Dealing in Securities
Scope of the activity
Under the Capital Markets and Services Act 2007 (CMSA), dealing in securities covers acquiring, disposing of, subscribing for or underwriting securities - and inducing or attempting to induce another person to do any of these - whether as principal or agent. The exam tests whether you can spot that conduct, map it to the licensing requirement, and apply the conduct and settlement rules.
- A Capital Markets Services Licence (CMSL) is needed by any person carrying on the business of dealing in securities (CMSA s.58). Individuals who perform the activity need a Capital Markets Services Representative's licence (CMSR) and may be attached to only one CMSL holder at a time.
- Exchange trades execute through a participating organisation of Bursa Malaysia Securities Berhad; off-market direct business transactions must still be reported.
- Conduct: know-your-client and suitability before order entry, client orders ahead of the firm's proprietary orders (no front-running), timely contract notes, complete records.
- Client money sits in a trust account, segregated from house money and reconciled; using it for the firm's own purposes is a serious breach.
- Settlement is book-entry in the Central Depository System under the Securities Industry (Central Depositories) Act 1991. Bursa Malaysia Securities Clearing acts as central counterparty and will buy in or sell out on a failed settlement.
- Short selling is confined to approved securities under regulated short selling.
Worked example
A client instructs a representative to buy 10,000 shares of a Bursa-listed company. The representative confirms the client's CDS and trading accounts, checks suitability and buying power, executes on the exchange, issues the contract note, and settlement happens on the clearing house's due date. Had the representative first bought the same stock for the firm's own book at a lower price, that would be front-running - a market conduct breach, even though the client's order was eventually filled.
Traps
- Reading 'dealing' as exchange execution only: underwriting and placement solicitation are dealing too.
- Assuming one CMSL covers every regulated activity; each activity must be licensed.
- Treating client money as an operational float for the firm.