Market Conduct

Part XII of the Securities and Futures Act 2001 (SFA) sets out the prohibited forms of market misconduct for capital markets products. It applies to everyone who deals in or advises on capital markets products, which covers securities, securities-based derivatives contracts, units in a collective investment scheme and derivatives contracts. Exchange member firms, non-exchange-member dealers, their representatives and ordinary investors are all caught. The prohibitions are grouped into two divisions. Division 1 (Prohibited Conduct) covers false trading and market rigging (s.197), manipulation of the price of derivatives contracts and cornering (s.201B), market manipulation in securities and securities-based derivatives contracts (s.198), false or misleading statements and information (s.199), bucketing (s.201A), fraudulently inducing persons to deal (s.200), employment of manipulative and deceptive devices (s.201), and dissemination of information about illegal transactions (s.202). Division 3 (Insider Trading) covers dealing, procuring and tipping while in possession of inside information (ss.218 and 219). Trading standards in the SFR(LCB) sit on top of Part XII: non-disclosure of order information, withdrawal and withholding of orders, trading against the customer, priority of customers' orders, and cross trading.

11 sections~7 min read

Checked against the IBF RES 2B Study Guide v1.0 (6 Jun 2024) ch.3; IBF RES 1B Study Guide v1.1 (Nov 2024) ch.3, 2026-09-12. Unofficial prep, not endorsed by MAS or IBF.

Must-know for the exam

SFA Part XII governs market misconduct; Division 1 covers prohibited conduct (false trading, manipulation, false statements, etc.) and Division 3 covers insider trading.
False trading and market rigging (s197) prohibits creating a false or misleading appearance of active trading or of the market/price; wash sales and matched orders are deemed instances.
Under s197 intent to create the false appearance is presumed once the act is proved, shifting the burden to the accused to show a legitimate purpose.
Bucketing (SFA s.201A) is a broker, directly or indirectly, taking the opposite side of a customer's order with a view to profiting from it, without a bona fide purchase or sale on the organised market. It is a derivatives provision.
Fraudulently inducing dealing (SFA s.200) covers false/misleading/deceptive statements, dishonest concealment, and reckless statements made to induce another to deal.
Insider trading in Singapore uses an information-based test: the trigger is possession of information that is not generally available and is price-sensitive, not merely the person's status.
Connected person (SFA s.218): once possession of information that is not generally available is proved, knowledge of its character is presumed until the contrary is proved. Non-connected person (SFA s.219): the prosecution must prove the person actually knew the information was not generally available and was price-sensitive.
Inside information is 'price-sensitive' if a reasonable person would expect it to have a material effect on the product's price or value once generally available.
The insider prohibition covers three acts: dealing, procuring another to deal, and communicating (tipping) the information.
MAS may pursue market misconduct criminally under SFA s.204 or s.221 (beyond reasonable doubt) or by a civil penalty action under s.232 (balance of probabilities). Section 233 bars a civil penalty action once the person has been convicted or acquitted of the offence for the same contravention, or while criminal proceedings are pending. CAD assists with criminal investigation.
The guides name two common false trading practices: hunting for stops, where successively higher bids or lower offers push the price to where resting stop-loss orders trigger, and wash trades, which carry no real economic value and are done to create the impression of volume (guide 3.3, RES 2B).
SFR(LCB) reg 47(1): a CMS licence holder or representative must not withhold or withdraw from an organised market any customer order, or any part of one, for their own benefit or for the benefit of any other person.
SFR(LCB) reg 47C(1): the firm may knowingly buy from or sell to its customer for its own account, an associated or connected person's account, or an account in which it has an interest, only with the customer's prior consent and in accordance with the business rules and practices of the approved exchange or recognised market operator.
Front running is caught by SFR(LCB) reg 44 (priority of customers' orders): do not deal in capital markets products of the same class while an unassociated customer's instruction to buy or sell is unexecuted. The guides treat it as a form of trading on insider information, because customer order flow is non-public.
A cross trade (SFR(LCB) reg 47D) is the simultaneous matching of buy and sell orders for different account owners. The more attractive order is exposed to the market first, and the cross must go through an electronic trading system or the exchange's business rules and practices.
Churning is trading a customer's account for the commission with no sound market opportunity. Overtrading is breaching position limits set by sponsoring members, approved exchanges, clearing houses or regulators. Pre-arranged trading is dealing between traders, dealers or brokers at an agreed or predetermined price.
SFA s.220: it is not necessary to prove that the person intended to use the inside information. SFA s.230 exempts a CMS licence holder or representative who executes an unsolicited order for a principal it did not advise and who is not an associate.
SFA s.234 gives a person who traded at the time of the offence and suffered loss a claim for compensation, on top of any criminal penalty or civil penalty.

The market-conduct framework under SFA Part XII

The framework has extraterritorial reach: it captures acts done in or partly in Singapore affecting products anywhere, and acts done outside Singapore affecting products traded on an organised market in Singapore. So manipulating an SGX-listed counter from overseas is still an offence here.

A breach can be pursued criminally (fine and/or imprisonment, requiring proof beyond reasonable doubt) or through the civil penalty regime (a monetary penalty proven on the balance of probabilities). MAS decides the enforcement route; the two are alternatives for the same conduct, not both.

False trading and market rigging (s197)

False trading and market rigging (SFA s197) prohibits acts that create, or are likely to create, a false or misleading appearance of active trading in a product, or a false or misleading appearance of the market for, or the price of, a product. The offence targets artificial interference with the natural forces of supply and demand.

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Traps that cost marks

Choice A describes the opposite — once it is announced it is generally available and trading on it is permitted.
A short sale is a legitimate mechanism (selling borrowed stock); it is not itself market misconduct.
You do not need to prove a deliberate intent to defraud; recklessness or failing to take reasonable care suffices.
The 'ought reasonably to have known' standard applies to connected persons; for an outside tippee, actual knowledge must be shown.
Genuine stabilisation of a new issue within statutory conditions is a permitted safe harbour, not manipulation.
Trading is only restricted while the information remains non-public; after a proper announcement the restriction ends.
The burden shifts to the accused to rebut the presumption of intent — the prosecution does not have to prove intent afresh.
This is not insider trading — the information is false, not genuine non-public price-sensitive information.

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Exam-style questions

Under the civil penalty regimeAnswer explained →Mr Iskandar is a remisier with no connection to Pico Ltd. At a wedding a stranger tells him that Pico will announce a large contract loss the following week. He believes it, sells his Pico shares, and tells his brother-in-law, who also sells. The announcement is made and the price falls 22 per cent. What must be established for liability under SFA s.219?Answer explained →A director in possession of unannounced good results tells his brother to buy the company's shares. Even if the director never trades himself, he may be liable because the prohibition also coversAnswer explained →Mr Tan, assistant to the CEO of an SGX-listed company, used trading accounts belonging to Mr Yap to buy the company's shares ahead of a takeover announcement and later to sell ahead of the withdrawal of the offer. Which of the following consequences followed?Answer explained →Company A's CEO tells his golf partner (an outsider) about an unannounced acquisition. The partner tells his own broker, who understands it is confidential and price-sensitive and buys. Who can potentially be liable?Answer explained →

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