CISI UAE FRR Market Conduct Rules 4 — Questions and Answers
Question 1: Under UAE conduct regulations, a 'discretionary mandate' allows a portfolio manager to:
- Make investment decisions on behalf of a client within agreed parameters without prior approval for each trade (Correct answer)
- Trade any securities without restriction
- Override the client's investment policy statement
- Charge performance fees without disclosure
Correct answer: Make investment decisions on behalf of a client within agreed parameters without prior approval for each trade
A discretionary mandate grants the portfolio manager authority to make investment decisions within agreed parameters (risk profile, asset allocation, restrictions) without requiring client approval for each individual trade.
Question 2: The UAE's conduct rules on conflicts of interest require investment firms to:
- Identify, manage, and disclose conflicts that cannot be prevented (Correct answer)
- Eliminate all conflicts of interest before conducting business
- Ignore minor conflicts if they do not affect client outcomes
- Report all conflicts to clients' employers
Correct answer: Identify, manage, and disclose conflicts that cannot be prevented
Conflicts of interest must first be prevented where possible; where unavoidable, they must be managed effectively and disclosed to affected clients, ensuring conflicts do not harm client interests.
Question 3: Under UAE market conduct rules, 'spoofing' involves:
- Placing large orders with the intention of cancelling them before execution to manipulate prices (Correct answer)
- Copying a competitor's trading strategy
- Executing trades using false client identities
- Placing multiple small orders simultaneously
Correct answer: Placing large orders with the intention of cancelling them before execution to manipulate prices
Spoofing involves placing large visible orders to create the illusion of demand or supply with no genuine intention of executing them, then cancelling before execution to manipulate prices and mislead other participants.
Question 4: The SCA requires that investment managers provide clients with performance reports:
- At least quarterly, showing returns, fees, and portfolio composition (Correct answer)
- Only on specific client request
- Annually in a standardised format
- After each individual transaction
Correct answer: At least quarterly, showing returns, fees, and portfolio composition
Periodic performance reporting — at minimum quarterly — enables clients to monitor portfolio performance, assess whether managers are meeting objectives, and understand fees charged against their portfolio.
Question 5: Under UAE regulations, market operators must ensure their trading systems are:
- Resilient, with adequate capacity, and protected against market abuse (Correct answer)
- Available only during official trading hours without exception
- Operated exclusively on UAE-based servers
- Accessible only to licensed institutional investors
Correct answer: Resilient, with adequate capacity, and protected against market abuse
Market operators must maintain systems resilience, adequate capacity to handle peak volumes, robust access controls, and market surveillance capabilities to detect and prevent market abuse.
Question 6: The UAE's 'material non-public information' (MNPI) policy requires employees of financial institutions to:
- Maintain confidentiality and not trade based on MNPI received in the course of their duties (Correct answer)
- Share information freely within the same business group
- Disclose MNPI to close family members before clients
- Report all client information to the SCA monthly
Correct answer: Maintain confidentiality and not trade based on MNPI received in the course of their duties
Employees must maintain strict confidentiality over MNPI and are prohibited from trading on it personally or disclosing it to others, backed by information barrier policies and trading restriction lists.
CISI UAE FRR Market Conduct Rules 4
Under UAE conduct regulations, a 'discretionary mandate' allows a portfolio manager to: