On 20 November 2017, the Monetary Authority of Singapore ("MAS") issued a consultation paper inviting comments on its proposal to formalise its expectations of execution of customers' orders by capital markets services licence holders, banks, merchant banks, and finance companies that conduct the regulated activities of dealing in securities, trading in futures contracts, leveraged foreign exchange trading, fund management and/or real estate investment trust management under the Securities and Futures Act (Cap. 289).
The proposed requirements will be set out in a new MAS Notice on Execution of Customers' Orders and Guidelines to the MAS Notice on Execution of Customers' Orders. MAS has also proposed to enhance existing business conduct requirements applicable to the abovementioned financial institutions, in relation to handling of customers' orders.
Best Execution Requirements
MAS proposes to formalise requirements for the abovementioned financial institutions to establish and implement written policies and procedures to place and/or execute customers' orders on the best available terms (also known as "best execution"), such that the most favourable outcome would be delivered to the customers.1
In determining the best available terms for customers' orders, MAS stated that it expects a financial institution to consider holistically different factors such as price, costs, speed, likelihood of execution and settlement, size and nature of the customer's order, where appropriate. The relative importance of the different factors should take into account the characteristics of the order, type of capital markets product as well as the categorisation of the customer.
These best execution policies and procedures are to cover all customers' orders, regardless of whether the financial institution is acting as a principal or agent in relation to the customer.2 The financial institution is also expected to provide adequate disclosure to its customers on its best execution policies and procedures, in order to promote transparency and facilitate customers in making informed decision on trading services. In this regard, MAS has suggested such information – on the relative importance of factors taken into consideration in its placement and/or execution of customers' orders for each class of capital markets products – can be presented to customers in a manner which is clear and easy to understand.
MAS has also proposed a requirement for the financial institution to put in place a monitoring framework to monitor the effectiveness of its best execution policies and procedures, commensurate with its size and complexity of operations. This framework must be able to demonstrate that the financial institution's best execution arrangements are sufficient to achieve the best available terms for its customers on a consistent basis.
Handling of Comparable Customers' Orders
MAS has also proposed requiring financial institutions to establish and implement written policies and procedures to place and/or execute comparable customers' orders (for example, similar order size) in accordance with the time of receipt of such orders. This aims to accord fair treatment to all customers' orders.
Consultation Period
The consultation period closes on 18 December 2017.
A copy of the Consultation Paper can be assessed here.
Footnotes
1 Paragraph 3.1(d) (best execution) in the Code of Collective Investment Schemes will be removed to eliminate duplicity, as the proposed best execution requirements are already expected of managers of authorised funds when executing customers' orders.
2 Nonetheless, MAS has also specifically stated that if the financial institution places or executes an order according to specific customer instructions, it would be regarded as having satisfied the best execution requirements in respect of that part of the order to which the instructions relate.
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