SFA Regulated Activity — Dealing in Securities¶
Definition¶
Dealing in securities 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, subscribing for, or underwriting securities. This definition is drawn from Paragraph 1 of the Second Schedule to the Securities and Futures Act 2001 (SFA), which defines the broader category of "dealing in capital markets products," with securities being one of the specified sub-categories.
Under Section 2(1) of the SFA, "securities" includes shares or units of shares in a corporation, debentures, units in a collective investment scheme (CIS), units in a business trust, rights or options in respect of any of the above, and government securities.
Scope of Activity¶
What Constitutes Dealing¶
Dealing in securities covers the full lifecycle of securities transactions:
Buy-side activities: - Acquiring securities on behalf of clients or on the firm's own account - Subscribing for securities in an initial public offering (IPO), rights issue, or placement - Exercising conversion or subscription rights attached to convertible securities or warrants
Sell-side activities: - Disposing of securities on behalf of clients or from the firm's proprietary book - Underwriting securities — committing to subscribe for any unsubscribed portion of a securities offering - Distributing securities to investors as part of a public or private offering
Agency dealing: - Executing client buy/sell orders on a securities exchange (e.g., Singapore Exchange, SGX-ST) - Placing client orders with other intermediaries for execution - Arranging transactions between buyers and sellers as an intermediary (matched principal or riskless principal transactions)
Principal dealing: - Market-making — quoting continuous bid and offer prices for specific securities and standing ready to deal at those prices - Proprietary trading — trading securities from the firm's own inventory for profit - Block trades — acquiring or disposing of large blocks of securities outside the normal market for subsequent distribution
What Does NOT Constitute Dealing¶
The SFA and related regulations carve out specific activities that do not fall within the definition of dealing:
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Mere transmission of orders — A person who merely transmits a client's order to a CMS licence holder for execution, without exercising any discretion over the terms of the order, is not dealing in securities. This exemption is relevant for entities that provide order-routing services without advisory or execution capabilities.
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Bare nominee holding — Holding securities as a bare nominee (i.e., holding legal title to securities on behalf of another without exercising any control or discretion) does not constitute dealing. This is relevant for custodian banks and nominee companies.
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Issuer share buy-backs — A corporation acquiring its own shares under the Companies Act share buy-back provisions is not dealing in securities for SFA purposes.
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Lending and borrowing of securities — This falls under the separate regulated activity of securities financing (Paragraph 6 of the Second Schedule), not dealing.
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Providing margin financing — Lending money to clients for the purpose of acquiring securities is securities financing, not dealing.
Distinction from Advising on Securities¶
The boundary between dealing and advising is a critical regulatory distinction:
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Dealing involves the execution of transactions — the act of buying, selling, subscribing, or underwriting securities. The essence of dealing is the contractual commitment or the facilitation of a contractual commitment to transact.
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Advising involves the provision of recommendations or opinions about securities — whether a person should buy, sell, or hold a security, or about the merits or suitability of a particular security for a particular person. Advising on capital markets products is a separate regulated activity. Advising on corporate finance is defined under Paragraph 4 of the Second Schedule, while fund management (which includes advisory elements) is under Paragraph 5.
In practice, many firms carry out both dealing and advising functions. A representative who recommends a security to a client and then executes the purchase order is performing both advising and dealing. Such a representative must be appointed for both regulated activities, and the employing CMS licence holder must hold both licences.
Key test: If the representative provides a personalised recommendation (not merely factual information) that could reasonably be expected to influence the client's decision, that constitutes advising. If the representative then executes the resulting transaction, that constitutes dealing.
Exempt Transactions and Exempt Persons¶
Exempt Dealing¶
Certain dealing activities are exempt from CMS licensing requirements:
Exempt persons (Section 99 and Third Schedule): - Banks licensed under the Banking Act — licensed banks are exempt from holding a CMS licence for dealing in securities (and most other regulated activities), though they must still comply with MAS business conduct requirements - Merchant banks approved under Section 28 of the Monetary Authority of Singapore Act - Finance companies licensed under the Finance Companies Act (limited exemption) - Insurance companies registered under the Insurance Act (limited to investment-linked products)
Exempt transactions: - Dealing in securities of a related corporation (i.e., intra-group transactions) - Dealing in government securities with the Monetary Authority of Singapore - Dealing in securities for the sole purpose of managing the person's own funds (i.e., proprietary investment without carrying on a dealing business) - Dealing through an "arranged market" exemption where transactions occur through a CMS licence holder
Accredited investor (AI) exemption: - A person dealing only with accredited investors (as defined in Section 4A of the SFA) may benefit from reduced regulatory requirements, though a CMS licence is still required. Accredited investors include individuals with net personal assets exceeding S$2 million (of which the primary residence can contribute up to S$1 million), or financial assets exceeding S$1 million, or income in the preceding 12 months of not less than S$300,000.
Safe Harbour for Information Provision¶
Providing factual, publicly available information about securities (e.g., share prices, trading volumes, corporate announcements) without any recommendation or opinion does not constitute either dealing or advising. This safe harbour is important for data vendors, media organisations, and fintech platforms that disseminate market data.
CMFAS Examination Requirements¶
Representatives appointed to deal in securities must pass the following Capital Markets and Financial Advisory Services (CMFAS) examinations:
Mandatory Modules¶
| Module | Title | Scope |
|---|---|---|
| M1A | Rules and Regulations for Dealing in Securities | SFA regulatory framework, SGX-ST rules, business conduct requirements, anti-money laundering, handling of client assets |
| M6 | Securities Products and Analysis | Equity securities, debt securities, CIS, derivatives on securities, financial analysis, valuation methods |
| M6A | Securities and Futures Product Knowledge (updated module) | Updated version of M6 content covering securities, futures, and fund products |
Note on CMFAS regime change (1 April 2024): MAS Notice SFA 04-N22 (which superseded SFA 04-N09) introduced new module codes. The old M-series modules M1A and M6/M6A were replaced by RES-1A (Regulations for Dealing in Securities) and CM-EIP (Capital Markets Products — Excluded Investment Products) respectively. Representatives who passed M1A or M6/M6A before 1 April 2024 are grandfathered — those passes remain valid. New appointees from 1 April 2024 must pass RES-1A and CM-EIP.
Additional Modules by Product¶
| Product Scope | Additional Module | Title |
|---|---|---|
| Collective investment schemes (CIS/funds) | M8 or M8A | Collective Investment Schemes |
| Listed SIP (specified investment products) | M9 or M9A | Life Insurance and Investment-Linked Policies |
| Exchange-traded derivatives | M2 | Rules and Regulations for Trading in Futures Contracts |
Continuing Professional Development (CPD)¶
After appointment, representatives dealing in securities must complete CPD requirements: - Minimum of 6 CPD hours per calendar year in relevant topics - Topics must be relevant to the representative's appointed activities - CPD can include structured training (courses, seminars) and unstructured learning (self-study, research) - Compliance is tracked by the employing CMS licence holder and subject to MAS audit
Licensing Conditions for CMS Licence Holders¶
Base Capital Requirements¶
| Category | Minimum Base Capital |
|---|---|
| Dealing in securities — full service | S$500,000 |
| Dealing in securities — accredited/institutional investors only | S$500,000 |
| Dealing in securities — execution only (no advisory) | S$500,000 |
Operational Requirements¶
Client asset segregation: - Client moneys must be deposited into trust accounts maintained with approved banks - Client securities must be held in segregated custody accounts - No commingling of client assets with the firm's proprietary assets - Monthly reconciliation of client trust accounts
Best execution: - CMS licence holders must establish and implement policies to obtain the best possible result for client orders - Factors include price, costs, speed, likelihood of execution and settlement, size, nature of the order, and any other relevant consideration - Best execution policies must be disclosed to clients
Trade reporting: - On-exchange trades are automatically reported via the exchange's trade reporting system - Off-exchange (OTC) trades in certain securities must be reported to MAS-designated trade repositories within prescribed timeframes
Record keeping: - All order and trade records must be retained for a minimum of 5 years - Records must include: client identity, order instructions, time of receipt, time of execution, price, quantity, counterparty, and settlement details - Electronic records must be maintained in a manner that ensures integrity and accessibility
Know Your Client (KYC): - Customer due diligence (CDD) must be performed before establishing a business relationship - Enhanced due diligence for higher-risk customers (politically exposed persons, high-net-worth individuals from high-risk jurisdictions) - Ongoing monitoring of client transactions for suspicious activity
Key Business Conduct Obligations¶
Suitability¶
When dealing involves any element of recommendation or advice (which it frequently does in practice), the representative must ensure that the transaction is suitable for the client based on: - The client's investment objectives - The client's financial situation, including risk tolerance - The client's knowledge and experience - Any other relevant information obtained during the KYC process
Conflict of Interest Management¶
CMS licence holders must: - Identify and manage conflicts between the firm's interests and client interests - Disclose material conflicts to clients before dealing - Establish and maintain effective Chinese walls between proprietary dealing, research, and client-facing functions - Manage the allocation of block trades and IPO allocations fairly
Market Conduct¶
Representatives dealing in securities must comply with Part XII of the SFA (market conduct provisions): - No market manipulation (Section 197) — creating a false or misleading appearance of active trading or with respect to the price of securities - No insider trading (Sections 218-219) — trading while in possession of material non-public information - No false or misleading statements (Section 199) — making false or misleading statements likely to induce transactions - No market rigging (Section 198) — transactions that manipulate the price of securities
Relevance to Regnify Form 3A¶
When a Financial Institution (FI) submits a Form 3A to appoint a representative for dealing in securities, the following must be declared and verified:
- CMFAS examination results — Evidence that the representative has passed M1A and M6/M6A (and additional modules if applicable)
- Fit and proper assessment — No disqualifying criminal convictions, regulatory actions, or bankruptcy
- Employment history — 10-year employment history with gaps explained
- Regulatory track record — Prior appointments, refusals, revocations, or disciplinary actions by any financial regulator
- Educational qualifications — Minimum educational requirements as prescribed by MAS
- Reference checks — Reference from the most recent employer in the financial services industry
The FI must confirm that it has conducted due diligence on the representative's fitness and propriety, and that the representative will be adequately supervised in carrying out dealing activities.