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1. Prohibited Trading Practices

It is important that investors are educated about the prohibited conduct. Please note that below is only an extract of the Securities and Futures Act ("SFA"), Prohibited Conduct - Securities.

We would also want to highlight certain trading practices that are prohibited by law under the Securities and Futures Act (“SFA”). These practices could possibly be deemed as offences under Section 197 of the SFA on false trading and market rigging transaction.

The following illustrates the prohibited practices where there is a No change in beneficial ownership of securities.

Example 1: Client A has one trading account and used the same trading account number to trade

Client A places an order via the Internet to buy X number of shares in Company ABC at $0.50 in the market. Following the first order placed, he later keyed-in another order, via the Internet, to sell shares in Company ABC at the same price in the market. The sell order was matched (completely or partially) against his own buy order in his trading account in the market. The reverse also applies where client A’s sell order matches against his subsequent buy order.

Example 2: Client B has multiple accounts (Cash / SBL / Margin) opened with UOB Kay Hian Pte Ltd and used a different trading account number to trade

Client B places an order under his cash account, via the Internet, to buy X number of shares in Company ABC at $0.50 in the market. Following the first order placed, he keyed-in another order, under his SBL / margin account (i.e. different trading account number), via the Internet, to sell shares in Company ABC at the same price in the market. The sell order was matched (completely or partially) against his own buy order in his cash accounts in the market. The reverse also applies where client B’s sell order in his cash account matches against his subsequent buy order in his other accounts.

The above examples have the effect of creating a “wash sale”. A wash sale is a purchase or sale of any securities that does not involve a change in the beneficial ownership of those securities.

Section 197 (1) of the SFA prohibits any person from creating or doing anything that is intended or likely to create a false or misleading appearance of active trading in any securities on a securities market, or with respect to the market for, or the price of, such securities. Wash sale could have the effect of creating such false or misleading appearances.

Under Section 197(3) read with section 197(4) of the SFA, a person engaging in wash sales in securities is deemed to have created a false or misleading appearance of active trading in securities on a securities market unless the person establishes that the purpose for which he conducted the wash sale was not, or did not include, the purpose of creating a false or misleading appearance of active trading in securities on a securities market.

Apart from the above, there are some other market conduct offences under the SFA which apply generally to a person as follows:

SFA 198: Securities market manipulation
SFA 199: False or misleading statements, etc.
SFA 200: Fraudulently inducing persons to deal in securities
SFA 201: Employment of manipulative and deceptive devices
SFA 202: Dissemination of information about illegal transactions
SFA 204: PENALTIES .

For detailed SFA, Prohibited Conduct - Securities, please click here

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