Changes to SGX-ST Bye-Laws
From 1 October 2000, brokerage rates will be fully negotiable for all transactions on Singapore Exchange Ltd Securities Trading (SGX-ST). In view of this, SGX has removed the rules that govern rebating of brokerage, including the provision of soft dollars to clients, subject to appropriate internal controls and procedures. Broking members will also be free to negotiate and agree with their remisiers on the sharing of brokerage generated by remisiers. The relevant SGX-ST Bye-Laws have been amended to reflect these changes. The Exchange has also made amendments to certain existing SGX-ST Bye-Laws in order to clarify the application of the Bye-Laws to on-line trading.
Prudent Risk Management in a Fully Negotiated Brokerage Environment
SGX, in consultation with market practitioners, has reviewed the feasibility of introducing counterparty risk mitigation measures that would reduce systemic risks in the stockbroking industry. After careful consideration, and in line with other international markets which have also moved to fully negotiated brokerage regimes, the Exchange has decided not to impose mandatory counterparty risk mitigation measures. Members will have the flexibility to decide how best to position themselves and differentiate their services. Members will, however, need to carefully assess the risk-return profile of their business activities and adopt appropriate counterparty risk mitigation measures to exercise prudent control over their exposures to clients.
In established markets, counterparty risk mitigation measures adopted by brokers include requiring clients to put down advance deposits before they are allowed to trade, requiring clients to have adequate funds in their designated bank accounts before their trades are executed, and encouraging other forms of collateralised trading, such as margin share trading.
SGX-ST Guidelines on Account Opening Procedures
Members are currently expected to require new clients who wish to open new trading accounts to do so in person, so that members may verify the identity of the clients and satisfy themselves that these clients are bona fide. As on-line trading gains popularity as a cost-effective medium to broaden brokers' customer base, members will need greater flexibility in managing client account opening to facilitate their reach to investors, particularly those outside Singapore.
Following a review, the Exchange has decided that while member companies should, wherever practicable, require clients to appear in person when opening trading accounts, they should have the flexibility to employ such other means as would enable them to reasonably establish the bona fide identity of these clients.
Sound Practices Guidelines on Internet Trading
To ensure the adequacy of member companies' on-line trading infrastructure and to boost public confidence in on-line trading, SGX, in consultation with the Monetary Authority of Singapore ("MAS"), formed a Working Group ["Internet Working Group (IWG)"]. It comprised representatives from MAS, member companies and the Exchange.
The IWG has recommended the issue of a guidance note entitled "Sound Practices Guidelines for Internet Trading". It sets out sound practices in terms of the system controls and procedures that member companies with on-line systems should be expected to observe, covering areas such as security arrangements and controls, back-up facilities, capacity and service standards, credit control, and investor education. SGX has accepted the IWG's recommendations and requires member companies to observe the guidelines.
