SFA Second Schedule — Regulated Activities¶
Overview¶
The Second Schedule to the Securities and Futures Act 2001 (SFA) defines the regulated activities that require a capital markets services (CMS) licence under Section 82 of the Act. Any person who carries on business in any of these activities must hold a CMS licence for that specific activity, unless the person is an exempt person or falls within a prescribed exemption.
The Second Schedule is divided into paragraphs, each defining a distinct regulated activity. The definitions are critical because they determine the scope of licensing requirements and the activities that representatives may be appointed to perform.
Paragraph 1 — Dealing in Capital Markets Products¶
Definition¶
"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, subscribing for, or underwriting any capital markets products.
Scope¶
This activity covers the full spectrum of buy-side and sell-side dealing:
Dealing as agent: - Executing client orders to buy or sell securities on an exchange - Executing client orders to buy or sell OTC derivatives - Placing client orders with other dealers or exchanges - Arranging transactions between buyers and sellers
Dealing as principal: - Proprietary trading in capital markets products - Market-making (quoting bid and offer prices) - Underwriting new issues of securities - Trading from the firm's own inventory
Sub-categories by product: - Dealing in securities (shares, bonds, units in CIS) - Dealing in futures contracts - Dealing in OTC derivatives contracts - Dealing in units in collective investment schemes
Exclusions¶
The following are specifically excluded from the definition of dealing:
- Issuer transactions — A corporation subscribing for or purchasing its own shares (share buy-back) under the Companies Act is not dealing in securities.
- Margin lending — Providing advances for the purpose of acquiring securities is not dealing (it is securities financing under Paragraph 6).
- Mere transmission — Merely transmitting an order to a CMS licence holder for execution, without exercising any discretion, is not dealing.
- Nominee activities — Holding capital markets products as a bare nominee is not dealing.
Licensing Conditions¶
| Category | Base Capital | Key Requirements |
|---|---|---|
| Dealing in securities (full service) | S$500,000 | Client segregation, best execution, trade reporting |
| Dealing in securities (accredited investors only) | S$500,000 | Restricted to AI/II clients |
| Dealing in futures contracts | S$1,000,000 | Margin requirements, exchange membership |
| Dealing in OTC derivatives | S$500,000 | Reporting obligations, margining (where applicable) |
Paragraph 2 — Trading in Futures Contracts¶
Definition¶
"Trading in futures contracts" means soliciting or accepting orders for, or otherwise dealing in, futures contracts on behalf of any other person, whether on an organised market or otherwise.
Scope¶
This activity specifically covers the brokerage and intermediation function for futures:
- Futures commission merchant (FCM) — Accepting orders and carrying client positions in futures contracts
- Introducing broker — Soliciting orders for futures contracts and routing them to an FCM for execution
- Floor broker — Executing futures orders on the floor of an exchange on behalf of clients
Distinction from Dealing¶
Trading in futures contracts focuses on the agency/brokerage function — acting on behalf of clients to execute futures trades. Dealing in capital markets products (Paragraph 1) is broader, covering both principal and agency dealing across all product types.
In practice, many CMS licence holders hold licences for both dealing (Paragraph 1) and trading in futures contracts (Paragraph 2) to cover the full range of their client-facing activities.
Key Regulatory Requirements¶
- Client margin segregation (client funds held in trust accounts)
- Daily mark-to-market of client positions
- Margin call procedures
- Position limit compliance (exchange-imposed limits)
- Large position reporting to MAS and relevant exchanges
Paragraph 3 — Leveraged Foreign Exchange Trading¶
Definition¶
"Leveraged foreign exchange trading" means the act of entering into or offering to enter into, or inducing or attempting to induce a person to enter into or to offer to enter into, a transaction or an arrangement involving leveraged foreign exchange trading.
Scope¶
A "leveraged foreign exchange trading transaction" is defined as a transaction involving: - The trading of foreign currency on margin (i.e., the client deposits only a fraction of the notional value) - Rolling spot FX contracts - FX contracts for differences (CFDs) - FX options on margin
Distinction from Spot FX¶
Physical delivery spot FX transactions (settlement within T+2) between banks, corporates, and institutional clients for commercial purposes are generally not regulated as leveraged FX trading. The regulation targets margin-based FX products marketed to retail and semi-professional investors.
Key Regulatory Requirements¶
- Leverage limits: MAS Notice SFA 04-N16A prescribes maximum leverage ratios:
- Major currency pairs (G10): up to 50:1
- Other currency pairs: up to 20:1
- Negative balance protection: Retail clients cannot lose more than their account balance
- Risk disclosure: Mandatory risk warning statement before account opening
- Margin monitoring: Automatic liquidation when margin falls below prescribed levels
- Minimum deposit requirements as prescribed by MAS
Paragraph 4 — Advising on Corporate Finance¶
Definition¶
"Advising on corporate finance" means advising any person concerning any arrangement, reconstruction, or take-over of a corporation, or giving advice on compliance with or in respect of the provisions of the SFA or regulations relating to capital markets products.
Scope¶
This activity covers professional advisory services in connection with:
- Mergers and acquisitions — Advising bidders or targets on take-over offers
- Initial public offerings (IPOs) — Advising issuers on listing, prospectus preparation, pricing
- Rights issues and secondary offerings — Advising on capital-raising transactions
- Delisting and privatisation — Advising on going-private transactions
- Debt restructuring — Advising on restructuring of bonds or loan facilities
- Regulatory compliance — Advising issuers on SFA compliance for offers of securities
- Independent financial advice — Providing independent opinions on interested person transactions
Exclusions¶
The following are not considered advising on corporate finance: - Providing general legal advice (unless it includes advice on specific transactions falling within the scope) - Providing accounting or audit services (unless the accountant is also advising on the transaction) - Providing general information about the regulatory framework (educational/informational, not transaction-specific)
Key Regulatory Requirements¶
- Independence and conflict of interest management
- Due diligence obligations
- Compliance with Singapore Code on Take-overs and Mergers (where applicable)
- Professional indemnity insurance
- Record-keeping of all advice provided
Paragraph 5 — Fund Management¶
Definition¶
"Fund management" means managing a portfolio of capital markets products on behalf of any investor, or managing a collective investment scheme or business trust.
Scope¶
This activity covers:
- Discretionary portfolio management — Making investment decisions on behalf of individual or institutional clients
- Management of collective investment schemes (CIS) — Unit trusts, mutual funds, hedge funds
- Management of business trusts — REITs listed under the Business Trusts Act
- Management of variable capital companies (VCCs) — Investment funds structured as companies
Sub-Categories of Fund Managers¶
| Category | Description | AUM Limit | Investor Restrictions |
|---|---|---|---|
| Licensed Fund Management Company (LFMC) — A/I | Accredited/institutional investors only | No limit | Accredited and institutional investors only |
| Licensed Fund Management Company (LFMC) — Retail | Full licence, retail investors | No limit | None |
| Registered Fund Management Company (RFMC) | Simplified regime for smaller managers | S$250 million | Max 30 qualified investors |
| Venture Capital Fund Manager (VCFM) | Venture capital only | S$250 million | Closed-end VC funds only |
Key Regulatory Requirements¶
- Minimum 2 resident directors in Singapore
- At least 2 relevant professionals with minimum 5 years of experience
- Independent custody of client assets (third-party custodian)
- Valuation policies and procedures
- Risk management framework
- Annual audit of managed funds
- Compliance with MAS Guidelines SFA 04-G05
Paragraph 5A — REIT Management¶
Definition¶
"REIT management" means managing a real estate investment trust or the property held by or on behalf of a real estate investment trust.
Scope¶
This activity was introduced to create a specific licensing category for managers of Singapore REITs. It covers:
- Strategic management of REIT portfolios
- Asset management of REIT properties
- Capital management (debt and equity) for REITs
- Compliance with the Code on Collective Investment Schemes (Appendix 6)
Distinction from Fund Management¶
REIT management is a specialised subset of fund management, with additional requirements relating to: - Real property portfolio management - Compliance with aggregate leverage limits (currently 50%, subject to conditions) - Connected party transaction requirements - Distribution requirements (minimum 90% of taxable income for tax transparency) - SGX Listing Rules compliance for listed REITs
Key Regulatory Requirements¶
- Minimum base capital: S$1,000,000
- Independent directors on REIT manager board
- Annual property valuations by independent valuers
- Compliance with Code on CIS, Appendix 6 (Property Funds)
- SGX Listing Rules (for listed REITs)
Paragraph 6 — Securities Financing¶
Definition¶
"Securities financing" means: 1. Lending or agreeing to lend securities to any person 2. Arranging for the lending of securities by one person to another 3. Providing or agreeing to provide any advance, loan, or credit facility to any person for the purpose of that person's acquisition of securities
Scope¶
This activity covers:
- Securities lending and borrowing — Lending securities from one party to another (typically to cover short sales or for settlement purposes)
- Margin lending — Providing credit to clients for the purchase of securities (margin financing)
- Stock borrowing and lending (SBL) intermediation — Acting as intermediary between securities lenders and borrowers
- Repurchase agreements (repos) — Selling securities with an agreement to repurchase at a later date
Key Regulatory Requirements¶
- Client asset segregation
- Margin and collateral requirements
- Loan-to-value ratio limits
- Disclosure to clients of securities financing risks
- Reporting of securities lending positions (where required)
- Short-selling reporting obligations
Exemptions¶
- Licensed banks (securities financing is integral to banking business)
- Finance companies licensed under the Finance Companies Act
Paragraph 7 — Providing Custodial Services for Securities¶
Definition¶
"Providing custodial services for securities" means providing custodial or depository services in respect of securities, and includes: 1. Safe-keeping of securities 2. Settlement of transactions in securities 3. Collection of dividends, interest, and other entitlements 4. Processing of corporate actions 5. Maintaining records of securities held in custody
Scope¶
This activity covers the professional custody function:
- Global custodians — Providing custody services across multiple markets
- Sub-custodians — Providing local custody services in Singapore
- Central depository — The Central Depository (Pte) Limited (CDP) operates under a separate legislative framework but performs custodial functions
- Fund administrators — Where they also provide custody services
Key Regulatory Requirements¶
- Client asset segregation (strict separation of client and proprietary assets)
- Regular reconciliation of client holdings
- Adequate internal controls and governance
- Business continuity and disaster recovery plans
- Insurance coverage for custody operations
- Record-keeping and reporting to clients
Exemptions¶
- Approved trustees of CIS (custodial services in connection with CIS for which they are trustee)
- Licensed banks (custodial services as part of banking business)
Paragraph 9 — Providing Credit Rating Services¶
Definition¶
"Providing credit rating services" means the preparation of credit ratings for dissemination to the public or for distribution by subscription, whether in respect of an issuer of capital markets products or in respect of specific capital markets products. A credit rating is an opinion expressed using a defined ranking system on the creditworthiness of an issuer or the credit quality of a capital markets product.
Scope¶
This activity covers:
- Issuer credit ratings — Opinions on the overall creditworthiness of corporate, sovereign, or supranational issuers
- Instrument credit ratings — Opinions on specific debt securities, structured products, or covered bonds
- Public dissemination vs. private placement ratings — Both fall within the scope where disseminated to the public or distributed by subscription
Typical licensees include the Singapore offices of S&P Global Ratings, Moody's Investors Service, and Fitch Ratings.
Key Regulatory Requirements¶
- Minimum base capital: S$500,000 (SF(FMR) Regulations)
- Separation of the rating function from ancillary/consulting services (conflict-of-interest controls)
- Methodological transparency and public disclosure of rating criteria
- Records of analyst decisions, committee minutes, and rating actions
- Representatives must pass CMFAS RES-1A (per SFA 04-N22, which superseded SFA 04-N09 on 1 April 2024; formerly Module 1A) and, from 17 Jan 2012, hold a bachelor's degree in a relevant discipline
Cross-Activity Considerations¶
Multiple Licences¶
A CMS licence holder may hold licences for multiple regulated activities. Common combinations include: - Dealing in securities + trading in futures contracts + securities financing + custodial services (full-service broker) - Fund management + dealing in securities (fund manager that also executes trades) - Advising on corporate finance + dealing in securities (investment bank)
Representative Appointments¶
Representatives are appointed for specific regulated activities. A representative appointed for dealing in securities cannot perform fund management activities unless separately appointed for that activity.
Examination Requirements by Activity¶
Each regulated activity has specific CMFAS examination requirements. Representatives must pass the modules relevant to the activities they are appointed for before acting in that capacity (or within the provisional period for Form 3B appointments).
Cross-References¶
- Part IV, Division 1 — CMS licensing requirements
- Part IV, Division 3 — Representative registration requirements
- SF(LCB)R — Detailed requirements for each regulated activity
- MAS Notice SFA 04-N02 — Risk-based capital requirements
- MAS Notice SFA 04-N12 — Sale of Investment Products: Customer Account Review and Customer Knowledge Assessment
- MAS Notice SFA 04-N16 — Execution of Customers' Orders: best-execution policies and proceduresR Part III and applicable MAS Notices on customer assets, not SFA 04-N16) [verify against canonical source]
- Guidelines on Fit and Proper Criteria (FSG-G01) — Criteria for licence applicants and representatives