NATIONAL UNIVERSITY OF SINGAPORE

FACULTY OF LAW

SECURITIES REGULATION
2022/2023

REGULATORY AUTHORITIES AND CAPITAL MARKETS

Take a first quick look at the capital markets diagram that has been given to you. What
you see in the bottom right hand corner are the things you have learnt about loans and the
debt market where it is said that there is more private ordering in that it is mainly
contractual and governance and protection have to be negotiated. We will start moving
into the stock market and the listed debt market where things become more regulated.
There are both hard (Securities and Futures Act/Companies Act) and soft laws (Listing
Rules, Codes) here which will be the focus of the rest of this course. But there is also a
blank white space in the top right hand corner which could be where the crypto and token
market is where there is little or no private ordering or regulation of the financial
instruments themselves, the people that trade them, and worse, the exchanges on which
they are traded (see what Prof Umakanth, mostly, and I have written in the recent
Business Times 22 Nov 2022: https://news.nus.edu.sg/ftx-lessons-for-governance-of-
crypto-startups/

1. BRIEF HISTORY OF SECURITIES REGULATION IN SINGAPORE

Although securities trading had been taking place in Singapore since at least the 1960’s,
there was no statutory regulation of the securities industry prior to 1973. Even after 1973,
the Securities Industry Act 1973 provided minimal regulation of the securities industry.
In the wake of the Pan-El crisis of 1985, however, the Securities Industry Act 1986
(which was based on 1980 Australian legislation) was passed. Notably, the Monetary
Authority of Singapore was given greater powers to oversee the regulation of the
securities industry.

These powers have now been further enhanced by the Securities and Futures Act 2001,
which came into force in varying stages in 2002, particularly Part IX (although this
should be seen in the light of the general liberalization of the industry since 1997).

The following articles provide useful background to the Pan El crisis. Read them and be
prepared to discuss the questions below.

 Tjio at [1.10].
 Conrad Raj “The Pan-El debacle” The Business Times 1 October 2001.

What does it mean for a securities firm to have more capital, as opposed to
leverage?1 What is adjusted net capital? What are we trying to protect against? See
1
The leverage ratio is obtained by dividing a bank’s capital ratio by its average total consolidated assets.

1
briefly Part III SF (Financial and Margin Requirements for Holders of Capital Markets
Services) Regulations (note that this regulation has been amended a number of times).
What is a forward contract? What is its economic function? Is there another
meaning to forward contracts? See previously Thai Chee Ken v Banque Paribas [1993]
2 SLR 609. Do all stockbrokers eventually provide indirect financing to its clients?
How?
What is the danger for stockbroking companies providing financing at 100% of the
market value of securities? If they provide 50% financing, how much must a share
fall before there is a margin call? Statutory requirements for stockbrokers are found in
Part VI SF (Financial and Margin Requirements for Holders of Capital Markets Services)
Regulations (110% of debit balance) and Rule 11.9.6 of SGX Rules (110% of debit
balance). See now Tan Chin Yew Joseph v Saxo Capital Markets Pte Ltd [2013] SGHC
274.
Is the case for a well-regulated stockmarket so clear cut? See “This Bourse knows
how to bend rules” Business Week, 29 May 2000. Compare Black “The Legal and
Institutional Preconditions for Strong Stock Markets” (2001) 48 UCLA Law Rev 781.
(http://papers.ssrn.com/paper.taf?abstract_id=182169 (intro and conclusion only), and
now S Deakin, P Sarkar and MM Siems, "Is There a Relationship Between Shareholder
Protection and Stock Market Development?"
European Corporate Governance Institute (ECGI) - Law Working Paper No. 377/2017:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3078529

The MAS Chairman, Lee Hsien Loong, in his Second Reading speech for the Securities
Industry (Amendment) Bill (17 Jan 2000) said:

Over the last two years, we have taken a series of measures to liberalise and allow freer
play in the financial sector. Our aim is to create vibrant financial markets that fuel
economic growth. This requires a regulatory framework that is sound, strong and in line
with best practices. Financial markets work freely only with an appropriate set of ground
rules operating in the background, which everyone knows and plays by. Regulators and
enforcement agencies must be able to promptly detect and deal with actions that harm
investors. If investors lose confidence in the integrity of our securities markets, we will
enter a vicious cycle. Stock valuations will be poor because there is little secondary
activity. Good companies will shun listings on the market, while doubtful ones embrace
the opportunity.

For a good introduction to how the financial markets should work, see John Armour et al,
Principles of Financial Regulation (Oxford, 2016) Ch 5. What do you understand by
the concept of “informational efficiency” in its various forms?

But he says that that the then UK’s Financial Services Authority focused too much on
consumer protection during the GFC and not enough on financial stability. In contrast,
Singapore still talks of caveat emptor.

2. THE OBJECTIVES OF REGULATION

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According to the International Organisation of Securities Commissions, the 3 objectives
of securities regulation are:

 Investor protection
 Maintaining fair, efficient and transparent markets
 Minimising systemic risks.

See, however, Ignatius Low, “What’s wrong with the caveat emptor system?” Straits
Times October 27 2003. See also section 5 SFA, introduced by the Amendment Act
2005. Why is investor protection not mentioned and efficient allocation of capital
preferred instead in Singapore? See John Armour et al, at 11 and 71

The legal and regulatory framework has only now reached reach some kind of
equilibrium with all the SFA changes and amendments over the last 20 years. The
Financial Sector Review Group formed in Aug 1997 and headed by DPM Lee Hsien
Loong embarked on a thorough review of the financial industry in Singapore. The
Corporate Finance Committee formed in Dec 1997 under the FSRG reviewed the
fundraising mechanism and released a reported on 9 Nov 1998 recommending a
fundamental shift in philosophy – a move away from ‘merit regulation’ to a ‘disclosure’
regime. The Securities Industry (Amendment) Act was passed in early 2000 to introduce
a new civil penalty regime for insider trading, with MAS as the enforcement body. The
new Securities and Futures Act was passed by Parliament on 5 October 2001, and
combined both the SIA and FTA, as well those provisions in the Companies Act relating
to the primary market for shares, debentures, units of shares and debentures and
collective investment schemes (Part XIII). There have also been a number of changes to
the SGX-ST Listing Manual.

 Catherine Ong “Proposed super regulator to get new legal powers” Business Times
10 Nov 1998
 “All regulators under one roof?” Business Times 8 Nov 2002

In early 2016, it was announced that MAS would take over a further role in the
supervision of broker-dealers (though not listed companies) and also take a bigger part in
market surveillance given the possibility of having more than one securities exchange in
Singapore, which is already the case in the derivatives market with Ice Futures
Singapore, and from 2017, Eurex. Then, in September 2017 SGX hived off all its
regulatory functions to a separate subsidiary with its own board of directors. But see Mak
Yuen Teen, “Is SGX Regco being compromised?” Governance for Stakeholders 20
January 2018: http://governanceforstakeholders.com/2018/01/20/is-sgx-regco-being-
compromised/ See now: https://governanceforstakeholders.com/2019/12/11/2019-the-
year-enforcement-stopped-on-sgx/

What are the advantages of civil over criminal actions? Should MAS take these
actions on behalf of investors or for itself? La Porta, Lopez de Silanes, A Schleiffer
“What Works in Securities Laws” (http://ssrn.com/abstract=425880). More recently,
others have provided some empirical evidence to show that public enforcement can be

3
just as useful as disclosure, and more important than private enforcement, in deepening
financial markets.2
What is the difference between the primary and secondary markets? As of 31
December 1999, over 370 companies were listed on the Main Board and SESDAQ. Total
market capitalisation was S$434 billion. In that year, 53 new companies were listed on
the Main Board and SESDAQ, raising S$2.7 billion through their initial public offerings.
Due to the Asian financial crisis, the numbers in 1998 were 20 companies and S$0.41
billion respectively. By comparison, total turnover in 1999 was 130.4 billion shares
valued at S$182 billion. In 1998, turnover was 69.65 billion shares valued at S$96.98
billion.
By comparison, as of December 2005, there were 672 companies listed on the SGX.
Total market capitalization was S$438 billion. In that year, there were 67 initial public
offerings raising more than S$6 billion. As of June 2008, there were 623 domestic and
foreign companies listed on the main board and a further 259 on Catalist. Total market
capitalization was S$661 billion. Total turnover in June 2008 for the mainboard and
Catalist was about S$30 billion. As of August 2014, there were 770 domestic and foreign
companies listed on the main board and on Catalist. Total market capitalization was
S$1017 billion. Total turnover in August 2014 for the mainboard and Catalist was about
S$21 billion. How many IPOs were there in 2008 and 2014? Do these numbers tell us
anything?

Why do we countenance so much speculation on the secondary markets, which

Keynes likened to a ‘casino’? For a brief introduction to finance theory, see
http://cepa.newschool.edu/het/schools/finance.htm

3. REGULATORY AUTHORITIES

(A) MONETARY AUTHORITY OF SINGAPORE

The MAS was established under the Monetary Authority of Singapore Act (Cap 186) in
1971. The MAS is Singapore’s de facto central bank in that it controls exchange rates and
not interest rates. It performs all the functions of a central bank. It also acts as the
securities, banking and insurance regulator. The supervisory powers of the MAS over the
securities industry are set out in the SFA. As MAS Chairman, DPM Lee Hsien Loong,
pointed out on the 20th July 2001,

MAS' second responsibility is oversight of the financial sector. MAS was an integrated
supervisor long before this became internationally fashionable. When it was formed in
1971, MAS was responsible for both monetary policy and the supervision of banks. It
took over supervision of the insurance industry in 1977, and the securities industry in
1984.

Make a brief list of the powers that MAS has in relation to the following:
2
Howell E. Jackson & Mark J. Roe, “Public and Private Enforcement of Securities Laws: Resource-Based
Evidence” (16 March 2009) Harvard Public Law Working Paper No. 08-28; Harvard Law and Economics
Discussion Paper No. 638, online: <http://ssrn.com/abstract=1000086>.

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(i) Approved exchanges (Division 2(1), 2(3) and 2(4) of Part II SFA);
(ii) Recognised market operators (Division 3 of Part II SFA)
(iii) Clearing houses and Trade Repositories (Part III and Part II SFA);
(iv) Holders of a capital markets services licence (Part IV SFA);
(v) Others (eg Division 4 of Part II and Part XII SFA).

Are these powers too severe? See also section 321 SFA. Should statutory
interpretation remain within the exclusive domain of the courts?
What does it mean to be an integrated supervisor? What if MAS starts an
investigation and decides to discontinue it. Can its decision be judicially reviewed?

This summary is from the Corporate Law and Governance website: 11 March 2015
Judgment was given several days ago in Grout, R (On the Application Of) v
Financial Conduct Authority [2015] EWHC 596 (Admin). Mr Grout sought a
judicial review of a decision by the Financial Conduct Authority (previously the
Financial Services Authority) to stop an investigation it has begun into his
conduct. The FCA argued that it had a broad discretion not to continue an
investigation and that its decision was not susceptible to challenge on public law
grounds. The trial judge held that the FCA's decision was susceptible to judicial
review but found lawful its decision to discontinue the investigation.

(B) SECURITIES INDUSTRY COUNCIL

The SIC was established under section 3 of the SIA 1973 and continues to function under
the SFA by virtue of section 138. Initially, the SIC was formed as an advisory and
consultative body to the Minister of Finance, the SES and the Registrar of Companies. In
Jan 1974, the Singapore Code on Take-overs and Mergers modeled after the London City
Code of the same name was promulgated under the Companies Act. The SIC was then
entrusted with the responsibility of enforcing it and therefore took on a regulatory and
administrative function. For the SIC’s role in take-overs, see section 139 of SFA.

SIC proceedings are informal and no legal representation is permitted as a right. The
system that is operated is therefore very much one of self-regulation and not merit
regulation. Documents are not sent to SIC in advance for approval, although in practice,
there is a great deal of prior consultation between the lawyers and the SIC. Under section
139(8) of the Act, failure by any party to adhere to Code is not a criminal offence but
such failure may be relied upon by any party to civil or criminal proceedings to establish
or negative any liability which is in question in the proceedings. The SIC can censure or
suspend a person from the use of the facilities of the market. If the SIC finds that the
Securities and Futures Act, the Companies Act or any criminal law has been breached it
will recommend to the Attorney General that the alleged offender be prosecuted.

Can the decisions or rulings made or issued by the Securities Industry Council in
administering the Code be challenged in court? Does s 139(7)) SFA effectively

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preclude judicial review? If not, what are the applicable principles of judicial
review?

Stansfield Business International Pte Ltd v Minister for Manpower [1999] 3 SLR
742
R v Panel on Take-overs and Mergers, ex parte Datafin plc [1987] 1 All ER 564
R v Panel on Take-overs and Mergers, ex parte Guiness [1990] 1 QB 146
Petaling Tin Bhd v Lee Kian Chan [1994] 1 MLJ 657
Public Service Commission v Lai [2001] 1 SLR 644
*Comptroller of Income Tax v ACC [2010] SGCA 13
Panel v King [2018] CSIH 30 (Scottish Court of Sessions, s 955 UK Companies `
Act 2006 and continued deference)

(C) SINGAPORE EXCHANGE

The Stock Exchange of Singapore (SES) and the Singapore International Monetary
Exchange (SIMEX) merged on 1 Dec 1999 to be the Singapore Exchange (SGX). It is a
demutualised and merged exchange. The SGX, an ‘exchange holding company’ (see
Division 3 of Part II SFA), has a securities trading subsidiary (SGX-ST) which used to be
the SES, as well as a derivatives trading subsidiary (SGX-DT) which used to be SIMEX.
For ease of reference, the securities trading arm of the SGX will simply be referred to as
SGX.

What is an approved exchange? See definitions of “securities” and “organised market”

(Part I of the First Schedule), and section 6 SFA. Note that MAS amended the definition
of “securities” though the SFAA 2009 (see Consultation Paper P011-2007, Oct 2007) in
order to have the discretion to include instruments in the definition as well as to exclude
them.

In the context of securities regulation, the reference to securities is to a set of financial

claims, often a chose in action, which is tradable on a secondary market. Shares and
debentures are the most popular conceptions of securities. The meaning of securities is
different in some parts of the Act, and really means shares, debentures, units of shares or
debentures and business trusts (see section 2). It excludes collective investment schemes
like unit trusts because the policy requirements may differ according to the financial
instrument in question. For example, only collective investment schemes have to be
authorised or recognised, and their trustees approved by the MAS (Subdivision (2) of
Division 2, Part XIII).

What did the 2001 amendments to the definition of organised market/exchange seek
to achieve? See Carragreen Currency Corporation Pty Ltd v Corporate Affairs
Commission (NSW) (1986) 11 ACLR 297.

What is required if an entity is seen to be operating an organised market in

Singapore?

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The SFAA 2017 which came into effect in Oct 2018 brought about big changes to the
definitions of “securities” and “futures contracts” in the SFA largely due to the
difficulties caused by OTC (over-the-counter and not formally on an exchange)
derivatives based on commodities: see MAS Consultation Paper on Proposed
Amendments to the Securities and Futures Act February 2015 and TMT Asia v BHP
Billiton [2015] SGHC 21, [2015] 2 SLR 540. See the attached linked casenote which was
in the Academy Annual Review June 2016:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2948233
See also Macquarie Bank Ltd v Graceland Industry Pte Ltd [2018] 4 SLR 87, noted
Academy Annual Review 2018: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3360159

How effective is an exchange as a regulator? See G Bentson “Regulation of Stock

Trading: Private Exchanges vs Government Agencies” (1997) 83 Virginia Law Review
1501.

See the following responses of SGX to criticisms of its regulatory arms, published in BT
5 Jan 2009 (reproduced). Should all of SGX’s regulatory functions be taken over by
MAS, as in the case of ASX?

See now SGX Consultation Paper on Reinforcing the SGX Listings and Enforcement
Framework September 2014 (including power to proposed listing and appeal committees
to fine issuers for breaches of listing rules):
http://www.sgx.com/wps/wcm/connect/sgx_en/home/regulation_v2/consultations_and_p
ublications/PC/Consultation-Paper-on-Reinforcing-the-SGX-Listings-and-Enforcement-
Framework

This was implemented in September 2015: see K Lim, “SGX sets up independent listing
panels” 16 Sept 2015 and link: C:\Users\lawtjioh\OneDrive - National University of
Singapore\Documents\Documents\newspaper clippings\securities\SGX sets up
independent.pdf

In early 2016, it was announced that MAS would take over a further role in the
supervision of broker-dealers (though not listed companies) and also take a bigger part in
market surveillance given the possibility of having more than one securities exchange in
Singapore Then, in July 2016, SGX announced that it would have off all its other
regulatory functions to a separate subsidiary with its own board of directors. There is now
a Regco that carries out all SGX’s regulatory functions.

Disciplinary Powers Of The SGX Over Its Broker Members

At present, SGX has powers of investigation and inspection (but see now MAS Press
Release, MAS takes over on-site inspections from SGX April 24 2003, see Rule 12.1 of
the SGX Rules). If there has been a violation of the SFA, SGX Rules or any other
requirements stipulated by the SGX, disciplinary proceedings may be commenced, see
Rule 12.3 of the SGX Rules.

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SGX’s memorandum and articles of association and rules set out the powers of the SGX-
ST and its members. SGX’s Rules relate to the management and control of SGX-ST, its
members and their representatives, and also now set out the mode and conditions which
govern the way business of the SGX-ST is conducted, both by SGX-ST as well as
persons using the services of the exchange.

SGX is known as a self-regulatory organisation (SRO) and is the front-line regulator of

broker-dealers. However, MAS has some regulatory oversight: see Division 2 of Part II
SFA and the following cases:

 Posluns v Toronto Stock Exchange (1968) 67 DLR 165

 Gaiman v National Association of Mental Health [1971] Ch 317
 Peck Constance Emily v Calvary Charismatic Centre Ltd [1991] 1 SLR (R) 57 per
Chan SK J at [57] “the rules of natural justice apply to the removal of members under
Art 9, subject to incompatibility with the existence of a corporate entity”.
 OSK & Partners v Tengku Noone Aziz [1983] 1 MLJ 179
 Ganda Oil v Kuala Lumpur Commodity Exchange [1988] 1 MLJ 174
 Stock Exchange of Hong Kong v Onshine Securities [1994] 1 HKC 319

Is the decision of the SGX Regco or Disciplinary Committee amenable to judicial

review and, if so, what are the applicable principles? See also sections 24, 25 and 325
SFA. In Comptroller of Income Tax v ACC [2010] SGCA 13, it was held that seeking
Ministerial exemption or remission of tax was not an alternative remedy that had to be
sought before judicial review could be brought without it being an abuse of process.

See “SEC review regulation of US stock exchanges” Business Times July 24 2003.

SGX And Listed Companies

The SGX’ raison d’etre is to provide a marketplace for the trading of securities of
companies which are “listed” on it. In this respect, the SGX enters into contractual
arrangements with a number of companies which would then have their shares listed on
the SGX and traded accordingly by the members of the SGX. The Listing Manual
governs the listing process. It contains listing requirements and sets out the corporate
disclosure policy and other policies and requirements affecting listed companies. The
requirements in the Listing Manual are made, revised and repealed by the SGX by an
ordinary resolution, see Art 114 of the SGX Articles of Association.

Failure to comply with the Listing Manual may lead the SGX to discipline the listed
company. It is noted that the SGX does not presently have direct recourse against a
director or other non-contracting parties. Is this affected by the Contract (Rights of
Third Parties) Act? Compare Business Rule 1.1.1 which expressly provides that the
Rules operate as a binding contract only between the Singapore Stock Exchange and each
Trading Member, such as the Plaintiff. Rule 1.1.2 then states that a person who is not a

8
party to the Rules, such as the Defendant, “has no rights under the Contracts (Rights of
Third Parties) Act (Cap 53B, [2002 Rev Ed]) to enforce the Rules…”

The SGX may reprimand, suspend or de-list a company as a result of any infringements.
Read Rule 1305 of the Listing Manual (exchanges in other countries are able to fine
listed companies as well, and this is recently the case in Singapore 3). But they were also
reprimanding directors as a precursor to proposed changes to rule 720 of the Listing
Manual (which were introduced on 29 Sept 2011) that gave SGX the right to publicly
censure or object to the appointment of key executive officers or directors. 4 This was
amended in Oct 2015 so that the listed company has to arrange for undertakings from its
directors and executive officers that they will comply with the listing rules.

The relationship between the SGX and the listed company is a contractual one, but this
means that directors are not party to the agreement (were the Oct 2015 amendments done
to preserve this?). Is the SGX’ decision to suspend or delist subject to judicial
review?

 New Zealand Stock Exchange v Listed Companies [1984] 1 NZLR 699

 Chapmans Ltd v ASX (1994) 14 ACSR 726 appeal dismissed [1996] 474 FCA 1
(Austlii)
 *Bursa Malaysia Securities Bhd v Gan Boon Aun [2009] 4 MLJ 695
 *Yeap Wai Kong v Singapore Exchange [2012] 3 SLR 565 (notice of reprimand to
individual director)

What is the difference, if any, in the relationship between SGX/broking members

and SGX/listed companies?

4. REGULATION OF INTERMEDIARIES (eg licensed brokers/funds)

The licensing of securities market participants administered by the MAS is an effective

supervisory power of the MAS. By controlling the licensing of market participants, MAS
controls entry into the securities business. The SFA requires a person carrying on a
business in a stipulated set of regulated activities to obtain a capital markets services
licence. This single licence regime (which is best explained in the MAS consultation
document dated 18 August 2000) enables participants to conduct a set of regulated
activities, provided that the capital requirements for those activities are satisfied. Look up
the list of regulated activities in the Second Schedule SFA and the licensing requirements
in Division 1 of Part IV SFA. The most important one for this course is “dealing in
capital markets products”.

3
See now SGX Consultation Paper on Reinforcing the SGX Listings and Enforcement Framework September
2014 (including power to proposed listing and appeal committees to fine issuers for breaches of listing rules):

4
SGX Consultation Paper on proposed new measures and rule amendments to strengthen corporate
governance practice, December 9, 2009. See now Amendments to Listing Rules to Strengthen Corporate
Governance and Foster Greater Disclosure, September 29, 2011.

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Note that persons providing investment advice, who were previously licensed as
‘investment advisers’ under the SIA, are now licensed as financial advisers under the
Financial Advisers Act, and so some provisions in the FAA are relevant for this course.
Fund managers, eg those who manage unit trusts and other collective investment
schemes, who were previously also licensed as ‘investment advisers’ under the SIA, are
now required to hold a capital markets services licence under the SFA to provide “fund
management”. Banks and other regulated financial institutions are generally exempted
from SFA licensing requirements (see section 99 SFA). Should this be the case? Look
also at the many exemptions in the Second Schedule SF (Licensing and Conduct of
Business) Regulations (although some are now found in guidelines due to frequent
avoidance and changes to deal with them, particularly the one for 30 qualified investors
and with total assets under management not exceeding $250 million (of which no more
than 15 more be funds or limited partnership structures).

Why is this exemption important and who are likely to use it? See Loke and Dhume,
“Hedge Funds: Regulation and Structuring” in Neo, Tjio and Lan, Handbook.

(A) BROKER-DEALERS AND THEIR REPRESENTATIVES

Stockbroking companies have to hold a capital markets services licence to deal in capital
markets products, see sections 82 and 86 SFA. Such companies may have to be members
of the SGX if they deal in securities listed on SGX. The human beings or individuals who
actually transact business had to be “licensed” as representatives, see sections 83 and 87
SFA (but this is no longer the case and it is for the firm itself to monitor them). In
commercial terminology, a salaried employee of a stockbroking company is often also
called a “dealer” and a self-employed person who hires trading facilities from a
stockbroking company is called a “remisier”. Is a firm strictly liable for the acts of its
representative? See ASIC v Saxly Bridge (2004) 47 ACSR 649 (note though that the
suitability requirements in s 851 Corporations Act are no longer found in section 121
SFA although there are equivalent provisions in s 36 FAA which only imposes liability
on the firm and not the representative), and in Australia, representatives are not licensed
separately, which is also the case now in Singapore since the SFAA 2009 fully came into
force.

Ramesh s/o Krishnan v AXA Life Insurance Singapore Pte Ltd [2017] SGHC 197 at [9]

9 For context, MAS has in place several measures to ensure that regulated
activities (“Regulated Activities”) under the Financial Advisers Act (Cap 110,
2007 Rev Ed) and the Securities and Futures Act (Cap 289, 2006 Rev Ed) are
carried out by fit and proper persons. One such measure is the “Representative
Notification Framework” (“RNF”) under which financial institutions regulated by
MAS are required to obtain a licence (“RNF licence”) before they appoint a
representative to carry out Regulated Activities. These financial institutions are
also required to conduct due diligence checks in respect of the representatives
they propose to appoint. This includes conducting reference checks with the

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 representatives’ former employers or principals in order to establish that the
proposed representatives meet certain prescribed standards.

SFAA 2009 also introduced requirements that firms should take reasonable steps to
prevent the market misconduct (as opposed to breaches of the conduct of business rules)
of their employees (see Consultation Paper 020-2006, December 2006):
http://www.mas.gov.sg/masmcm/upload/mm/
MM_4D0611F0_D606_F5E9_6F82A9F0B04440C1__4D0611FF_D606_F5E9_6C15EF
4906FE343D/SFA_FAA_Dec_06_Amendment_T2_Consultation_Paper.pdf.

But query whether the following, found in the speech introducing SFAA 2009 now s
331 is workable in practice:
24. The amendments will make a company liable where it is proven that the
market misconduct by its employees has been committed with the consent or
connivance of the company, or where the company through its negligence has
failed to prevent or detect the employee’s market misconduct. Where the
misconduct is attributable to the company’s negligence, only civil penalty liability
and civil liability will be imposed. In contrast, where the misconduct is
attributable to the company’s consent or connivance, the company will be
exposed to criminal liability, civil penalty liability and civil liability.
See now Commonwealth Bank of Australia v Kojic [2016] FCAFC 186 (no
aggregation for unconscionable conduct)

What is the relationship between a broker-dealer and its dealers/remisiers?

See Tat Lee Securities v Tsang Tsang Kwong (unreported judgment of W Khoo J), on
appeal [2000] 1 SLR 1. See now Ong & Co v Lai [2003] 1 SLR 1.

What is the status of transactions by an unlicensed broker?

See Tan Chor Thing v Tokyo Investment Pte Ltd [1991] 3 MLJ 87 (analogous case on
futures brokers, but recall Tinsley v Milligen [1994] 1 AC 340, see Tan LM, Insurance
Law in Singapore (2nd ed 1997 at 269-272)). Australian and UK legislation have specific
provisions to deal with this eventuality. See eg section 795 Australia Corporations Act
2001. Cf Hughes v Asset Management [1995] 3 All ER 669. See now The Enterprise
Fund II Ltd v Jong Hee Sen [2019] SGHC 87.

Fiction of "reliance" in illegality? Ting Siew May v Boon Lay Choo [2014] 3 SLR 609.
The trend is towards ameliorating the harsh effects of illegality, which renders contracts
void and unenforceable, whether through finding common law exceptions or through
statutory enactment,5 and it may be that licensing should also be seen more as a
regulatory requirement than one concerning contractual capacity. See now Patel v Mirza
[2016] UKSC 42 (but in Singapore only for contracts tainted by illegality). But see now
5
See eg the Singapore Academy of Law Reform Report on Relief from Unenforceability of Illegal
Contracts and Trusts, July 2002.

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the very important decision of Orchoid Trading Ltd v. Chua Siok Lui (trading as VIE
Import & Export) [2018] SGCA 5 which applied the stultification test in the context of
illegality. Although there was an independent cause of action in unjust enrichment for the
total failure of consideration, the importance of the Moneylenders Act (CAP. 188, 2010
REV. Ed.) meant that recovery of the illegal loan was not permitted.

In addition, SGX requires dealer’s representatives and remisiers to be registered with it as

Trading Representatives and such persons have to be approved by the SGX. See rule 7.4
of the SGX Rules.

What if a salaried dealer or a remisier is not approved by the SGX? See Theresa
Chong v Kin Khoon & Co [1976] 2 MLJ 253.

(B) GRANT, RENEWAL AND REVOCATION OF LICENCES (leave out as of

little importance since SFAA 2009 has introduced a perpetual licensing
regime for corporate licensees and notification framework for individuals)

As to the making of an application for a licence or a renewal thereof, briefly read sections
84 to 98 SFA. Also read the following:

 PB Chapman v Deputy Registrar of Companies [1977] 2 MLJ 5

 Doughty v Corporate Affairs Commission (1988) 13 ACLR 612
 Story v NCSC (1988) 13 ACLR 225

What are the considerations to be taken into account by MAS in granting or

renewing a capital markets services or representatives’ licence? What are the
grounds for suspending or revoking an existing licence? Are there any avenues of
appeal?

(C) BREACH OF CONDITIONS OR RESTRICTIONS OF LICENCES

Conditions and restrictions may be imposed on a licence, see section 88 SFA. Read Choo
Pit Hong v PP [1995] 2 SLR 255. This case also supports the older form of the “know
your client” rule, now known as the suitability rule. There is another, more accepted,
aspect of the know your client rule that relates to money-laundering, which is now
generally covered by the Corruption, Drug Trafficking and Other Serious Crimes
(Confiscation of Benefits) Act (Cap 65A) as well as the Terrorism (Suppression of
Financing) Act 2002.

Note that section 325 of the SFA applies also to cases of contravention or intended
contravention of the conditions or restrictions of a licence. The effect of section 325 will
be discussed later.

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(D) PRUDENTIAL CONTROLS ON BROKER-DEALERS (eg how licensed
brokers maintain their balance sheets or financial position)

See discussion on capital requirements and margin requirements. See also the trust
account requirements at section 104-5 SFA and Part III SF (Licensing and Conduct of
Business) Regulations 2002. Compare this with deposits taken by banks, why is there
a difference? Which requirements work to prevent liquidation, and which to protect
investors from the consequences of liquidation?

See now Vintage Bullion DMCC v Chan Fook Yuen [2016] 4 SLR 1248: noted Singapore
Academy of Law Annual Review 2017: links:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2948235

(E) CONDUCT OF BUSINESS RULES (eg how licensed brokers sell securities
or give financial advice)

Previously sections 117 to 125 SFA contained conduct of business rules which governed
how holders of a capital markets services licence had to carry out their business. Most of
these provisions have been moved to the Regulations. Section 121 encapsulated a
“suitability rule” which was discussed in Choo Pit Hong, supra. This has been repealed
by the Amendment Act 2005. That rule is now imposed by the SGX Rules as well as the
Financial Advisers Act section 36.

Banks were previously totally exempted from securities and futures legislation. Under the
newer Acts, however, banks, while still exempt from licensing requirements, were
subject to the conduct of business rules in the Act. One, the “suitability” rule, requires a
financial adviser to ensure that there is a reasonable basis for recommending a financial
product to its customer. Another provision requires a bank employee to disclose, to every
customer, all material information relating to any designated investment product that is
recommended, including the terms and conditions of the designated investment product;
benefits to be derived from that product; premium, costs, expenses and other charges.
Both rules, however, were then disapplied by further regulation in 2004 in relation to
most banks selling existing and new products. Later that year, a further exemption was
specifically applied to their offering of structured deposits to retail investors. Could this
partly explain some of the problems in the Lehman mini-bond saga? See Tjio at
[1.18].

Although not a conduct of business rule per se, s 251(9) SFA is in a sense a specific one
in the context of the primary market IPOs. It is intended to prevent the conflicts of
interest that have plagued the securities markets recently, particularly in the US, where
banks that underwrite the sale of securities also put out research reports supporting the
sale: see David Dreman, “Fantasy earnings”, Forbes 1 October 2001 and “Price of
Atonement” Economist 16 Nov 2002. Does this work? See Tjio at [1.05]. But see R
Sivanithy “Paid research: should SGX bother?” Business Times 17 October 2014.

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In the US there is debate about whether the fiduciary rule should apply to advisers and
brokers or the best interest standard: See the Regulation Best Interest by the Securities
and Exchange Commission which came into force in June 2019. Is there really a
difference between the 2 or is it just that fiduciary law in the US may include a
fiduciary duty of care? Is there any real meaning to this in Singapore? Compare the
AHTC case: Weng Fan v Sengkang Town Council [2022] SGCA 72

The previous 131 SFA also required certain holders of a capital markets services licence
to maintain a register of interest in securities. This provision is now in regulations, with
that entire part now devoted to the disclosure of interests in corporations and other listed
entities like business trusts by substantial shareholders, directors and CEOs. Previously,
substantial shareholder disclosure was governed by the Companies Act and it was
thought that the definition of “interest in shares” in section 7 CA was too wide. The idea
was to narrow it down when the provisions were moved to the SFA. Has this been
achieved?

Note the MOF steering committee recommendation in June 2011 to align the definition
of “interest in shares” in the CA with “interest in securities” in the SFA. Phase 2 Draft of
the Companies Amendment Bill 2014 includes amendments to s7(5) CA and this
amendment takes into account the fact that SFA s4(6) has been disapplied by virtue of
SFA s130(5). But further recommendation not to include economic interests, as opposed
to voting rights came into effect on 3 Jan 2016.

Note also that directors and CEOs have to disclose not just their interest in shares but also
other forms of securities in the corporation like debentures etc under SFA s 133 (with the
coming into force of the final part of SFAA 2009). See the recent problems in Singapore
with insiders and their bond purchases:
..\..\newspaper clippings\securities\Enforce disclosure rules to keep bond market fair.pdf

See this IOSCO paper on conflicts of interest in the bond market

https://www.iosco.org/library/pubdocs/pdf/IOSCOPD646.pdf

But CAA 2014 limits this in the case of private companies. With substantial shareholders
it is still interest in voting shares that needs to be disclosed within 2 working days.

Enforcement: https://www.singaporelawwatch.sg/Headlines/MAS-fines-shareholder-for-
not-disclosing-interests-in-first-case-of-civil-penalty-for-such-breaches

Many of the conduct of business regulations center around how much to permit brokers
to do. Legislation may actually be broader than the common law, which was once strict
about agent conflicts. Legislation allows, subject to some requirements like disclosure for
brokers to match trades internally, deal as principal, give advice etc. Hans Tjio, Jan 2023

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