Appendix 2
FTR Practice Note 2.8.1 — Direct Market Access And Sponsored Access
Issue Date
Cross Reference
Enquiries
Added on 15 March 2013.
Rule 2, Rule 8.1
Please contact Member Supervision:
Facsimile No : 6538 8273
E-Mail Address: membersup@sgx.com
1. Introduction
1.1
This Practice Note provides further guidance on the definitions of Direct Market
Access under Rule 2 and Sponsored Access under Rule 8.1 – Definitions.
2. Direct Market Access
2.1
Direct Market Access may take place in the following manner:
(a) where the Member permits its customer to use its member ID to transmit orders for
execution directly to SGX-DT without using the Member’s infrastructure.
known as Sponsored Access.
This is
Member
Customer
SGX-DT
Order flow
(b) where the Member permits its customer to transmit orders electronically to the
Member’s infrastructure (i.e., system architecture, which may include technical
systems and/or connecting systems), where the order is in turn automatically
transmitted for execution to a market under the Member’s member ID.
Customer
Member
Order
flow
SGX-DT
Order
flow
Legend:
Underlined – insertions
Struckthrough – deletions
1
Appendix 2
FTR Practice Note 2.6.3(1)(c) — Pre-Execution Checks
Issue Date
Cross Reference
Enquiries
Added on
22 September 2006
and amended on 15
March 2013.
Rule 2.6.3(1)(c)
Please contact Member Supervision:
Facsimile No : 6538 8273
E-Mail Address: membersup@sgx.com
1. Introduction
1.1 This Practice Note explains the parameters and functions circumstances, conditions and
operational procedures pursuant to which pre-execution checks may contain are to be
imposed as contemplated in Rule 2.6.3(1)(c).
2. Pre-Execution Checks
2.1 Rule 2.6.3(1)(c) requires Members to ensure that automated pre-execution risk
management control checks are conducted on all orders, including credit control checks on
all orders the OMS to have the ability to set automated credit controls or position limits. The
purpose of this is to prevent overtrading. The parameters of such pre-execution checks and
filters may include but are not limited to the following or such other functionalities that are
able to prevent overtrading:
(a) total quantity limit (taking into account the total long and short positions, including
all resting orders and executed orders);
(b) maximum long per contract (taking into account the total long positions, including
resting long orders and net executed orders);
(c) maximum short per contract (taking into account the total short positions,
including resting short orders and net executed orders); and
(d) total maintenance margin requirements for the absolute worst positions (i.e. the
higher of absolute maximum long and absolute maximum short), computed by using
the margin rate prescribed by the Exchange.; and
(e) net exposure limit (taking into account net long and short positions).
2.2 By way of illustration, pre-execution risk management control functions built-in functions
residing in the OMS may include the following:
(a) the ability to adjust credit or quantity limits in real time during a trading session;
(b) the ability to set permission levels (e.g. access to selected products/ instruments)
and revoke the access of an Approved Trader or customer on a real-time basis
Customer; and
(c) the ability to intercept orders that exceed credit or trading limits on a real-time
basis and trigger error-prevention alerts.
2.3 Members who authorise Sponsored Access will be able to meet the requirement in Rule
2.6.3(1)(c) by being able to directly set and control pre-determined automated limits in the
Sponsored Access customer’s system, having automated alerts whenever such limits are
Legend:
Underlined – insertions
Struckthrough – deletions
2
Appendix 2
altered, and by conducting regular post-execution reviews of trades. Members should
assess and continue to ensure that the pre-execution risk management control checks are
robust on an ongoing basis.
2.4 Where a Trading Member has allowed its Clearing Member to directly set and control
pre-determined automated limits in the Trading Member’s system, the Trading Member
should have the appropriate internal controls to prevent unauthorised modification of the
limits set by the Clearing Member.
Legend:
Underlined – insertions
Struckthrough – deletions
3
Appendix 2
FTR Practice Note 2.6.3(1)(d) — Error-Prevention Alerts
Issue Date
Cross Reference
Enquiries
Added on
15 March 2013.
Rule 2.6.3(1)(d)
Please contact Member Supervision:
Facsimile No : 6538 8273
E-Mail Address: membersup@sgx.com
1. Introduction
1.1 This Practice Note explains the types of error-prevention alerts contemplated in Rule
2.6.3(1)(d).
2. Types of Error-Prevention Alerts
2.1 The types of error-prevention alerts to be made available may include but are not limited
to the following:
(a) maximum quantity per order — to alert Approved Traders and customers of
possible erroneous entries in relation to quantity; and
(b) price alerts — to alert Approved Traders and customers of possible erroneous
entries in relation to price.
2.2 Price alerts include:
(a) price range checks to alert Approved Traders and customers when the new order
entry price has exceeded a certain percentage; or
(b) number of ticks as compared to the last traded price or the previous settlement
price if last traded price is not available.
Legend:
Underlined – insertions
Struckthrough – deletions
4
Appendix 2
FTR Practice Note 2.6.3(1)(g) — Procedures for Separation of Key Functions
Issue Date
Cross Reference
Enquiries
Added on
22 September 2006
Rule 2.6.3(1)(g)
Please contact Member Supervision:
Facsimile No : 6538 8273
E-Mail Address: membersup@sgx.com
1. Introduction
1.1 This Practice Note explains the circumstances, conditions and operational procedures
pursuant to the requirement to separate the credit control, trading, dealing and marketing
departments of the Members, as set forth in Rule 2.6.3(1)(g).
2 Separation of Key Functions
2.1 The purpose of separating the Member's various key functions is to mitigate conflicts of
interests among these functions, and ensure that there are sufficient checks and balances.
2.2 Examples of proper separation include:
(a) access into the dealing or trading room to be restricted to authorised personnel only;
(b) setting and authorising credit limits on Customers by senior management staff who are
independent of trading or marketing functions, and are not related to the Customer in
question; and
(c) setting and authorising trading limits on House Traders by senior management staff other
than the House Trader himself.
Legend:
Underlined – insertions
Struckthrough – deletions
5
Appendix 2
FTR Practice Note 2.6.3(3) — Firm-Level Monitoring of Capital and Financial
Requirements and Prudential Limits
Issue Date
Cross Reference
Enquiries
Added on 15 March 2013.
Rule 2.6.3(3)
Please contact Member Supervision:
Facsimile No : 6538 8273
E-Mail Address: membersup@sgx.com
1. Introduction
1.1
This Practice Note explains the requirement for monitoring potential breaches of
capital and financial requirements and prudential limits on exposures to a single Customer
and a single Contract set out in Rule 2.6.3 (3).
2. Firm-Level Monitoring of Capital Requirements and Prudential Limits
2.1
In an electronic trading environment where orders are processed and routed at
speed, Members should use appropriate measures to monitor if the firm is at risk of
breaching its capital or financial requirements or any prudential limits, for example:
(a) setting automated filters on firm-wide aggregated exposures;
(b) having processes to generate warnings; or
(c) having processes to route large value orders for review.
Legend:
Underlined – insertions
Struckthrough – deletions
6
Appendix 2
FTR Practice Note 3.3.5 — Customer Education
Issue Date
Cross Reference
Added on 22 September 2006 and Rule 3.3.5
amended on 15 March 2013.
Enquiries
Please contact Member
Supervision:
Facsimile No : 6538 8273
E-Mail Address:
membersup@sgx.com
1. Introduction
1.1
This Practice Note sets out the areas of information, guidance and training that a
Member should ensure that its Internet Trading on-line Customers are provided with.
2. Information, Guidance and Training
2.1
A Member should ensure that its Internet Trading on-line Customers are provided
with adequate information, guidance and training with respect to the separately enumerated
areas below.
2.2
Potential limitations and risks of Internet Trading on-line trading, which include:
(a) possibility of delays in order transmission and confirmation of order execution,
and what to do in case of such delays;
(b) not being able to withdraw erroneous orders in time due to the speed of electronic
trading; and
(c) danger of unauthorised access to a Customer's Internet Trading on-line account
and recommended preventive security measures in relation to matters such as the
protection of passwords and leaving an Internet Trading on-line screen unattended.
2.3
Prohibited trading practices, which refer to trading practices prohibited under this
Rules, the Act or other Singapore laws.
2.4
System functionalities and order management procedures, which include:
(a) system access requirements;
(b) how to place, modify and withdraw orders;
Legend:
Underlined – insertions
Struckthrough – deletions
7
Appendix 2
(c) types of trading controls e.g. types of error-prevention alerts and how to interpret
system alerts; and
(d) types of credit controls e.g. types of trading limits and how the trading limits are
computed.
2.5
Contract Specifications, which include:
(a) contract size;
(b) ticker symbol;
(c) Contract Months;
(d) minimum price fluctuation; and
(e) settlement basis.
Legend:
Underlined – insertions
Struckthrough – deletions
8
Appendix 2
FTR Practice Note 3.4.3A — Processes for Review of Orders and Trades
Issue Date
Cross Reference
Added on 15 March 2013. Rule 3.4.3A
Enquiries
Please contact Member Supervision:
Facsimile No : 6538 8273
E-Mail Address: membersup@sgx.com
1. Introduction
1.1
This Practice Note provides guidance on what Members should do as part of their
processes for post-execution review of orders and trades.
2. Guidance on processes
2.1
Members should adopt processes to place suspicious orders and trades on
exception reports or to trigger automated alerts for review. Exception reports and alerts
should be reviewed by an independent party like a compliance officer or other appropriately
qualified person on a regular basis to detect orders and trades or patterns of orders and
trades which give rise to the possibility of non-compliance with the Rules. The review
process may involve further enquiry with Approved Traders, Registered Representatives
and/or customers or reviewing other Approved Trader, Registered Representative or
customer-related information such as past trading activity.
2.2
Members are expected to follow up on suspicious orders and trades, keep on file the
result of their review process and report such activity to the Exchange pursuant to Rule
3.4.4. Additionally, Members are expected to take appropriate action, such as advising the
Approved Trader, Registered Representative or customer to refrain from such activity,
performing a closer monitoring of the account activity of the Approved Trader, Registered
Representative or customer and ultimately to close the account if the suspicious activity
persists. Members should note that the mere fact that an order has been placed on an
exception report does not absolve them from their underlying compliance responsibilities.
3. Parameters to assist in detecting suspicious trading behaviour
3.1
The effectiveness of processes to identify suspicious trading behaviour depends to a
large extent on the types of parameters and thresholds set. It may be necessary for the
officer reviewing orders and trades to understand the strategies employed by the Member’s
Approved Traders, Registered Representatives or customers in order to determine the
appropriate parameters and thresholds.
3.2
Members should employ processes that facilitate the identification of irregular
orders/trades regardless of whether they originate from one Approved Trader, Registered
Legend:
Underlined – insertions
Struckthrough – deletions
9
Appendix 2
Representative or customer or a group of such individuals acting in concert. In addition, they
should also be familiar with trading patterns so as to be able to identify irregular trades.
3.3
In setting parameters, Members should take note of Contracts which are illiquid
which make them susceptible to price manipulation.
Legend:
Underlined – insertions
Struckthrough – deletions
10
Appendix 2
FTR SCHEDULE A
Rule Violation
Rule
Chapter/Number
Brief Description of
Rule
2.1
Access to QUEST
Member to provide
information to each
Customer for which it
has authorised Direct
Market Access
Member to assist the
Exchange in
investigations into
potential Rule
violations in relation
to Customers for
which it has
authorised Direct
Market Access
Member to have
measures covering
minimum standards
for Direct Market
Access
Member to have
measures covering
procedures on Direct
Market Access for
relevant persons
Member to have
measures providing
information on access
and applicable laws
for Direct Market
Access
Member to have
measures for legally
binding agreement on
Direct Market Access
Member to assist the
Exchange in any
investigation on
2.1.2(a)
2.1.2(b)
2.1.2(1)(a)
2.1.2(1)(b)
2.1.2(1)(c)
2.1.2(1)(d)
2.1.2(1)(f)
Whether composition
may be offered
Compoundable
Not Compoundable
Composition Amount which may be Offered by the Exchange, where the Exchange has Determined the
Member, Approved Trader and/or Registered Representative to be Liable
Members
Approved Traders
Registered Representatives
1st
2nd
3rd
1st
2nd
3rd
1st
2nd
3rd
Violation
Violation
Violation
Violation
Violation
Violation
Violation
Violation
Violation
Mandatory
minimum
penalty
imposable
by the DC
$500
$1,000
$2,000
Not Compoundable
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
N.A
N.A
N.A
N.A
N.A
N.A
$10,000
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
N.A
N.A
N.A
N.A
N.A
N.A
$10,000
Not Compoundable
Not Compoundable
Legend:
Underlined – insertions
Struckthrough – deletions
11
Appendix 2
2.1.2(2)
2.1.2(3)
2.1.2A(1)(a)
2.1.2A(1)(b)
2.1.2A(1)(c)
2.1.2A(2)(a)
2.1.2A(2)(b)
2.1.2B(a)
2.1.2B(b)
2.6
2.6.2
Direct Market Access
in respect of potential
violations
Member to have
conditions restricting
who can delegate
Direct Market Access
$2,000 – $4,000 – $7,000 –
and to have
Compoundable
$4,000
$7,000
$10,000
conditions passed to
other persons via
legally binding
agreement
Member to provide
$2,000 – $4,000 – $7,000 –
report by independent
Compoundable
$4,000
$7,000
$10,000
reviewer
Member to keep a
$2,000 – $4,000 – $7,000 –
Sponsored Access
Compoundable
$4,000
$7,000
$10,000
record
Member to show
Sponsored Access
Not Compoundable
Not Compoundable
record when
requested
Member to have
measures on specific
$2,000 – $4,000 – $7,000 –
Compoundable
requirements for
$4,000
$7,000
$10,000
Sponsored Access
Member to have
measures to assure
$2,000 – $4,000 – $7,000 –
status of Sponsored
Compoundable
$4,000
$7,000
$10,000
Access customer that
delegates
Member to have
measures on specific
$2,000 – $4,000 – $7,000 –
requirements relating
Compoundable
$4,000
$7,000
$10,000
to delegation of
Sponsored Access
Exchange to direct
Member to suspend
Not Compoundable
Not Compoundable
or terminate Direct
Market Access
Member to have
ability to suspend or
Not Compoundable
Not Compoundable
terminate Direct
Market Access
Technical Matters & Risk Management Controls
Member to have
Not Compoundable
Not Compoundable
measures for security
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
N.A
N.A
N.A
N.A
N.A
N.A
$10,000
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
N.A
N.A
N.A
N.A
N.A
N.A
$10,000
N.A
N.A
N.A
N.A
N.A
N.A
$10,000
N.A
N.A
N.A
N.A
N.A
N.A
$10,000
Legend:
Underlined – insertions
Struckthrough – deletions
12
Appendix 2
2.6.2A r/w Regulatory
Notice
2.6.3
2.6.3(1)(a)
2.6.3(1)(b)
2.6.3(1)(c)
2.6.3(1)(d)
2.6.3(1)(e)
2.6.3(1)(f)
2.6.3(1)(g)
2.6.3(2)
arrangements on
Direct Market Access
Member to ensure
that systems and
connections to the
Markets operate
properly
Corporate Member to
comply with
requirements relating
to risk management
controls
Corporate Member to
monitor credit risks
from acceptance of
orders at least daily
Corporate Member to
monitor account
activity on an intraday
basis
Corporate Member to
have automated preexecution checks on
orders and
appropriate internal
controls
Corporate Member to
have error prevention
alerts on orders
Corporate Member to
define and manage
sources of liquidity
Corporate Member to
limit the impact of
significant market
movements
Corporate Member to
maintain a strict
separation between
credit control, trading,
dealing and
marketing
departments
Corporate Member to
have automated
processes to monitor
capital requirements
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A
N.A
N.A
N.A
N.A
N.A
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
N.A.
Legend:
Underlined – insertions
Struckthrough – deletions
13
Appendix 2
2.6.4
2.6.4(a)
2.6.4(b)
2.6.4(c)
2.6.4(d)
2.6.4(e)
2.8
2.8.1(d)
2.8.1(e)
2.8.1(f)
2.8.1(g)
2.8.1(h)
2.8.4
and prudential limits
Corporate Member to
maintain proper
records and audit
trails
Member to maintain
complete and
accurate records in
accordance with the
Rules
Member not to make
false or misleading
entries
Member to make all
material entries in any
document
Member not to alter
or destroy any
documents
Member to make
records available to
the Exchange at such
time as the Exchange
requires
Bypass Privileges
Member to ensure that
Bypass Privileges shall
not be extended to
third parties by
Customers
Member not to grant
Bypass Privileges to
any beneficial owners
of sub-account within
the Omnibus account
Clearing Member to
guarantee and assume
financial responsibility
for Customer's activity
Clearing Member to be
fully responsible for the
conduct of business of
its Affiliate
Member to maintain
current register of
Customers granted
Bypass Privileges
Clearing Member to
apply for Bypass
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
Not Compoundable
Not Compoundable
N.A
N.A
N.A
N.A
N.A
N.A
$10,000
Not Compoundable
Not Compoundable
N.A
N.A
N.A
N.A
N.A
N.A
$10,000
Not Compoundable
Not Compoundable
N.A
N.A
N.A
N.A
N.A
N.A
$10,000
Not Compoundable
Not Compoundable
N.A
N.A
N.A
N.A
N.A
N.A
$10,000
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
$10,000.
Not Compoundable
Not Compoundable
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Compoundable
$500
$1,000
$2,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Legend:
Underlined – insertions
Struckthrough – deletions
14
Appendix 2
2.8.6(a)
2.8.6(b)
2.8.6(c)
Privileges on behalf of
Customers only if the
financial requirements
are met
Clearing Member to
notify the Exchange of
overtrading
Clearing Member to
cause Customer to
enter into a bypass
undertaking in such
form as prescribed by
the Exchange
Clearing Member to
cause appointment of
external auditor to
confirm the matters
specified
Compoundable
$2,000 –
$4,000
$4,000 –
$7,000
$7,000 –
$10,000
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
Not Compoundable
Not Compoundable
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
$10,000
Not Compoundable
Not Compoundable
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
$10,000
Chapter 3 — Conduct of Members, Approved Traders and Representatives
3.3
Duties of Members Undertaking Agency Trades
Member to provide
Internet Trading
online Customers
with adequate
3.3.5
Compoundable
$500
$1,000
$2,000
N.A
N.A
N.A
information, guidance
and training with
respect to the
stipulated matters
Member to have in
place processes to
$2,000 – $4,000 – $7,000 –
3.3.8A
Compoundable
N.A
N.A
N.A
prevent unauthorised
$4,000
$7,000
$10,000
changes to order info
3.4
Trading Practices and Conduct Rules of Members, Approved Traders and Registered Representatives
Member to have to
have in place
processes to review
$2,000 – $4,000 – $7,000 –
3.4.3A
Compoundable
N.A
N.A
N.A
orders and trades for
$4,000
$7,000
$10,000
suspicious trading
behaviour
N.A
N.A
N.A
N.A
N.A
N.A
N.A
N.A.
N.A
N.A
N.A
N.A.
Legend:
Underlined – insertions
Struckthrough – deletions
15