Compliance Corner: Singapore, Hong Kong

Editorial Staff

14 April 2020

Singapore
Three prominent financial groups in Singapore have launched a checklist to guide listed and unlisted business entities on how to carry out general meetings when heightened safe distancing measures are in place to fight the COVID-19 pandemic.

The checklist has been rolled out by the has found that the vast majority of leveraged foreign exchange trading clients it tracked in 2018 were retail investors, raising questions about whether they should be involved in this area.

The survey found that 98 per cent of active LFET clients were retail investors and more than 99 per cent of turnover in the LFET market was attributable to rolling spot forex contracts. Turnover was relatively low for more complex forex products such as options and forward contracts, which may be difficult for retail investors to understand.

All LFET products were traded on an over-the-counter basis, the SFC said in a statement last week.

As part of the SFC’s survey, a sample of brokers were selected to provide more detailed information. These brokers reported that more than 60 per cent of their LFET clients made net trading losses in LFET, and some investors suffered losses of over HK$1 million.

"Leveraged foreign exchange trading may not be suitable for everyone. It is done on a margin basis and these products may involve complex or non-standard features. Even experienced investors may suffer huge losses in such trading, especially in times of high market volatility," Ashley Alder, the SFC’s chief executive, said. "Brokers should ensure that their clients fully understand the nature and risks of these products and have sufficient financial resources to assume the risks and bear the potential losses."

The survey data covered the 32 firms licensed for Type 3 regulated activity (leveraged foreign exchange trading) which reported on their LFET activities in 2018. The sample contributed 77 per cent of market turnover and their clients accounted for 41 per cent of total active LFET clients.