MAS has set out the timeline for Singapore firms to comply with new best execution requirements. The regulator issued its response this month to the consultation paper published in 2017 which makes some important clarifications and sets the clock ticking when it comes to reviewing your best execution framework.

The original 2017 MAS consultation paper proposed a new best execution requirement. Under the proposal, certain financial institutions would be required to have policies and procedures to place or execute customers’ orders on the best available terms to support fair outcomes for customers. MAS also proposed an enhancement to existing business conduct requirements relating to the handling of customers’ orders.

Clarifications to Singapore best execution requirements

MAS published its Response to the consultation on execution of customers orders on 3rd September. The requirements of the final Notice and Guidelines are largely unchanged from the draft versions, but the MAS has made some important clarifications:

  • The types of licence holders caught by the requirements remain unchanged – Capital Market Intermediaries (CMI) (as well as banks, merchant banks and finance companies) that deal in capital market products, as well as fund management companies (FMC) and REIT Managers.
  • All trades in capital market products are captured, whether executed on an agency or a principal basis, on- or off-exchange – although execution factors are likely to differ across different contract types (the MAS has confirmed that CMIs have discretion to determine this).
  • The requirements don’t fall away if an FMC outsources trading for its customers to an overseas affiliate. In this scenario, the MAS confirms that the FMC must ensure that the affiliate has in place equivalent best execution processes.
  • Trades executed for or with institutional investors are out of scope, other than funds that are managed by FMCs or REIT Managers.
  • If a non-retail customer doesn’t place reliance on the CMI to achieve best execution, the requirements don’t apply. Examples of criteria that might be taken into account when determining this include whether the customer initiates the order or specifies the execution venue or the price at which the trade should be executed.  CMIs should clearly document these criteria in their Best Execution Policy, as well as the frequency of assessment.
  • The requirements don’t prohibit CMIs from executing trades only on certain venues or via a subset of brokers. But they should be able to demonstrate that achieving best execution on a consistent basis is not compromised by doing so.
  • CMIs that are part of groups can rely on group best execution policies and procedures, provided that they have determined that these meet MAS requirements.
  • The methods and tools used by CMIs to monitor best execution should be commensurate with the nature, scale and complexity of their business (and of the instruments traded). The MAS is keen to point out that not all CMIs will need to use sophisticated tools or software.
  • Disclosure to customers of “sufficient information” about a CMI’s best execution policy can be made on the website, in general terms & conditions or in the customer agreement.
  • Turning to the handling of customer orders in accordance with the time of receipt, the MAS has confirmed that CMIs may exclude orders where it is not feasible to apply strict customer order priority. Examples include when orders from different customers are aggregated.

Meeting the new customer order execution requirements

The MAS has granted a 18 month transitional period, giving firms plenty of time to enhance their customer order execution frameworks as appropriate. If you’re in scope for the new requirements there are a number of questions you should be asking yourself:

  • Does your existing best execution policy meet the MAS expectations, and has it been signed off by the Board or a delegated committee?
  • Are disclosures to new and existing customers adequate, and pitched at an appropriate level?
  • How do you demonstrate best execution? Do you need to step up your monitoring?

Bovill can help

We can help review your policies and processes and implement a framework for best execution. We can also advise on the best execution requirements which apply under MiFID. Get in touch to find out more.