SCA Market Conduct and Compliance — Questions and Answers
Question 1: What constitutes insider trading under SCA regulations?
- Trading based on publicly available research
- Trading securities based on material non-public information obtained through a privileged position, or tipping others to trade on such information (Correct answer)
- Any trading by company employees
- Trading during market hours
Correct answer: Trading securities based on material non-public information obtained through a privileged position, or tipping others to trade on such information
SCA regulations define insider trading as buying or selling securities based on material non-public information, or communicating such information to others for trading purposes, both carrying severe penalties.
Question 2: What is market manipulation as defined by the SCA?
- Placing large orders
- Artificial interference with the free formation of prices through false or misleading practices such as wash trading, spoofing, or disseminating false information (Correct answer)
- Active trading by institutional investors
- Providing market research
Correct answer: Artificial interference with the free formation of prices through false or misleading practices such as wash trading, spoofing, or disseminating false information
Market manipulation includes creating misleading market activity through wash trades (trading with yourself), spoofing (placing and canceling orders), disseminating false information, and any scheme to artificially influence security prices.
Question 3: What disclosure requirements does the SCA impose on major shareholders?
- No disclosure is required
- Major shareholders must disclose when their holdings cross specified thresholds (typically 5%), report changes in holdings, and disclose any trading by board members (Correct answer)
- Only holdings above 50% must be disclosed
- Disclosure is voluntary
Correct answer: Major shareholders must disclose when their holdings cross specified thresholds (typically 5%), report changes in holdings, and disclose any trading by board members
SCA requires disclosure when shareholdings cross specified thresholds (typically 5% and subsequent increments), timely reporting of changes in holdings, and mandatory disclosure of all trading by directors and senior management.
Question 4: What AML/CFT obligations does the SCA impose on securities market participants?
- No AML obligations for securities firms
- Customer due diligence, ongoing monitoring, suspicious transaction reporting to FIU, record keeping, and compliance officer appointment (Correct answer)
- Only banks have AML obligations
- AML applies only to cash transactions
Correct answer: Customer due diligence, ongoing monitoring, suspicious transaction reporting to FIU, record keeping, and compliance officer appointment
SCA-regulated firms must implement comprehensive AML/CFT programs: customer due diligence and KYC, ongoing transaction monitoring, suspicious activity reporting to the FIU, record retention, staff training, and MLRO appointment.
Question 5: What conduct of business rules does the SCA establish for licensed firms?
- No conduct rules exist
- Fair dealing, best execution obligation, suitability assessments, conflict of interest management, client communication standards, and complaints handling procedures (Correct answer)
- Only fair pricing is required
- Conduct rules are advisory only
Correct answer: Fair dealing, best execution obligation, suitability assessments, conflict of interest management, client communication standards, and complaints handling procedures
SCA conduct rules require: fair dealing with all clients, best execution when handling orders, product suitability assessment, managing and disclosing conflicts of interest, clear client communication, and formal complaints procedures.
Question 6: What whistleblower protections does the SCA provide?
- No whistleblower protections exist
- Protection from retaliation for persons who report securities violations in good faith, with confidential reporting channels and potential financial rewards (Correct answer)
- Only anonymous reports are protected
- Whistleblowers face penalties for reporting
Correct answer: Protection from retaliation for persons who report securities violations in good faith, with confidential reporting channels and potential financial rewards
The SCA provides whistleblower protection for individuals who report securities violations in good faith, offering confidentiality protections, shields from retaliation, and potentially financial incentives for information leading to enforcement actions.
SCA Market Conduct and Compliance
What constitutes insider trading under SCA regulations?