Capital Markets Services License – Dealing in Capital Market Products

Capital Markets Services License (CMSL)

A corporation that carries on a business in any regulated activity in Singapore would need to hold a CMSL under the Securities and Futures Act (SFA).  The regulated activities are specified in the Second Schedule to the SFA as follows:

  1. Dealing in capital markets products;
  2. Advising on corporate finance;
  3. Fund management;
  4. Real estate investment trust management;
  5. Product financing;
  6. Providing credit rating services;
  7. Providing custodial services

Criteria for grant of a CMSL

  1. The applicant is an established Corporation. For applicants that are incorporated in a foreign country, they should satisfy Monetary Authority of Singapore (the “MAS”) that the branch in Singapore would be subject to proper management oversight and be able to comply with all laws and regulations governing its operations.
  2. The applicant is a reputable entity that has an established track record in the proposed activity.
  3. Where applicable, the applicant is subject to proper supervision by its home regulatory authority.
  4. The applicant establishes and operates out of a physical office in Singapore.
  5. The applicant is primarily engaged in the business of conducting any one of the regulated activities
  6. The applicant, its officers, employees, representatives and substantial shareholders are fit and proper, in accordance with the criteria set out in the Guidelines on Fit and Proper Criteria issued by MAS.
  7. The applicant’s board of directors should demonstrate good corporate governance standards and practices and comprise a minimum of 2 members, at least one of whom is resident in Singapore and approved by MAS.

The present article shall introduce you to the specific regulated activity of dealing in “Capital market product” and the regulatory requirements pertaining to the same.

What is a Capital Markets Product?

The Securities and Futures Act, defines a Capital Market Product as “any securities, units in a collective investment scheme, derivatives contracts, spot foreign exchange contracts for the purposes of leveraged foreign exchange trading, and such other products as the Authority may prescribe as Capital Markets Products

On 8 June 2018, the MAS gazetted the Securities and Futures (Capital Markets Products) Regulations 2018 (“Regulations”). The Regulations introduces the definition of “Prescribed Capital Market Products” under section 309B(10) of SGA, and set out the classes of Prescribed Capital Market Products as follows:

  1. stocks or shares issued or proposed to be issued by a corporation or body unincorporated;
  2. units of shares that represent a unit holder’s ownership in underlying shares;
  3. rights, options or derivatives issued or proposed to be issued by a corporation or body ;unincorporated in respect of its own stocks or shares;
  4. units, derivatives of units , in a business trust;
  5. units in a collective investment scheme that satisfies all MAS conditions;
  6. certain Debentures;
  7. contracts or arrangements under which one party agrees to exchange currency, immediately, at an agreed rate of exchange with another party;
  8. Capital Market Products consisting of two or more Capital Market Products (as mentioned above) that are linked together in a stapled manner such that any one of the linked Capital Market Products is not transferable and cannot be otherwise dealt with independent of the remaining linked Capital Market Products.

Specific Additional Criterion for CMSL – Dealing in Capital Market Products

Over and above the general requirements for obtaining a CMSL, the applicant for a CMSL for Capital Market Products has to satisfy the authorities that it meets the requisite Base Capital Requirements and Professional Indemnity Insurance (PII) requirements, as stipulated as here under:

Base Capital Requirements (BCR) in SGD Professional Indemnity Insurance (PII) Requirements
250,000 500,000 1 Million 5 Million
Dealing in Securities,  Units in a Collective Investment Scheme or Exchange-Traded Derivates Contract Introducing Broker Trading Member

Non-Member

Clearing Member Member firms-  50% of revenue from dealing in capital markets products, subject to a cap of S$25m

 

Non-member firms – 50% of revenue from dealing in capital markets products, subject to a cap of S$10m.

OTC Derivatives Others Non-clearing member with non-retail clients Clearing Member

Non-clearing member with retail clients

50% of revenue from dealing in capital markets products, subject to a cap of S$25m.
Trading in Commodities Futures Contracts Restricted Broker Non-clearing member and

Non-member

Clearing member
Foreign Exchange Spot foreign exchange contracts for the purposes of leveraged foreign exchange trading only with customers who are accredited investors, institutional investors or expert investors For the purposes of leveraged foreign exchange trading with any customer who is not an accredited investor, institutional investor or expert investor 50% of revenue from dealing in capital markets products subject to a cap of S$25m.

For the Purpose of the Table, the terms have been defined as under:

  1. Introducing Broker: For the purposes of dealing in capital markets products that are securities, units in a collective investment scheme or exchange-traded derivatives contracts, Introducing Broker refers to a corporation that does not carry any customer’s positions in those capital markets products, margins or accounts in its own books; and either (i) carries on the business only of soliciting or accepting orders for the purchase or sale of any of those capital markets products from any customer or (ii) accepts money or assets from any customer as settlement of, or a margin for, or to guarantee or secure, any contract for the purchase or sale of those capital markets products by that customer.
  2. Trading Member : Refers to a corporation which is a member of an approved exchange
  3. Non-member : Refers to a corporation which is a not a member of an approved exchange
  4. Clearing member: Refers to a corporation which is a member of an approved clearing house.
  5. Non-clearing member: Refers to a corporation (not being an introducing broker or restricted broker in relation to trading in commodity futures contracts) which is not a member of an approved exchange.
  6. Non-clearing member with retail client: Refers to a corporation that is not a member of an approved clearing house and carries out dealing in capital markets products that are over-the-counter derivatives contracts with any customer who is not an accredited investor, an expert investor or an institutional investor.
  7. Non- Clearing member with non-retail client: Refers to a corporation (that is not a member of an approved clearing house and carries out dealing in capital markets products that are over-the-counter derivatives contracts with only customers who are accredited investors, expert investors or institutional investors.

How can Argus help?

Argus Global can help you set up thorough and pertinent policies and procedures to make sure you comply with all the regulations concerning your business, as well as provide any regulatory compliance services you may need from licensing to risk management. If you are keen in dealing with Capital Market Products, we can assist you in meeting all the regulatory requirements and all other compliance needs that may arise.  We will be happy to answer your queries, whether specifically to this article or any other regulatory compliance hurdles you may face. Do reach out to us at info@argusglobal.co.

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