Draft Code of Conduct for Brokers

Posted on April 26, 2009


INTRODUCTION: OBJECTIVES AND PRINCIPLES OF SECURITIES

REGULATION: Improving Standards of Conduct of Business

DRAFT CODE OF CONDUCT

Section 1 Act honestly, fairly and with integrity
Section 2 Due skill, care and diligence
Section 3 Adequate resources and procedures
Section 4 Information from clients
Section 5 Information to clients
Section 6 Conflicts of interest
Section 7 Compliance
Section 8 Client Assets
Section 9 Senior management responsibility

INTRODUCTION

The current Code of Conduct for brokers is set out in the Third Schedule to the Brokers and Agents Registration Rules 2001. Apart from a general section on integrity, care and malpractice, it covers duty to the investor, brokers vis-à-vis other brokers, and brokers vis-àvis the Commission and stock exchange. It does not include such things as operational controls, conflicts of interest and proprietary trading. The Code of Conduct was supplemented by a Directive issued on February 7, 2003; the objective of which was to safeguard public interest, prohibit unfair trade practices, inculcate good governance in business conduct and
ensure that brokers do not engage in certain types of conduct in the Securities Market that are against the interests of investors.

One of the most important measures of a well regulated market is the level of investor
confidence achieved through both the national legal environment and the market regulatory
infrastructure. Fair treatment of customers is one of the most important elements of investor
confidence. Ensuring that customers obtain fair treatment is the responsibility of the
Securities Market Regulator which is achieved by laid down standards and controls in a Code
of Conduct.

The broad objectives of a Code of Conduct is that it should achieve the following:

  1. Ensure that information provided to customers enables them to take their investment decisions on an informed basis, promptly react against actual or potential losses, and reflect on the consistency between their investment objectives and strategies and theiractual portfolios.
  2. Ensure that information provided to a customer:
  1. determines the scope of the information to be provided to such a customer so that the may properly make his investment decisions;
  2. includes the customer’s trading restrictions or other comparable circumstances which may affect the provision of services;
  3. ensures that the customer’s dealings and any advice given to him are suitable.
  1. Ensure that a written contract setting out the rights and obligations of the parties has been concluded between the broker and its customers prior to the provision of investment services.
  2. Ensure that brokers:
    1. operate efficiently, impartially and in the best interest of investors when handling customer orders;
    2. obtain the best possible result with reference to the time, size and nature of customer orders, taking into account the state of the relevant market.
  1. Ensure that brokers manage conflicts of interest fairly and provide appropriate disclosure to their customers in this respect.
  2. Ensure that brokers establish a code a conduct for management and staff, and policies and procedures designed to ensure compliance with such a code and conduct of business rules generally.
  3. The overriding principle is that a broker must at all times act honestly, fairly and professionally in accordance with the best interests of its customers and the integrity of the market.

D R A F T
The benchmark for Codes of Conduct for brokers is set out in the IOSCO Objectives and Principles of Securities Regulation, May 2003.

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