MAS Best Execution Requirements to Take Effect in March 2022

Following from a November 2017 consultation paper, MAS has set an 18-month transitional period for Singapore financial firms to comply with best execution requirements.

MAS (Monetary Authority of Singapore) has issued its consultation response on new best execution requirements that will be adopted for financial firms in Singapore.

The introduction of the best execution requirement was proposed by MAS in a November 2017 consultation paper.

Under the proposal, holders of a capital markets services licence, banks, merchant banks and finance companies would be required to have in place policies and procedures to place and/or execute customers’ orders on the best available terms to support fair outcomes for customers.

MAS also proposed an enhancement to the existing business conduct requirements relating to handling of customers’ orders.

In its just-published consultation response, MAS clarifies that the best execution requirements would apply to all customer orders, whether executed on a principal or an agent basis, and regardless of whether the orders are executed on-exchange or off-exchange.

Entities that rely on an automated order routing system for an on-exchange trade will have to ensure their infrastructure works as intended and does not result in unnecessary delays in the transmission of orders to the exchange.

The best execution requirements will also apply to fund managers whose dealing functions are conducted by related entities in other jurisdictions, whereby the fund manager is obliged to ensure its related entity has equivalent best execution policies and procedures in place.

The requirements apply to all capital markets products that fall within the definition of securities, units in a collective investment scheme (CIS), derivatives contracts or spot foreign exchange contracts for the purposes of leveraged foreign exchange trading.

MAS will not subject intermediaries to the best execution requirements when it is dealing with customers that are institutional investors (including their affiliates which are institutional investors), on the basis that these customers are sufficiently sophisticated.

Intermediaries should consider holistically different factors such as price, costs, speed, likelihood of execution and settlement, size and nature of the customer’s orders, where appropriate, to achieve the best available terms for customers’ orders, MAS says.

The ‘costs’ factor may include research cost, as MAS has not required research cost to be unbundled from execution cost.

Capital market intermediaries should establish adequate systems or arrangements to monitor, on a periodic basis, the effectiveness of and compliance with its best execution policies and procedures, and proactively disclose these policies to all customers.

The consultation response is available here. The new requirements are set out in a new notice on the execution of customers’ orders, issued with accompanying guidance.

To allow intermediaries sufficient time to formalise their policies and procedures for implementation, MAS has set an 18-month transitional period.

The notice takes effect on 3 March 2022.

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