SC Licensing Exam cheat sheet

A dealing in securities licence under the Capital Markets and Services Act 2007 (CMSA) authorises the holder to deal in securities, including subscribing for or underwriting securities, and to carry on the business of dealing in securities.

Securities under the CMSA include shares, debentures, warrants, units in unit trust schemes, and any right, option, or interest in such securities, but exclude derivatives and private retirement scheme interests.

A dealer must execute client orders on the best available terms and disclose to the client any conflict of interest, including principal trading, before acting as principal against a client order.

Client money and assets must be segregated from the dealer's own money and held in a trust account; the dealer must reconcile client funds daily and keep records for at least seven years.

The Securities Commission Malaysia (SC) may impose conditions on a dealing licence, and a licensed dealer must notify the SC of any material change in its business or shareholding within the timeframe specified in the licence conditions.

Short selling of securities is permitted only for designated securities and under the SC's securities borrowing and lending framework; naked short selling is prohibited.

A dealer must obtain a client's prior written consent before using client securities for securities lending or financing arrangements, and must maintain records of all such transactions.

Market conduct rules prohibit creating a false or misleading appearance of active trading, including wash sales, matched orders, and marking the close.

A dealing in derivatives licence under the CMSA authorises the holder to deal in derivatives, including executing orders for clients and trading on its own account, subject to the conditions of the licence.

Derivatives are contracts or arrangements whose value is derived from an underlying asset, index, rate, or event; they include futures, options, swaps, and forward contracts.

A licensed derivatives dealer must assess a client's suitability, including investment experience and financial capacity, before opening an account and must document the assessment.

Margin requirements for derivatives trading must be collected and maintained in accordance with the rules of the relevant exchange or clearing house; client margin must be segregated from the dealer's own funds.

A dealer must provide a risk disclosure statement to a client before the client's first derivatives transaction, and must obtain the client's acknowledgement of receipt.

Position limits may be imposed by the exchange or the SC to prevent excessive concentration; a dealer must monitor and report positions as required.

A derivatives dealer must have in place systems to monitor credit risk, market risk, and liquidity risk, and must report large exposures to the SC as specified.

The SC may prohibit or restrict the trading of a derivative if it considers it necessary to protect investors or maintain market integrity.

A clearing licence under the CMSA authorises the holder to operate a clearing house for securities or derivatives transactions, including the settlement of trades and the management of counterparty risk.

A clearing house must maintain a default fund and margin system sufficient to cover the potential failure of a clearing member; it must also have a documented risk management framework.

Clearing members must meet minimum capital requirements and must post collateral to the clearing house; the clearing house must mark positions to market at least daily.

A clearing house must segregate its own assets from those of clearing members and must have rules for the portability of client positions in the event of a clearing member default.

The SC may approve a clearing house and may impose conditions, including requirements for governance, risk management, and operational resilience.

A clearing house must have a business continuity plan and must test it regularly; it must also have a recovery plan and a wind-down plan.

Clearing members must report to the clearing house any material change in their financial condition or operations that could affect their ability to meet obligations.

A clearing house must cooperate with other regulators and clearing houses, including through information-sharing arrangements, to manage cross-border risks.

A fund management licence under the CMSA authorises the holder to manage a portfolio of securities or derivatives on behalf of clients, including collective investment schemes.

Fund managers must act in the best interests of clients and must not use client assets for their own benefit; they must also avoid conflicts of interest and disclose any that arise.

A fund manager must have a written investment mandate for each client, setting out the investment objectives, restrictions, and fees; the mandate must be agreed by the client.

Valuation of fund assets must be carried out at least monthly and must be independent of the portfolio manager; the valuation policy must be documented and consistently applied.

A fund manager must maintain a minimum capital requirement as specified by the SC and must have professional indemnity insurance or other financial resources to cover potential liabilities.

A fund manager must report to clients at least quarterly on portfolio performance, holdings, and fees, and must provide an annual report audited by an independent auditor.

The SC may impose investment limits on collective investment schemes, such as limits on exposure to a single issuer or counterparty, to ensure diversification and liquidity.

A fund manager must have a compliance function and a risk management function that are independent of the investment function.

A private retirement scheme (PRS) provider must hold a dealing in PRS licence or be an approved PRS provider under the CMSA, and must comply with the SC's PRS guidelines.

PRS contributions are voluntary and are made by members or employers; contributions are subject to an annual cap for tax relief purposes as specified by the Inland Revenue Board.

PRS funds must be managed by a licensed fund manager and must be kept separate from the assets of the PRS provider; a scheme's assets must be held by a trustee.

A PRS member may withdraw funds only upon reaching the retirement age, death, permanent incapacity, or other permitted grounds; early withdrawal may be subject to penalties or tax consequences.

A PRS provider must disclose fees, charges, and investment risks to members in a clear and prominent manner before they join the scheme.

A PRS provider must provide members with periodic statements, at least annually, showing contributions, withdrawals, investment returns, and fees.

The SC may approve a PRS provider and may impose conditions on its operations, including requirements for governance, risk management, and member protection.

A PRS provider must have a default investment option for members who do not make an investment choice, and must offer a range of investment options with different risk profiles.

A corporate finance adviser licence under the CMSA authorises the holder to advise on corporate finance matters, including takeovers, mergers, acquisitions, and fund-raising exercises.

A corporate finance adviser must act independently and must disclose any conflicts of interest to the client and, where required, to the SC.

A corporate finance adviser must conduct due diligence on the client and the transaction, and must ensure that any documents it prepares are accurate and not misleading.

The SC's Guidelines on Take-Overs, Mergers and Compulsory Acquisitions require a corporate finance adviser to be appointed for certain transactions and to submit documents to the SC for approval.

A corporate finance adviser must not deal in the securities of a client or a target company while in possession of inside information, and must have controls to prevent insider dealing.

A corporate finance adviser must have a minimum level of professional experience and qualifications, as specified by the SC, and must maintain a fit and proper status.

A corporate finance adviser must keep records of its advice and the basis for it for at least seven years, and must be able to demonstrate the reasonableness of its advice.

The SC may require a corporate finance adviser to provide an independent opinion on the fairness of a transaction, particularly in related-party transactions.

An investment advice licence under the CMSA authorises the holder to advise on securities and derivatives, including making recommendations on buying, selling, or holding investments.

An investment adviser must have a reasonable basis for its advice, based on research and analysis, and must not make recommendations that are not suitable for the client.

An investment adviser must disclose any actual or potential conflict of interest, including any commission or benefit received from a product issuer, before giving advice.

An investment adviser must not guarantee returns or make misleading statements about the performance of an investment; it must present a balanced view of risks and rewards.

An investment adviser must keep records of the advice given, the client's financial situation, and the basis for the recommendation for at least seven years.

An investment adviser must have a compliance framework to ensure that advice is not affected by conflicts of interest and that advisers are adequately trained.

The SC's Guidelines on Conduct for Capital Market Intermediaries require an investment adviser to have a client onboarding process that includes a risk profile assessment.

An investment adviser must not use client information for its own benefit or disclose it to third parties without the client's consent, except as required by law.

A financial planning licence under the CMSA authorises the holder to provide financial planning services, including analysing a client's financial situation and recommending a plan to achieve financial goals.

A financial planner must act in the client's best interests and must disclose all fees and commissions, including any conflict of interest arising from product recommendations.

A financial planner must conduct a thorough fact-find of the client's financial position, objectives, risk tolerance, and time horizon before making recommendations.

A financial planner must provide a written financial plan that includes recommendations, the rationale, and the costs; the client must be given the opportunity to consider the plan.

A financial planner must review the plan periodically, at least annually, or when there is a material change in the client's circumstances.

A financial planner must not recommend a product that is not suitable for the client; the suitability assessment must be documented.

A financial planner must keep client records for at least seven years and must maintain confidentiality of client information.

The SC's financial planning guidelines require a financial planner to have a minimum level of qualification and experience, and to undertake continuous professional development.

The CMSA requires a person who carries on a regulated activity to hold a capital markets services licence; the SC grants licences and may impose conditions.

The SC applies a fit and proper test to licence applicants and holders, considering honesty, integrity, competence, financial soundness, and reputation.

A licence holder must notify the SC of any material change in its circumstances, including changes in directors, shareholders, or business activities, within the timeframe specified.

The SC may revoke or suspend a licence, or impose a penalty, for breaches of the CMSA or licence conditions.

Investor protection measures include the segregation of client assets, disclosure requirements, and the establishment of a compensation fund for eligible claims.

The SC's investor protection framework includes the Capital Markets Compensation Fund, which may compensate investors for losses caused by the failure of a licensed intermediary.

Licensed intermediaries must have a complaints handling process and must participate in the SC's dispute resolution scheme, if applicable.

The SC may issue guidelines and practice notes that are binding on licence holders; non-compliance may result in enforcement action.