Market Conduct Rules — Securities and Futures Act¶
Overview¶
Part XII of the Securities and Futures Act 2001 (SFA) establishes Singapore's market conduct regime. These provisions prohibit market misconduct — including insider trading, market manipulation, and other forms of market abuse — and impose both civil and criminal liability on offenders.
CMS licence holders and their representatives must understand and comply with these rules, as breaches can result in severe penalties including imprisonment, fines, disgorgement of profits, and civil liability to affected persons.
Insider Trading¶
Prohibition (SFA Sections 218-219)¶
A person who possesses material non-public information (MNPI) about a corporation must not:
- Trade — Subscribe for, purchase, or sell (or enter into an agreement to do so) securities of that corporation while in possession of the information
- Procure trading — Procure another person to trade in those securities
- Tip — Communicate the information to another person if the person knows or ought to know that the other person would or would be likely to trade or procure another to trade
Connected Persons¶
The prohibition applies to persons who are "connected" to the corporation, including:
- Officers (directors, secretary, employees) of the corporation or a related corporation
- Substantial shareholders (5% or more)
- Persons who occupy a position that may reasonably be expected to give them access to MNPI (e.g., auditors, lawyers, bankers, consultants)
- Persons who received MNPI from a connected person
Material Non-Public Information (MNPI)¶
Information is considered material if:
- A reasonable person would expect it to have a material effect on the price or value of the securities
- It is specific and relates to the particular corporation or its securities (not general market information)
Information is non-public if it is not generally available to persons who commonly invest in securities of that kind.
Examples of MNPI¶
- Unpublished financial results (earnings, revenue, profit warnings)
- Pending mergers, acquisitions, or takeovers
- Material contracts or loss of significant customers
- Regulatory investigations or enforcement actions
- Changes in dividends or capital structure
- Significant litigation outcomes
Defences¶
A person does not contravene the insider trading prohibition if:
- The other party to the transaction knew or ought to have known of the information
- The information was obtained from an exempt source (e.g., publicly available)
- The trade was made pursuant to a pre-existing, documented trading plan (subject to conditions)
- The person entered into the transaction as agent on behalf of a client (without discretion) and did not communicate the information
Market Manipulation¶
False Trading and Market Rigging (SFA Section 197)¶
A person must not:
- Create a false or misleading appearance of active trading in securities
- Create a false or misleading appearance with respect to the market price of securities
- Maintain, inflate, depress, or cause fluctuations in the market price of securities by means of transactions that are not genuine
Market Manipulation Techniques¶
The following are examples of prohibited conduct:
- Wash trading: Executing buy and sell orders in the same securities simultaneously or in quick succession, with no change in beneficial ownership, to create an appearance of active trading
- Matched orders: Arranging for buy and sell orders to be placed at substantially the same time, price, and quantity by colluding parties
- Painting the tape: Executing transactions designed to create the impression of significant trading activity to attract other investors
- Marking the close: Executing transactions near market close to manipulate the closing price of a security
- Spoofing/layering: Placing orders with the intent to cancel before execution to manipulate the order book and create a misleading impression of supply and demand
- Cornering/squeezing: Acquiring a dominant position in a security to control the market price
False or Misleading Statements (SFA Section 199)¶
A person must not make a statement or disseminate information that is false or misleading in a material particular and is likely to:
- Induce other persons to trade in securities
- Affect the market price of securities
This applies to any communication — written, oral, electronic, or through social media.
Front-Running¶
Prohibition¶
Front-running occurs when a CMS licensee or its representative trades ahead of a client's order to profit from the anticipated market impact of the client's transaction. This is prohibited as:
- A breach of the duty to act in the client's best interest (SFA Section 123)
- A form of market abuse under general market misconduct provisions
- A violation of the CMS licensee's code of conduct
Examples¶
- A representative receives a large buy order from a client and purchases the same securities for their personal account before executing the client's order
- A fund manager trades in a security for the firm's proprietary book ahead of executing a large client order that is expected to move the price
Prevention Measures¶
CMS licence holders must implement:
- Pre-trade compliance checks
- Monitoring of the sequence and timing of personal trades relative to client orders
- Information barriers between proprietary trading desks and client-facing functions
- Personal account dealing restrictions for representatives with access to client order flow
Churning¶
Definition¶
Churning is the excessive trading of a client's account by a representative, primarily to generate commissions or fees rather than to achieve the client's investment objectives. Churning is prohibited as:
- A breach of the duty to act in the client's best interest
- A form of unfair or dishonest dealing
- A violation of suitability requirements
Indicators of Churning¶
- Turnover ratio significantly higher than expected for the client's investment profile
- Commission-to-equity ratio (cost-equity ratio) that is disproportionately high
- Frequent buying and selling of the same securities with no net change in position
- Trading activity inconsistent with the client's stated objectives (e.g., aggressive trading in a conservative portfolio)
- Switching between similar products without clear benefit to the client
Detection and Prevention¶
CMS licence holders must:
- Monitor trading activity across client accounts for signs of excessive trading
- Establish quantitative thresholds (turnover ratios, commission ratios) as early warning indicators
- Investigate alerts promptly and take remedial action where churning is identified
- Ensure remuneration structures do not incentivise excessive trading
Unauthorised Trading¶
Prohibition¶
A representative must not execute trades in a client's account without the client's prior authorisation. Unauthorised trading includes:
- Executing trades without the client's instruction or consent
- Exceeding the scope of a discretionary mandate
- Altering client instructions (e.g., changing quantities, prices, or securities)
- Executing trades after the client's authority has been revoked
Controls¶
CMS licence holders must implement:
- Client authorisation and order confirmation processes
- Recording of client instructions (voice recording, written confirmation)
- Reconciliation of executed trades against client instructions
- Monitoring for patterns of unauthorised trading
- Prompt investigation and reporting of any identified unauthorised trades
Penalties¶
Criminal Penalties¶
For market misconduct offences under the SFA:
- Insider trading (Section 221): Fine not exceeding S$250,000 or imprisonment not exceeding 7 years, or both
- Market manipulation (Section 204): Fine not exceeding S$250,000 or imprisonment not exceeding 7 years, or both
- False statements (Section 199): Fine not exceeding S$250,000 or imprisonment not exceeding 7 years, or both
Civil Penalties¶
Under the civil penalty regime (SFA Part XII, Division 3):
- MAS may bring civil penalty proceedings in court
- Court may impose a civil penalty not exceeding 3 times the profit gained or loss avoided, or S$2 million (for individuals) / S$4 million (for corporations), whichever is greater
- The standard of proof is the balance of probabilities (civil standard)
- Civil liability to persons who suffered loss as a result of the contravention
Regulatory Actions by MAS¶
In addition to criminal and civil penalties, MAS may:
- Issue prohibition orders preventing a person from performing regulated activities (up to 5 years, or permanently for serious offences)
- Revoke or suspend the CMS licence
- Impose conditions on the licence or representative's appointment
- Issue reprimands or warnings
- Require disgorgement of profits
Key Regulatory References¶
- Securities and Futures Act 2001 (SFA), Part XII (Market Conduct)
- Securities and Futures (Licensing and Conduct of Business) Regulations
- MAS Guidelines on the Application of the Market Conduct Provisions of the SFA
- MAS Practice Note on Insider Trading
- Singapore Exchange (SGX) Listing Rules and Trading Rules
Relevance to Regnify¶
For CMS licence holders using Regnify:
- Fit and Proper assessment: The Form 3A onboarding process must evaluate whether a representative has any history of market misconduct, regulatory sanctions, or prohibition orders
- Disclosure requirements: Representatives must disclose any past investigations, charges, or convictions related to market conduct offences as part of the declaration process
- Ongoing monitoring: CMS licence holders should monitor representatives for signs of market misconduct throughout their appointment
- Regulatory status checks: Integration with MAS public registers can automate checks for prohibition orders and regulatory actions against representatives
- Audit trail: All conduct-related assessments and decisions during onboarding should be recorded in Regnify's audit system