Best Execution Obligations for CMS Licence Holders¶

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Best execution is the obligation of CMS licence holders to take all reasonable steps to obtain the most favourable terms for their clients when executing orders. This obligation is established under the Securities and Futures (Licensing and Conduct of Business) Regulations and is reinforced by MAS guidelines and industry best practices.

Best execution applies to all CMS licence holders who execute client orders in securities, futures contracts, and other capital markets products, whether on exchange or over-the-counter (OTC).

Regulatory Basis¶

Primary Sources¶

Securities and Futures (Licensing and Conduct of Business) Regulations, Regulation 38: Duty to execute orders on the best available terms
MAS Notice SFA 04-N16: Execution of Customers' Orders — best-execution policies and procedures
SGX Rules: Trading rules that specify order handling and execution obligations for exchange members
Securities and Futures Act 2001 (SFA), Section 123: General duty to act in the client's best interest

Scope of Application¶

Best execution obligations apply when a CMS licence holder:

Executes orders on behalf of clients (agency transactions)
Acts as principal (dealer) in transactions with clients
Provides direct market access (DMA) to clients (limited scope — must disclose DMA limitations)

Best Execution Policy¶

Requirement to Establish a Policy¶

Every CMS licence holder that executes client orders must establish, implement, and maintain a best execution policy that:

Sets out the process for obtaining the best possible result for clients
Identifies the execution venues and methods used
Specifies the factors considered in determining best execution
Describes how the institution monitors and evaluates execution quality
Is reviewed and updated at least annually, or when material changes occur

Policy Disclosure¶

CMS licence holders must:

Provide clients with a summary of the best execution policy before or at the time of establishing the business relationship
Notify clients of any material changes to the policy
Make the full policy available upon request

Factors to Consider¶

Primary Factors¶

When determining the best execution approach, CMS licence holders must consider the following factors (in order of general priority for retail clients):

Price: The price at which the securities are bought or sold — generally the most important factor for retail clients
Costs: All costs and charges associated with the execution, including commissions, fees, exchange charges, clearing and settlement costs, and any other charges passed on to the client
Speed: The time taken to execute the order — particularly important for time-sensitive orders or volatile markets
Likelihood of execution: The probability that the order will be executed in full — relevant for illiquid securities or large orders
Likelihood of settlement: The probability that the transaction will settle on time and in accordance with market conventions
Size: The size of the order relative to available liquidity — large orders may require special handling
Nature of the order: Any special characteristics (e.g., limit orders, stop-loss orders, block trades)
Any other relevant consideration: Market conditions, client-specific instructions, regulatory requirements

Weighting of Factors¶

For retail clients: Price and total cost of execution should generally be given the highest priority
For institutional/accredited clients: Other factors (speed, likelihood of execution, size management) may take priority depending on the client's instructions and the nature of the order
Client-specific instructions: Where a client gives a specific instruction regarding a particular factor (e.g., "execute at the opening price"), the CMS licence holder must follow that instruction, which may result in a departure from the general best execution policy

Order Routing¶

Execution Venues¶

CMS licence holders must identify and evaluate the execution venues available for each instrument type:

Regulated exchanges: SGX Securities Trading (SGX-ST), SGX Derivatives Trading (SGX-DT), and recognised foreign exchanges
Alternative trading systems (ATS): Dark pools and other multilateral trading facilities, where available
OTC markets: Over-the-counter execution through interdealer brokers or direct with counterparties
Internal crossing: Matching client orders with other client orders or proprietary flow (subject to conditions)
Systematic internalisers: Dealing on own account on a regular basis

Venue Selection Criteria¶

When selecting execution venues, CMS licence holders should consider:

Available liquidity at each venue
Price quality (bid-ask spreads)
Execution speed and reliability
Cost of access and execution
Settlement arrangements and counterparty risk
Regulatory status and oversight

Order Routing Disclosure¶

CMS licence holders must:

Disclose to clients the execution venues used and any material changes
Disclose any arrangements that result in orders being routed to specific venues (e.g., payment for order flow, liquidity agreements)
Disclose any conflicts of interest arising from venue selection (e.g., the firm is the market maker or has a financial interest in the venue)

Client Instructions¶

Specific Instructions¶

When a client provides specific instructions regarding the execution of an order, the CMS licence holder must:

Follow the client's instructions to the extent they are lawful and practicable
Inform the client if the instructions may result in execution that departs from the firm's best execution policy
Document the client's specific instructions and the execution outcome

Limit Orders¶

For unexecuted client limit orders in listed securities, CMS licence holders must:

Make the order visible to the market (by placing it on a regulated exchange) unless the client explicitly instructs otherwise or the order is a large-in-scale order
Inform the client of the firm's policy on handling limit orders

Monitoring and Review¶

Execution Quality Monitoring¶

CMS licence holders must monitor execution quality on an ongoing basis to ensure that the best execution policy is being followed effectively. Monitoring should include:

Post-trade analysis: Comparing execution prices and costs against available benchmarks (e.g., volume-weighted average price (VWAP), time-weighted average price (TWAP), bid-ask midpoint)
Venue analysis: Evaluating the execution quality delivered by each venue used
Slippage monitoring: Tracking the difference between the price at the time of order receipt and the actual execution price
Order handling timeliness: Measuring the time between order receipt and execution
Exception monitoring: Identifying and investigating instances where execution fell below expected standards

Review Frequency¶

Ongoing monitoring: Transaction-level checks and sampling (daily or weekly)
Comprehensive review: Full review of the best execution policy and execution quality at least annually
Trigger-based review: When there are material changes in market structure, available venues, or regulatory requirements

Record Keeping¶

CMS licence holders must maintain records of:

All client orders received (time, price, quantity, client instructions)
Execution details (venue, time, price, quantity, counterparty)
Rationale for venue selection where discretion was exercised
Monitoring results and any corrective actions taken
Complaints related to execution quality and their resolution

Records must be retained for at least 5 years.

Disclosure to Clients¶

Pre-Execution Disclosure¶

Before or at the time of establishing a relationship, CMS licence holders must provide clients with:

A summary of the best execution policy, including the factors considered and their relative importance
The execution venues used for each instrument type
Any conflicts of interest related to order routing and venue selection
How specific client instructions may affect best execution

Post-Execution Disclosure¶

After executing a client order, CMS licence holders must provide:

A contract note or trade confirmation with full transaction details (instrument, price, quantity, venue, time, costs)
Any additional information required by MAS regulations or SGX rules

Annual Reporting¶

CMS licence holders should make available (upon request or proactively):

Information on the top execution venues used by instrument type
Summary of execution quality metrics
Any material changes to the best execution policy during the reporting period

Common Compliance Failures¶

Frequently Identified Issues¶

MAS and industry reviews have identified the following common failures in best execution:

Inadequate policy documentation: Policies that are generic, not tailored to the firm's business, or not regularly updated
Insufficient venue analysis: Defaulting to a single execution venue without evaluating alternatives
Lack of monitoring: No systematic post-trade analysis or execution quality review
Conflicts of interest: Routing orders to venues where the firm receives payment for order flow without disclosure
Poor record keeping: Failure to maintain records of order handling, execution, and venue selection rationale
No client disclosure: Failure to provide clients with information about the best execution policy and execution outcomes

Key Regulatory References¶

Securities and Futures (Licensing and Conduct of Business) Regulations, Regulation 38
MAS Notice SFA 04-N16: Execution of Customers' Orders
SGX Trading Rules (for exchange-traded securities)
MAS Guidelines on Risk Management Practices — Trading Activities
IOSCO Principles on Best Execution (2019)

Relevance to Regnify¶

For CMS licence holders using Regnify:

Representative competence: Representatives involved in order execution must demonstrate understanding of best execution obligations as part of their CMFAS examination requirements and Fit and Proper assessment
Training records: Best execution training can be tracked as part of the representative's CPD requirements within Regnify
Conduct assessment: Any history of execution-related complaints, regulatory actions, or client disputes should be captured during the Form 3A onboarding process
Compliance monitoring: Best execution monitoring and review outcomes can inform the ongoing Fit and Proper evaluation of appointed representatives