Regulatory Framework and Conduct Standards for Trading
Who regulates what
Candidates must be able to separate the roles of the securities regulator, the self-regulatory organisation (SRO) or exchange rulebook, and the conduct regulator for firms. Know the difference between rules that attach to the firm (registration, capital, supervision, recordkeeping) and those that attach to the individual (registration, proficiency, conduct, reporting of outside activities). Understand that exchange rules bind members contractually, while statute and regulator rules bind everyone.
Core conduct standards
Learn the recurring duties: act honestly and in good faith; act with due skill, care and diligence; manage conflicts fairly; treat clients fairly; provide clear, fair and not misleading communications; and keep adequate records. Note that these are principles, not checklists - a question describing conduct that is technically permitted but misleading usually fails the principle.
Traps
- Confusing registration with approval: registration does not mean the regulator endorses the product or the person.
- Assuming a rule permits something because it is not expressly prohibited.
- Overlooking the obligation to escalate and to keep records of the escalation.
- Mixing personal dealing rules with firm proprietary trading rules.
Rule of thumb
When a scenario is ambiguous, ask two questions in order: (1) is the client being told the truth in a way they can understand, and (2) is any conflict disclosed, avoided or managed? If either answer is no, the conduct is likely deficient even where no specific rule is quoted.