MAS calls for capital market intermediaries to beef up their order execution policies

Bovill

MAS has issued a paper outlining proposals for capital market intermediaries (as well as banks, merchant banks and finance companies) to enhance their client order execution processes. Open to feedback until 18 December 2017, if implemented the changes will necessitate financial institutions to more formally demonstrate best execution of trades and customer order priority.

Singapore’s licensed firms have, for some years, been required to process customer orders promptly and on the best available terms. But until now MAS hasn’t provided much in the way of detail, leaving firms to work out the operational aspects themselves.

If the proposals go ahead as drafted, holders of a CMSL in relation to:

  • dealing in securities
  • trading in futures contracts
  • leveraged foreign exchange trading
  • fund management, and
  • real estate investment trust management

as well as certain exempt CMSL holders carrying out these activities, will be required to do the following when executing trades (as agent or as principal) or placing trades with another licensed entity for execution:

  1. Achieve best available terms by considering holistically factors including price, costs, speed of execution and settlement, and the size and nature of the customer’s order. Whether the customer is retail, an A/I or an institutional investor will also play a part in determining what constitutes ‘best available terms’.
  2. Establish effective, proportionate monitoring to demonstrate that the framework in place sufficiently demonstrates that best available terms are consistently achieved – and indeed have been achieved.
  3. Disclose to customers, in a manner which is clear and easy to understand, important aspects of the best execution policy – for instance, the relative importance placed on the various execution factors.
  4. Execute, or place, customer orders in accordance with the time of receipt of such orders – that is, customer order priority.
  5. Implement appropriate policies and procedures which cover all types of capital market products offered, and all routes to execution.
  6. Obtain Board sign-off of the policies and procedures, both initially and annually.

In line with other regulatory regimes, MAS has specified that if a customer provides specific trade instructions, the best execution requirements will effectively fall away with respect to that trade or part of the trade.

MAS has published a draft Notice and Guidelines alongside its consultation, which provide additional colour but which of course are subject to change. There’s no specificity around the timing of implementation, nor an indication of whether there’ll be a transitional period once the requirements are put in place. Capital market intermediaries might want to start thinking now about how their existing execution frameworks need to be enhanced to meet MAS’ expectations.

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