CISI UAE FRR Market Conduct Rules 3 — Questions and Answers
Question 1: Under UAE market conduct rules, what constitutes 'scalping' in financial markets?
- An adviser recommending securities they intend to sell without disclosing this intention (Correct answer)
- Rapidly executing many small trades to profit from bid-ask spreads
- Charging excessive commission on client trades
- Executing trades ahead of published research
Correct answer: An adviser recommending securities they intend to sell without disclosing this intention
Scalping in the advisory context involves an adviser recommending securities they personally hold with the intention of selling them once client buying drives up the price, without disclosing this conflict.
Question 2: The SCA's Corporate Governance Code for listed companies requires:
- A minimum number of independent directors on the board (Correct answer)
- That all directors are UAE nationals
- That the CEO and Chairman roles are held by the same person
- Annual dividend payments regardless of profitability
Correct answer: A minimum number of independent directors on the board
The SCA's corporate governance code requires listed companies to have a sufficient proportion of independent directors, ensuring objective oversight of management and protection of minority shareholders.
Question 3: Under UAE regulations, an investment firm's 'order execution policy' must be:
- Made available to clients and reviewed at least annually (Correct answer)
- Kept confidential from clients
- Submitted to the SCA for approval before each trade
- Applied only to institutional client orders
Correct answer: Made available to clients and reviewed at least annually
Order execution policies must be disclosed to clients, explaining how orders are executed and on which venues, and must be reviewed at least annually to ensure best execution is consistently achieved.
Question 4: UAE market conduct rules require that securities advertisements:
- Include clear risk warnings and be fair, clear, and not misleading (Correct answer)
- Focus exclusively on potential returns
- Be approved by the SCA 30 days in advance
- Target only qualified professional investors
Correct answer: Include clear risk warnings and be fair, clear, and not misleading
Securities advertisements must include prominent risk warnings, be balanced between potential returns and risks, and not be misleading — the same principles applying to product marketing as to advice.
Question 5: Under SCA regulations, related party transactions by listed companies must be:
- Approved by independent directors and disclosed to the market (Correct answer)
- Executed without restriction to facilitate group efficiency
- Kept confidential to protect competitive position
- Reported only in annual accounts
Correct answer: Approved by independent directors and disclosed to the market
Related party transactions must be reviewed and approved by independent directors (without the interested party voting), disclosed to the market promptly, and conducted at arm's length terms.
Question 6: The UAE's regulatory framework for algorithmic and high-frequency trading requires firms to:
- Implement controls to prevent market disruption and comply with SCA technical requirements (Correct answer)
- Register each algorithm individually with the SCA
- Obtain client approval for each algorithmic execution
- Restrict algorithmic trading to fixed income markets only
Correct answer: Implement controls to prevent market disruption and comply with SCA technical requirements
Algorithmic trading firms must implement robust controls — including kill switches, pre-trade risk limits, and real-time monitoring — to prevent their systems from causing unintended market disruption.
CISI UAE FRR Market Conduct Rules 3
Under UAE market conduct rules, what constitutes 'scalping' in financial markets?