| Dear Market
Participant,
The global foreign exchange markets have
been concerned for some time about the practice
of Undisclosed Principal Trading. This is
where a fund manager trading on behalf of
a client (who is the principal of the transaction)
with a counterparty fails to reveal the identity
of the client to the counterparty.
The failure to disclose the identity of the
principal of the transaction exposes counterparties
to a number of credit, regulatory, legal
and reputation risks. For instance, with
the principal of a trade undisclosed, counterparties
would have difficulties verifying its compliance
with anti-money laundering rules and regulations.
The SFEMC as a committee devoted to fostering
growth of the Singapore financial market
as a leading international center for transactions
in foreign exchange, money markets, fixed
income and derivatives instruments naturally
share in this concern. SFEMC members who
are drawn from Singapore market participants
have deliberated this issue extensively and
concluded that Undisclosed Principal Trading
warrants serious attention.
The SFEMC therefore supports and endorses
the initiative of The London Foreign Exchange
Joint Standing Committee (FXJSC), which has
recently implemented a revision of its NIPs
Code, to be effective 31 May 2004. Under
the revised Code, confidential information
pertaining to the undisclosed principal (including
its full legal name) should be disclosed
by a fund manager to the credit, legal and
compliance functions of the counterparties,
solely for the purpose of risk assessment
and management. Such information will not
and must not be disclosed to the front offices
of the counterparties except in the event
of a default.
To the best of our knowledge, the practice
of Undisclosed Principal Trading is not prevalent
in the Singapore financial markets. Overall,
we can be proud of the high standards of
professionalism and ethics in our industry.
To that end, the Committee will continue
to work closely with the Association of Banks
in Singapore, the Singapore Investment Banking
Association, the Singapore Foreign Exchange
and Money Brokers Association and ACI Singapore – The
Financial Markets Association to enhance
the stature and maintain the reputation of
the Singapore markets by promoting high standards
of professional conduct.
Hence, the Committee seeks your co-operation
and continued support in these endeavors,
for clearly a reputable Singapore market
is in the interest of every participant.
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