5 Execution and Handling of Orders

The largest market-practice chapter. Learn the general dealing principles first, then apply them to misconduct, FX, NDF, money-market, debt-security and SGS conventions. The examination tests the conventions and the misconduct prohibitions.

5.1 General Dealing Principles and Market Conduct

Execution requires fair dealing, accurate quotes, clear authority, reliable records and disciplined handling of orders. A representative must know whether a communication is indicative or firm and must honour commitments within the applicable convention.

5.1.1 Rates and Quotes

A quote should identify the relevant product, side, amount, tenor, value date and conditions when those features affect price. Quotes must not be misleading, and a dealer should clarify ambiguity before treating a response as a deal.

5.1.2 Dealing Amounts

Marketable amounts and minimum dealing sizes are conventions, not permission to mislead. A dealer should state the amount available, respect limits and promptly correct a genuine error through the approved process.

5.1.3 Discovering Names from IDBs

An IDB may preserve anonymity during price discovery, but a name is disclosed at the appropriate point under market convention and credit controls. A dealer must not use a name to bypass limits or disclose it improperly.

5.1.4 Direct Dealing

Direct dealing requires clear identification of the parties, authority, terms and capacity. Both sides should understand whether the quote is firm, the trade is done and which settlement instructions apply.

5.1.5 Electronic Trade Conventions

Electronic platforms have specific rules for quote validity, deal acceptance, timestamps, error handling and confirmations. Users must understand the system’s status messages and must not exploit an obvious technical error.

5.1.6 Handling Customer Orders

Customer orders should be time-stamped, prioritised and executed fairly within the mandate. Front running, withholding, selective disclosure, unjustified aggregation and misleading partial fills are prohibited or highly risky.

5.2 Market Misconduct

Market misconduct includes using inside information, manipulating price or volume, misleading other participants, misusing customer orders and creating artificial transactions. Intent, knowledge, effect and surrounding conduct all matter.

5.2.1 Insider Trading

Insider trading involves trading or communicating while in possession of material non-public information in breach of duty or law. Confidential customer and issuer information must be controlled and escalated.

5.2.2 Front Running

Front running is trading or arranging a trade ahead of a known customer order to benefit from the expected price effect. Customer order information must not be used for the representative’s or another customer’s advantage.

5.2.3 Withholding Orders

An order should not be withheld to improve a dealer’s position, favour another customer or manipulate price. Any delay must have a legitimate, documented reason consistent with the mandate and market rules.

5.2.4 Disclosure of Customer Orders

A customer order is confidential. It may be disclosed only under a permitted basis and only to the extent necessary for execution, risk management, settlement, legal obligation or another legitimate control purpose.

5.2.5 Bucketing

Bucketing occurs when an intermediary takes the opposite side or otherwise handles a customer order without executing it as represented, often concealing whether the order reached the market. Accurate capacity and execution records are essential.

5.2.6 Price Manipulation/Cornering

Manipulation and cornering create an artificial price or control supply to force others to transact at distorted levels. Genuine competitive trades are different from a plan to create a false market.

5.2.7 False Trading

False trading creates or maintains an appearance of active trading or price movement without genuine economic purpose. Wash trades, matched orders and sham transactions can be evidence of this conduct.

5.2.8 Fraudulently Inducing Persons to Trade

A person must not use false statements, deceptive promises or material omissions to induce another participant to trade. Market commentary should be accurate, balanced and clearly identified as opinion where appropriate.

5.2.9 Fraudulent/Deceptive Devices

Devices or schemes that deceive, manipulate or circumvent market rules are prohibited even if they do not fit a single named example. A dealer should escalate unusual strategies designed to create a false impression.

5.2.10 Dissemination of Illegal Transaction Information

Information about an illegal or prohibited transaction must not be disseminated to encourage, conceal or repeat the conduct. Escalation and preservation of evidence are the appropriate responses.

5.2.11 Points and Positions Parking

Parking points or positions can conceal risk, shift P&L or misstate a firm’s true exposure. Temporary transfers still require genuine economic purpose, authority, documentation and risk assessment.

5.3 Risk Controls and Audit

Execution controls include deal checks, confirmations, out-trade handling, complaints, arbitration and disciplined error cancellation. Controls should be contemporaneous and independently checkable.

5.3.1 Intraday Deal Checks/Confirmations

Intraday checks compare the dealer’s records with counterparties and systems while errors can still be corrected. A confirmation is a control, not merely an administrative document.

5.3.2 Articulation of Deal Confirmations

Confirmations should state the complete economic terms, parties, capacity, value dates, settlement details, fees and any special conditions. Ambiguity should be resolved promptly through an approved channel.

5.3.3 Out-trades

An out-trade is a mismatch between the parties’ records or trade terms. It should be escalated and reconciled promptly without silently changing records or allowing settlement to proceed on an unverified basis.

5.3.4 Complaints

Complaints should be acknowledged, recorded, investigated independently where appropriate and resolved under the firm’s process. A representative must not discourage a customer from complaining or alter evidence.

5.3.5 Arbitration

Where a market convention or contract provides arbitration, the parties should follow the agreed procedure, preserve evidence and respect the decision. Arbitration is not a reason to bypass routine confirmation and escalation.

5.3.6 Cancellations/Error Trades

Cancellation is not automatic simply because a price moved or a party regrets a trade. Genuine errors should be handled under the applicable convention, with both parties’ agreement where required and full records.

5.4 FX Dealing

FX dealing uses conventions for trading hours, value dates, swaps, options, disruptions and rate setting. The dealer must know currency-pair conventions and state non-standard terms explicitly.

5.4.1 Trading Hours

The wholesale FX week generally opens at 0500 Sydney time on Monday and runs until 1700 New York time on Friday, subject to conventions and holidays. Local desk hours are not the same as the global market convention.

5.4.2 Value Dates

Spot, tomorrow-next and forward value dates depend on currency calendars and business-day conventions. A dealer must check both currencies and communicate any non-standard date.

5.4.3 Disruptions/Unforeseen Holidays

An unforeseen holiday or payment-system disruption can prevent normal value or settlement. Parties should communicate, follow agreed or recommended procedures and avoid unilateral changes that create avoidable risk.

5.4.4 FX Swap Dealing

An FX swap exchanges currencies on a near leg and reverses the exchange on a far leg. The near-leg spot rate, swap points, value dates and counterparties should be agreed and recorded clearly.

5.4.5 FX Swap Rate Setting

Swap pricing should reflect the agreed spot rate, market swap points, value dates and the convention for setting the far-leg rate. The price maker should not manipulate or delay rate setting after the deal is done.

5.4.6 Off-Market Rollovers

An off-market rollover changes a position at a rate not representative of the market and requires a legitimate reason, transparency, approval and appropriate documentation. It must not conceal a loss or transfer value unfairly.

5.4.7 Currency Options

Currency options create asymmetric rights and obligations and may include premium, strike, expiry, exercise and settlement conventions. The customer should understand the risk and the dealer must document the agreed terms.

5.5 NDF

NDFs are cash-settled forward contracts in a non-deliverable currency. Fixing sources, quotation direction, fixing date, maturity and settlement amount must be unambiguous.

5.5.1 NDF Trading Hours

NDF dealing follows the relevant market’s conventions and fixing window. A dealer should confirm whether the market is open, the quotation convention and the time used for the fixing.

5.5.2 NDF Disruptions

If the fixing source or market is disrupted, the contract’s fallback or disruption provisions apply. Parties should document the event, communicate promptly and avoid inventing a fixing unilaterally.

5.5.3 Quoting Conventions

NDF quotes must state the currency pair, direction, rate units, notional currency, tenor and whether the quote is firm or indicative. A quote that reverses the convention can create a material error.

5.5.4 Fixing/Maturity Dates

The fixing date determines the reference rate used to calculate the cash difference, while maturity or settlement follows the contract convention. They should not be treated as interchangeable dates.

5.5.5 Settlement/Fixing

NDF settlement is normally the net cash difference between the contracted rate and fixing rate, converted and paid according to the agreed convention. The dealer must check sign, currency and payment date.

5.6 Money Market

Money-market dealing depends on precise value date, tenor, day-count, rate basis, amount and settlement conventions. Small ambiguities can change interest or principal materially.

5.6.1 Value Dates

Quotes should state or make clear the standard value date, maturity, tenor and marketable amount. Counterparties should confirm the precise settlement dates to avoid different interpretations.

5.6.2 Interest Rate Options

Interest-rate option conventions should state whether a delta hedge is assumed, how premium and settlement work and what underlying rate or instrument applies. Non-standard assumptions must be explicitly agreed.

5.7 Debt Securities

Debt-securities dealing requires clarity on settlement, clean or dirty price, accrued interest, coupon periods, value dates, holidays and clearing platform. A price cannot be understood without its quotation convention.

5.7.1 Value Dates/Settlement/Holiday

Settlement dates follow the relevant market calendar and holiday rules. A holiday affecting the currency, security or settlement platform can change the due date and should be identified before execution.

5.7.2 Price Quotations

Debt-security prices should state the quote basis, units and whether accrued interest is included. The buyer and seller must be able to calculate the same consideration from the quote.

5.7.3 Interest Accrual

Accrued interest compensates the seller for coupon earned since the last coupon date. It depends on the day-count convention, dates and coupon terms and should be included or excluded consistently.

5.7.4 Coupon Period

Coupon periods determine payment dates and accrual. Irregular first or last periods, ex-coupon periods and business-day adjustments require attention to the security terms.

5.7.5 Clearing/Settlement Platform

The agreed clearing and settlement platform affects instructions, cut-offs, eligibility and finality. The correct platform and account details should be captured in the confirmation.

5.8 SGS

Singapore Government Securities dealing follows MAS rules, SGS market practices, quotation and lot conventions, trading hours and securities-lending arrangements. Compliance is required even where the trade is between sophisticated institutions.

5.8.1 Compliance Rules

Dealers must follow applicable MAS requirements and market-conduct standards when dealing in SGS. A government security is not exempt from controls on misleading dealing, settlement or records.

5.8.2 Guidelines/Directives

The SGS rules and market-practice guide set operational conventions and expectations. Dealers should use the current version and escalate conflicts between a local practice and a binding directive.

5.8.3 Trading Hours

SGS trading hours and cut-offs affect quote validity, confirmation and settlement. A dealer should not assume that FX or money-market hours apply to SGS.

5.8.4 Price Quotations

SGS price quotations must follow the market convention, including price or yield basis, tick size and any accrued-interest treatment. The quote should be sufficiently clear to avoid a calculation dispute.

5.8.5 Market Lot Transactions

Market-lot and odd-lot conventions determine whether an order is within the standard dealing size and how it may be executed. The dealer should state any non-standard amount and obtain agreement.

5.8.6 Securities Borrowing/Lending

Securities borrowing and lending transfers securities against collateral under agreed terms. It must be documented, authorised and controlled for counterparty, collateral, settlement and recall risk.

5.9 Restrictions against Lending SGD

MAS notices restrict certain SGD lending to non-resident market participants. Dealers must identify the borrower, transaction structure and exemptions before arranging an SGD loan or an FX swap that has the same economic effect.

5.10 Specific Execution Requirements

IDBs, prime brokers and electronic-platform providers create distinct execution and control responsibilities. The firm should understand each intermediary’s role, authority, records and risk limits.

5.10.1 IDBs

An IDB should relay special conditions accurately, preserve the sequence and integrity of quotes, disclose names at the proper point and avoid proprietary dealing. The principal remains responsible for its own authority and limits.

5.10.2 Prime Brokers

Prime-broker arrangements centralise execution, clearing or settlement while allocating obligations among the client, executing dealer and prime broker. Authority, give-up, margin, limits and default provisions must be clear.

5.10.3 E-Trading Platform Providers

Platform providers need controls for access, capacity, cyber risk, timestamp integrity, order handling, outages, error trades and audit trails. Users must understand the platform rules before relying on automated execution.

Exam cues

• Misconduct list: insider trading, front running, withholding orders, disclosing customer orders, bucketing, price manipulation/cornering, false trading, fraudulent inducement, deceptive devices, illegal-transaction information and points/positions parking.
• FX week: opens 0500 Sydney Monday, closes 1700 New York Friday. Value dates depend on both currencies’ calendars.
• FX swaps: near leg plus far leg; the far-leg rate follows the agreed spot and market swap points. Off-market rollovers must have a legitimate reason, transparency and approval.
• NDF: cash-settled on the difference between contracted rate and fixing rate; state currency pair, direction, units, notional currency, tenor and firm/indicative status. Fixing date ≠ maturity date.
• Debt securities: a price is meaningless without its basis — clean or dirty, accrued interest, day-count and settlement date.
• SGS: its own MAS rules, market-practice guide, trading hours and lot conventions — do not assume FX or money-market hours apply.
• SGD lending restriction: identify the borrower, structure and exemptions before arranging an SGD loan or an economically equivalent FX swap.
• Trap: a genuine error is corrected through the approved process and both parties’ agreement — cancellation is not automatic because a price moved.

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