations of securities brokers, it is relevant to derivatives brokers as well.

Brokers are strongly encouraged to adopt the good practices stated within the Guide. Regulators will refer to the Guide in future inspections to evaluate the brokers’ trade surveillance programmes.

In Singapore, the three main parties responsible for conducting surveillance of the capital markets to detect and deter market misconduct are the brokers, approved exchanges such as the Singapore Exchange, and MAS.

Objectives of the Guide

The objectives of the Guide are to:

Present the findings and observations of MAS and SGX RegCo on brokers’ trade surveillance operations;
Outline the guiding principles essential to effective trade surveillance operations for brokers;
Recommend good practices to be adopted and highlight poor practices to be avoided by brokers;
Suggest self-assessment questions for brokers to assess the adequacy of their trade surveillance operations; and
Describe common types of suspicious trading activities and how to identify them.

Guiding principles

The Guide also outlines five guiding principles for brokers’ trade surveillance operations. It is important that brokers adhere to these principles in the review and design of any trade surveillance programme. Set out below is a summary of the five guiding principles:

Principle 1 - Strong senior management oversight: Senior management (refers to C-suite executives (or equivalent) at the broker) should ensure that the broker fulfils its regulatory obligations to deter market misconduct, and take clear responsibility for assessing and managing market misconduct risks.
Principle 2 - Sound detection mechanisms and assessment framework: Brokers should have in place appropriate systems and structured processes to detect potential market misconduct and meet any requirements set out in the Securities and Futures Act, regulations, notices, trading rules and guidelines issued by regulators
Principle 3 - Sufficient resources for trade surveillance: Brokers should have experienced and dedicated staff performing trade surveillance operations, with a clear reporting line that does not present a conflict of interest.
Principle 4 - Proper recordkeeping and quality assurance: It is important for brokers to keep proper records and documentation for audit and inspection purposes.
Principle 5 - Prompt and confidential communications on potential market misconduct: In the review of trading activities, when regulators request for information from brokers relating to the brokers’ clients, brokers are expected to provide such information promptly and not reveal the regulatory requests to third parties, including the clients. The confidentiality of information relating to potential market misconduct (including regulatory requests) should be strictly enforced and any such information should be restricted only to authorised persons within the broker.

Monitoring of potential market misconduct

The Guide also outlines the common practices and gaps that the regulators had observed among the retail securities brokers, and provides guidance on the factors that should be considered when assessing the following suspicious trading activities for potential market misconduct: