SGX, stockbroking body set out guidelines on TR advice

The Singapore Exchange (SGX) and the Securities Association of Singapore (SAS) on Thursday sent brokers a Guidance Note which outlined the type of investment advice that trading representatives (TRs) are allowed to offer their clients, thus clarifying a grey area that has existed ever since the rules were tightened in the wake of 2008's US subprime crisis.

"TRs are allowed to give ERA (execution-related advice)/recommendations on listed-excluded investment products (EIPs) to clients provided they state the rationale for their ERA ," said SGX and SAS.

"This could be based on technical or fundamental analysis conducted by the TRs, reports issued by other research analysts, or market developments/performance/events," the note added.

On June 29 last year, the Monetary Authority of Singapore (MAS) issued a consultation paper on proposed changes to the Financial Advisers Act that dealt with exempting ERA for EIPs, these being financial instruments that are seen as being less complex or sophisticated and therefore would be well-understood by retail investors.

On Dec 30, MAS released its response to the feedback on that consultation paper, in which it said brokers have to put in place measures to ensure that each time TRs provide ERA in respect of listed EIPs to clients, the TRs must provide the rationale for that advice.

It said the finalised regulations will take effect in the first quarter of this year. SGX and SAS's Guidance Note is therefore aimed at giving brokers time to digest the changes before the new rules come into effect, which is likely to be soon.

The note also reminded brokers that they cannot give ERA without basis or rationale, and provided a non-exhaustive list of many examples in which they are allowed. Among them are:

    recommending a stock because the price-earnings ratio is attractive and the sector has a positive outlook;
    recommending a stock because of a new research report;
    recommending a trade because the stock has moved by a certain percentage;
    recommending a trade because the company had just released either positive or negative news;
    recommending a stock as the sector in which the company operates has displayed growth/decline in the past few months, or similar stocks have risen/fallen over the same period;
    recommending a stock because of its dividend payout policy;
    recommending a trade based on positive/negative sentiment gathered through the TRs' interaction with clients and other TRs;
    recommending a buy or sell based on Wall Street's performance overnight; and
    recommending a trade based on anticipation over whether the US Federal Reserve is about to raise or lower interest rates.

TRs contacted by The Business Times welcomed the move. The president of the Society of Remisiers, Jimmy Ho, described it as being "market-oriented".

"It is a step in the right direction," he said. "The authorities have clearly recognised the importance of TRs being able to guide their clients with useful advice and recommendations."

A dealer at a local brokerage said that setting "OB markers" like this can help drum up more liquidity. "Over time, this will help TRs engage with their clients and also help educate the investing public. It's a win-win that hopefully will see more retail interest return and volume increase."

R Sivanithy


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