Commodity Trading Business in Singapore Part 2: Ongoing Compliance Requirements
Financial Requirement for Commodity Brokers
- Every commodity broker and spot commodity broker must ensure that his adjusted net capital does not fall, for 4 consecutive weeks, below the amount equal to or in excess of:
- $250,000; or
- 10% of the amount of customer funds required to be segregated under CTA Regulations, whichever is higher
- If the adjusted net capital of a commodity broker falls below S$400,000 or is less than 12.5% of the amount of customer funds required to be segregated under CTA Regulations, whichever is the higher, he shall:
- In case, where such a broker is a member of a commodity market, then shallinform the market concerned and immediately operate his business in such manner and on such conditions as the market may decide. The market shall immediately notify IE
- In case, where such a broker is not a member of a commodity market, he shall immediately notify IE and operate his business in such manner and on such conditions as the Board may decide.
- IE on receipt of notification of such defaults may review, affirm, modify or set aside the conditions stipulated by the market, and may in addition issue such directions to the commodity broker as it thinks fit, and the broker shall comply with the direction.
Statement of Financial Condition
- At the end of every financial quarter, every commodity broker and spot commodity broker shall prepare financial statements depicting a true and fair picture of the business reflecting the assets and liabilities. Such statements shall be duly signed and submitted to IE within 30 days from the end of the accounting quarter.
- In case of brokers whose adjusted net capital does not meet the requirement(falls below S$400,000 or is less than 12.5% of the amount of customer funds), for five consecutive business days, then immediately duly prepared financial statements must be submitted on a weekly basis until and for eight consecutive weeks after the adjusted net capital meets the requirement. Submissions must be made within three days after the end of each week.
- A person trading for himself or for related corporations may, with IE’s approval, maintain an adjusted net capital of not less than S$25,000 in addition to an irrevocable letter of credit issued on his behalf by an IE approved bank for an amount of not less than S$1 million made in favor of IE or, with the approval of the IE, in favor of the commodity market of which the broker is a member.
Keeping of Records and Accounts by Brokers
Every commodity broker and spot commodity broker shall keep:
- Accounting and other records that sufficiently explain the transactions and reflect the financial position enabling financial statements that are true and fair and facilitating audit.
- Records, in the such prescribed manner, with sufficient details on:
- All amounts received and paid; all purchases and sales of contracts made; relevant charges and credits.
- All transactions by him for himself or for the customers
- Every commodity broker and spot commodity broker shall retain the records and copy of all contracts for a period of not less than six years. Every broker shall undertake reasonable precaution to prevent such records from falsification, damage or loss. Failure to comply with this requirement is an offence that will attract a fine not exceeding S$10,000 or to imprisonment for a term not exceeding 12 months or to both.
Appointment of Auditors
Every commodity broker and spot commodity broker shall appoint an auditor to audit his accounts.
Lodging Annual Accounts
Every commodity broker and spot commodity broker shall within 3 months, or within the period as approved by IE,after the end of the financial year, prepare and submit financial statement along with auditor’s report. Failure to comply is an offence and shall be liable on conviction to a fine not exceeding S$10,000.
Segregation of Funds
All moneys, securities or property received from customer or accruing to the customer shall be segregated as belonging to customers and separately accounted for and kept in a separate trust account. Such money or funds may be withdrawn only for approved purposes, as set out in the CTA regulations. Proper Books of Accounts should be maintained to substantially explain and account all transactions relating to the customers’ account.
Confirmation of Contracts
A written confirmation containing all prescribed details, of each contract executed by the broker on behalf of a customer must be sent to the customer within two days of executing such contract.
Monthly Confirmation Statements
At the close of the last business day of each month, or at any regular monthly date selected by the broker, but not exceeding three months, the broker is required to send a detailed statement to the customer detailing transaction, net profit and loss, total of the customer’s fund held by the broker, credits made, financial charges etc.
Keeping of Records by Trade Adviser and Commodity Pool Operator
Every commodity trading adviser and commodity pool operator shall keep such accounting and other records that reflect the true and fair financial position of the company and sufficiently explain all transactions of the company to facilitate easy audit and preparation of statements. The following is a non-comprehensive list of details that must be maintained in such records:
- Details of customers and their account, transactions and confirmation;
- Records of memo, circulars, contracts, Power of attorney, risk disclosure agreements, acknowledgements, memorandum, publication, writing, advertisement or other literature or advice distributed
- Itemized and detailed records of all commodity transactions
Reporting Requirement for Pool Operators
Every commodity pool operator must distribute an annual report to each participant in each pool that he operates. A copy of the annual report must also be filed with IE within three months after the end of the pool’s financial year or within the time period approved by the IE. The annual report must contain the following:
- The net asset value of the pool as at the end of each of the pool’s two preceding financial years;
- The net asset value of each outstanding participation unit, or the total value of each participant’s interest or share in the pool as at the end of each of the pool’s two preceding financial years, whichever is applicable; and
- Audited financial statements in accordance with generally accepted financial standards
Within 30 days, after the end of each reporting period, the pool operator must distribute to each participant a profit and loss statement and a statement of changes in net asset value for that period, such statements must be signed by the pool operator or two of the directors.
Disclosure Requirement for Pool Operators
Commodity Pool operators are required to provide to all prospective customers a disclosure document before soliciting, accepting or receiving fund, securities etc from them. The disclosure document in the prescribed form containing details such as:
- The name, address and contact details of the pool operator, commodity adviser and if possible, the name and contact details of commodity broker who will execute the trades.
- Details regarding type of contracts and restrictions, if any, and a risk disclosure statement in the prescribed form.
- Any actual or potential conflict of interests that may arise on part of the operator, directors, advisers or brokers involved.
- Performance record of the pool operator, and it must be current not exceeding three months from the date of record reflecting the opening net asset value; all additions, withdrawals, redemptions, etc. made during the period; net performance of pool such as the change in net asset value, additions, withdrawals & redemptions; the end net asset value; rate of return etc.
- The actual performance record of the pool’s commodity trading advisers.
- Complete details and descriptions of expenses incurred by the pool in the previous financial year and an estimate of expenses to be incurred in the current financial year.
- Information relating to the minimum aggregate amount of funds required; maximum aggregate sum that may be contributed; maximum holding period for funds prior to the commencement of trading; the manner and period of disposition of funds, if the pool does not receive the necessary amount to commence trading etc.
- Description of any restrictions upon the transfer-ability of a participant’s interest in the pool.
- Description of the manner in which a participant may redeem his interest in the pool, detailing the method of calculation of redemption value; associated cost; terms of any notification and conditions required for redemption; restrictions on redemption if any.
- Description of the participant’s extent of liability for the obligations of the pool in excess of the funds contributed.
- Information on the pool’s policies with respect to the payment of distributions from profits or capital and the frequency of such distribution.
- Details of trade for proprietary account of pool operator, directors, or advisers of the pool, if any. In case of absence of such trading a statement to that effect with respect to each of such person.
- A statement that the pool operator shall provide all participants with a monthly or quarterly (whichever is applicable) statement of accounts and a certified annual report.
Disclosure Requirements for Trading Advisers
A commodity-trading adviser shall solicit, accept or receive from a client any funds, securities or other property only if he is licensed as a commodity broker or a commodity pool operator.
Before soliciting, accepting or receiving funds, securities or other property from a client a commodity trading adviser shall deliver a disclosure document, containing the following information:
The name and address and contact information of the trading adviser, address of his main business office;
- A description of the trading program, types of commodity contract traded, restrictions, if any, on such trading
- The name of the commodity broker, bank or merchant bank with which the trading adviser will require the client to maintain an account;
- The actual performance record of the trading adviser over the past three years, and details of material difference between the accounts relating to the performance record;
- Details of fees and computation of the same;
- Details on any actual or potential conflict of interest that may arise on account adviser, director or broker; and
- Details of proprietary trading by trading adviser or any of his directors.