Market Conduct and Securities Trading | Local company

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T&T Securities Commission

MARKET participants in the T&T securities industry must conduct their business activities in a manner that contributes to the maintenance of a fair and orderly securities market. These expected behaviors are called “market conduct” and encompass a number of good practice standards aimed at maximizing customer interests, promoting fair trade and fostering a culture of efficiency and high standards.

In this article, we will look at some aspects of best market practice for businesses in executing transactions in the securities market, as well as some unfair and unethical business practices that may occur in the marketplace. Marlet. Shareholders should pay close attention to the following and report any misconduct to the Securities and Exchange Commission of Trinidad and Tobago (TTSEC).

MARKET CONDUCT AND BEST PRACTICES

• Independence and integrity

Businesses must demonstrate integrity and treat customers’ money and assets in good faith. This means that companies must exercise reasonable prudence and judgment in order to maintain independence and impartiality when making investment decisions on behalf of clients; and they should also avoid situations that could cause conflicts of interest. In the event of a conflict of interest, firms should make full disclosure, ensuring that such disclosures are factual, complete, and presented in a format that effectively communicates information. Trust is an important part of the relationship between businesses and customers, and as such, fairness, honesty, and full disclosure help maintain and strengthen that trust.

• Priority of the customer order

A client order is an instruction given by an investor to a brokerage firm to buy or sell a security. This instruction usually specifies the type of order placed, as well as the quantity and price at which the order is to be executed. Firms should prioritize client orders and such orders should be executed fairly with priority over internal account orders; especially in situations where there are orders for the same security at the same price. In cases where the company operates as both a broker and trader, trading with its clients as a counterparty, the company should not offer unreasonable or disadvantageous trading positions to clients.

• Fast and optimal execution of transactions

Client orders are received throughout the trading day and firms should place and execute an order as soon as reasonably possible. In addition, subject to any instructions provided by the customer in connection with the placing of the order, the company must make its best efforts to obtain for the customer the best price available at that time, taking into account the size and type of transaction involved. Other factors that the firm may take into consideration when executing best execution orders include the direction of the market for the security, the size of the spread and the liquidity of the security. Spread is the difference between the buying and selling price of a security, while liquidity refers to the ease and speed at which a security can be bought or sold. Seeking fast and optimal execution at the time the order is received maximizes the value of the client portfolio for all client transactions and eliminates broker discretion which could potentially harm clients.

• Notification and settlement of customer transactions

Once a transaction is executed on behalf of a client, the client must be notified immediately, in writing. This notification should contain all relevant details of the transaction, including quantity, price, fees / commissions, and settlement information. Settlement of transactions should be prompt and in accordance with standards established by law or otherwise. The broker must ensure that the client provides proof of sufficient funds to cover all costs associated with the transaction; in the event of a purchase of securities, and that the client owns / holds sufficient securities in the event of a sale of securities.

Client money must also be properly accounted for, ensuring that funds received in settlement of an executed order are promptly allocated to the client’s account. Customer money must not be mixed with the assets of the business, used for the transactions of another client, or made available under any circumstances for the payment of any debt that the business may incur.

Unfair and unethical business practices

• Forward stroke

Front running is the unethical practice of brokerage firms that trade securities for their own account on the basis of prior knowledge of their clients’ pending orders in order to make a profit. Front running typically occurs when a brokerage firm buys or sells securities on its own account before a large order is executed (of which the firm is aware), which will change the price of the security in its favor. The profit made on such a transaction is to the direct detriment of the company’s customers, making such transactions unethical.

• Churning

Churning takes place when transactions are excessive in volume and frequency and are not in the best interest of the client. This happens when brokers use their discretion to abuse client accounts to generate commissions through excessive buying and selling of securities.

To assess whether churning is taking place, several factors are taken into consideration, including:

• the frequency of transactions in relation to clients’ investment objectives;

• commissions, fees and other remuneration paid by clients;

• the financial situation of clients; and

• the validity of each trading notice.

As such, since the main purpose of churning is to increase commissions, clients can avoid such activity by maintaining full control over their accounts.

Insider trading (Securities Act, Chapter 83:02, (SA) Section 100) occurs when people trade on the basis of material, non-public information. Generally speaking, this type of trading occurs when people who have access to price sensitive information, which has not been made available to the public, buy or sell securities on the basis of that information. . This includes situations where not only are persons with access to price sensitive information transacting on their own behalf, but also when such persons disclose inside information to another person or when such persons encourage others to act. on the basis of inside information. As such, insider trading undermines investor confidence in the fairness and integrity of the securities market.

• False declaration

False declaration, which is provided for in Articles 60 and 93 of the SA, usually involves a deliberate intention to deceive or mislead customers for profit. In such circumstances, companies give guarantees and / or assurances regarding investment products, based on uncertain market factors, to induce clients to make investment decisions. A misrepresentation can occur when a company fails to disclose all of the material risks associated with an investment; where companies do not disclose all costs associated with a transaction, where unrealistic assumptions have been used to make investment projections and where inaccurate performance calculations have been presented to clients.

• Market manipulation

Market manipulation is a broad term that encompasses any action that artificially distorts the prices of securities. Article 91 of the SA states: “No one shall do anything, participate in, perform or cause to be done anything, directly or indirectly, in one or more related transactions, with the intention of or without regard to whether such a transaction has or is likely to have the effect of creating a false or misleading appearance of trading activity on a securities market. Such activities undermine the securities industry and prevent the market from being fair and equitable.

Unfair and unethical business practices erode public confidence in the market. Therefore, companies should always consider how their actions affect the securities market and always consider best market conduct practices to improve industry standards, while avoiding the pitfalls of unfair and contrary business practices. ethics. Protecting the best interests of clients should always be the top priority and not be compromised.

For more information on the securities market and the role and functions of TTSEC, please visit our website at www.ttsec.org.tt. To become a smart investor, visit our investor education website, www.investucatett.com and download our investor protection mobile app through Google Play and Apple Store. You can also take the online course and test your knowledge in our interactive InvestorQuestTT investing game at www.investorquest-tt.com., And don’t forget to connect with us through Facebook; Twitter, Instagram, LinkedIn or YouTube.

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