Practice Note 12.3.1, 12.3.4 — Additional Safeguards for Trading by Young Investors
|Issue Date||Cross Reference||Enquiries|
Added on 14 May 2009
Amended on 19 May 2014 and 1 July 2016.
Please contact Member Supervision:
Facsimile No : 6538 8273
E-Mail Address: firstname.lastname@example.org
1.1 With effect from 1 March 2009, the age of contractual capacity under the Civil Law Act has been lowered from 21 to 18. Accordingly, the minimum age requirement for securities account holders is lowered to 18.
1.2 In relation to a Trading Member that holds a licence specified in Rule 4.1.1(1)(b), the minimum age requirement for securities account holders in the jurisdiction of such Trading Member ("Foreign Acceptable Age") shall be such minimum age as prescribed by the Relevant Regulatory Authority. Where no Foreign Acceptable Age is prescribed by the Relevant Regulatory Authority, the Foreign Acceptable Age shall be 18.
1.3 SGX-ST recognises that individuals above the age of 18 or the Foreign Acceptable Age and below the age of 21 years ("Young Investors") may be new to the securities market and have limited trading experience. These Young Investors may not fully appreciate the risks of securities and other investment products offered to them.
1.4 This Practice Note sets out the measures and operational procedures that Trading Members should take as part of good business practice when Young Investors open securities trading accounts with them.
2. Account Opening Procedures
2.1 SGX-ST Rules 12.3.1 and 12.3.4 require a Trading Member to obtain the particulars of a customer and to understand the customer's investment objectives.
2.2 When a Young Investor opens an account carried on the books of the Trading Member, the Trading Member should undertake the following procedures, in addition to their own account opening procedures, and give appropriate emphasis to the following:—
(a) Suitability assessment — Trading Member should assess the suitability, taking into account the financial knowledge and risk capacity of the Young Investors to trade. A specific suitability assessment should also be made before allowing a Young Investor to trade in more complex instruments or products (such as a derivative contract or product with embedded derivatives). The decision to allow the Young Investor to trade in such instruments or products should be approved by a senior executive of the Trading Member. A Trading Member that holds a licence specified in Rule 4.1.1(1)(b) should carry out suitability assessments of Young Investors in accordance with the applicable standards prescribed by the Relevant Regulatory Authority.
(b) Risk disclosure — The risks and uncertainties associated with investing or trading in securities and other products to be sold by the Trading Member should be properly explained to the Young Investor. This is to ensure that he or she has an appropriate understanding of the key risks and commitments involved. A Trading Member that holds a licence specified in Rule 4.1.1(1)(b) should provide risk disclosure to Young Investors in accordance with the applicable standards prescribed by the Relevant Regulatory Authority.
3.1 Trading Members should ensure that the relevant staff members are adequately trained and familiar with the safeguards put in place for Young Investors. Similarly, any additional procedures should be communicated to all Trading Representatives to ensure proper adherence and consistent application.
3.2 In addition, a senior executive should be appointed to oversee and take responsibility for managing all issues relating to Young Investors. This includes monitoring the Trading Member's dealings with the Young Investors and making appropriate adjustments to the procedures and processes, where necessary.
4. Investor Education
4.1 Trading Members should offer basic investment courses to Young Investors, as well as product-specific courses to those who wish to trade in more sophisticated instruments and products. These courses will enable Young Investors to be more aware of the implications of their trading decisions and to be able to make better investment choices.
4.2 Such courses may be organised or conducted by third party course providers or in-house trainers.