MAS Trade Compliance
|What happened?||In 2019, the Monetary Authority of Singapore (MAS) released a consultation paper highlighting new requirements to protect against market abuse and a trade surveillance best practice guide jointly published with the Singapore Exchange (SGX). Intrinsically linked, these documents provide guidelines to help firms prevent market abuse, including market manipulation and insider training, while also promoting a fair, orderly and transparent market.
|Who issued the new guidance?||MAS – Monetary Authority of Singapore
SGX – Singapore Exchange
|Who is affected?||All Financial Trading firms (e.g. Banks, Broker-Dealers, etc.) in Singapore
|What’s the rationale behind the new guidance?||MAS and SGX RegCo have carried out multiple on-site inspections of brokers trade surveillance programs. In the most recent inspections of 10 retail brokers focused on three main areas:
• Governance frameworks;
• Surveillance processes and resources;
• Escalation policies.
Previous on-site inspections of brokers’ trade surveillance programs revealed that many brokers still manually review exception reports which "may be operationally inefficient and prone to errors". A detailed trend analysis was incorporated into MAS’ and SGX RegCo’ assessments.
What are the recommended guidance to firms?
MAS-SGX outlined five trade surveillance guiding principles in the Best Practice Guide for firms to consider, including improvements to: oversight, detection mechanisms, resource allocation, recordkeeping and communication. To effectively address these principles, firms will want to consider the following surveillance initiatives:
- Automating Trade Surveillance and Analytics
The guidance: According to the MAS Guidance, FSOs should implement "appropriate systems and structured processes" to detect potential market misconduct. To accomplish this, MAS and SGX recommend adopting automated surveillance systems, artificial intelligence and machine learning to enhance monitoring of trading activities.
- Recording of Communications
The guidance: According to the MAS Guidance, FSOs should record all communications between TRs and the persons providing instructions on orders and trades in clients’ accounts. This extends to all communication channels, including messaging services like chat, text and social media as well as voice communications. Records of all communications (which may provide evidence of market misconduct) need to be made available to surveillance staff for review and monitoring. By implication, as traders increasingly use diverse channels to communicate, FSOs will need more sophisticated surveillance tools to identify potential misconduct.
- Monitoring for Market Abuse
The guidance: According to MAS, trade surveillance programs (including the specific alert types, exception reports, parameters and thresholds) should be commensurate with each FSOs nature of business and scale of operations. Minimally, firms should monitor for the following types of activities (keeping in mind that this list is neither exhaustive or definitive):
• Pre-Arranged Trading
• Wash Trades
• Front Running
• Ramping/Price Driver
• Security Dominance
• Insider Trading
• Unauthorized Trading
Additionally, the surveillance operation should be back-tested with historical data to ensure its effectiveness and reviewed annually (or as deemed appropriate) to ensure continued effectiveness – especially if the firm’s models have too many or too few exceptions, or too many false positives. For any alerts and exceptions raised, MAS advises firms to conduct robust assessments using proper records (within a reasonable time period) to ensure timely review and escalation of potential market misconduct scenarios.
How Firms Can Move Forward
In the recently published Practice Guide and consultation paper, MAS and SGX recommend that firms start taking steps to improve their surveillance capabilities today. We invite you to read more to see how our NICE COMPASS compliance assurance solution, our communications recording solutions, and our SURVEIL-X Holistic Surveillance solution can help.