Stock Brokerage Firms

Stock brokerage firms have been an established feature in the financial industry for nearly one

thousand years. Dealing in debt securities, brokers employ a variety of systems to aid investors

with the purchase and sales of stocks and bonds in a variety of markets. The firms have changed

over the years, growing to massive organizations that can affect the entire financial sector

positively or negatively with their performance. Changing with the times, the early twenty-first

century saw a rise of online trading that enabled the average investor to take part in the stock

market for the first time.

History

Stage 1 Beginning:

During the 11th century, the French began regulating and trading agricultural debts on behalf of

the banking community, creating the first brokerage system. In the 1300s, houses began to be

set up in major cities like Flanders and Amsterdam in which commodity traders would hold

meetings. Soon, Venetian brokers began to trade in government securities, expanding the

importance of the firms.

In 1602, the Dutch East India Company became the first publicly traded company in which

shareholders could own a portion of the business. The stocks improved the size of companies and

became the standard bearer for the modern financial system.

Stage 2 Significance

The earliest brokerage firms were established in London coffee houses, enabling individuals to

purchase stocks from a variety of organizations. They formally founded the London Stock

Exchange in 1801 and created regulations and memberships. The system was copied by

brokerage firms across the world, most notably on Chestnut Street in Philadelphia, which was

the center of American finance during the first forty years of the new United States. Soon, the

US exchange was moved to New York City and for more than one hundred and fifty years Wall

Street has been synonymous with the stock brokerage business. Various firms like Morgan

Stanley and Merrill Lynch were created to assist in the brokering of stocks and securities. The

firms limited themselves to researching and trading stocks for investment groups and individuals.

Stage 3: Considerations

During the 1900s, stock brokerage firms began to move in a direction of market makers. They

adopted the policy of quoting both the buying and selling price of a security. This allows a firm

to make a profit from establishing the immediate sale and purchase price to an investor. The

conflict with brokerage firms setting prices creates the concern that insider trading can result

from the sharing of information. Regulators have enforced a system called Chinese Walls to

prevent communication between different departments within the brokerage company. Since the

1980s stock-broking firms have also been allowed to be market makers as long as the appropriate

Chinese walls are put in place. This has resulted in increased profits and greater interconnection

within the financial industry.

In the 1980s and 1990s, deposit growth slowed as more people invested in equity shares and

mutual funds. Rather than allowing depositors to withdraw their funds and invest them

elsewhere, however, many banks (through the non-bank affiliates of their bank holding

companies) began aggressively offering brokerage services. In this way, banks were able to

generate non-interest fee income to help offset some of the increased interest costs of relying on

borrowed funds o finance their growth. Until the 1980s, commercial banks didn’t emphasize

their brokerage powers or solicit business, except to serve a few large accounts in their trust

departments. Beginning in the 1980s, commercial banks began to offer trading services to retail

customers. Some banks started their own brokerage operations from scratch and others entered

onto joint-venture arrangements, whereby the bank purchases broker services from an

established securies firm and markets the services under the name of the bank. To date, more

than 2000 banks are providing active brokerage services to their customers

Stage 4: Effects

The creation of high valued brokerage firms like Goldman Sachs and Bear Sterns created a

system of consolidation. Working with hundreds of billions of dollars, the larger firms began to

merge and take over smaller firms in the last half of the 20th century. Firms like Smith Barney

were acquired by Citigroup and other investment banks, creating massive financial institutions

that valued, held, sold, insured and invested in securities. This conglomeration of the financial

sector created an environment of volatility that caused a chain reaction when other firms like

Bear Sterns and Lehman Brothers filed for bankruptcy. Trillions of dollars of assets were tied

together in different companies and resulted in a large economic collapse in late 2008.

Stage 5: Features

A large share of the brokerage firms has moved to an online format. Smaller brokers such as

E*Trade, TD Ameritrade and Charles Schwab have taken control of most individual investors

accounts. With the advent of automated stock-broking systems on the Internet, the client often

has no personal contact with his/her stock-broking firm. The stockbroker's system performs all

the stock-broking functions: it obtains the best price from the market and executes and settles the

trade. Settlement (of securities) is the process whereby securities or interests in securities are

delivered, usually against payment, to fulfill contractual obligations, such as those arising under

securities trades. The added convenience and personal attention paid to the small investor has

resulted in a large influx of activity. In addition, the fact that the online resources offer up-to-the-

minute pricing and immediate trades makes their format appealing to the modern user.

As SEC deregulated the brokerage industry and made negotiated commissions available to

individual investors around May 1975, a new type if brokerage firms has emerged – the so-

called discount broker. They offer fewer brokerage services and pass the savings on to the

investors. Specially, most discount brokerage firms do not have a highly paid research staff

producing research reports or account executives soliciting business based on the firm’s current

recommendations to buy and sell. Instead, they hire telephone clerks to take customers’ orders.

These clerks do not sell, do not offer any investment advice, and work for modest salaries. These

and other savings are passed along to the investor in the form of low commissions. Discount

brokers, like TD Ameritrade, PTI Securities & Futures and E-Trade, also provide advanced

trading systems, which is why they appeal most to frequent and active traders. Beginner

investors may turn away from discounted brokers because of the advanced systems and terms,

and instead go to traditional brokers.

Structure of the Industry

Stock broking industry has developed rapidly since 1950s and when the internet was

introduced, the industry gained more pace than ever as the investors need lesser time to do the

orders and were no longer necessary to go meet the brokers or brokerage firms personally as they

could order up the stocks and securities they want online. Moreover, many of the traditional

restrictions against banking activities within the brokerage industry were being eliminated and

the barriers were disappearing. Due to this, some commercial banks have as subsidiaries,

brokerage houses that offer discounts and some of them have available accounts that offer all of

the services that are offered by a checking account. 1 However, the brokerage industry saw

decline in the period of 2007 to 2008 due to the global credit crisis. On the brighter side, the 1analysts predict that the decline would cease and stock broking industry sector will maintain its

normal growth rate in 2013 onwards. As the industry becomes more and more competitive, the

firms within the industry offer the investigation of some quality and variety of stocks to the

investors with free of charge. This is one of the methods that some firms use to compete against

other stock broking firms. In order to attract vast amount of clientele, the structure of the industry

has shaped itself. Since the restrictions in commissions were reduced, the brokerage sector was

categorized into two groups: full service brokerage firms and discount brokerage firms. The

difference between the former and latter firms is that the former offers informative stock reports

and a level of service much higher than the latter whereas the latter firms only commit

themselves to execute what their clients order. Additionally, as the name goes, the big brokerage

firms provide a full range of services such as advising the clients on possible market movements,

giving an insight to the clients that which stock would suit their game plan and guiding the

investors through the times of market volatility and so on.2 2The better customer service results in

higher commission fees but investors are closer to getting higher return on their investments.

Key Statistics of the Industry

As the brokerage industry is also exposed to U.S subprime securities trades, the industry

also suffers from big losses in their values. The market value of the brokerage sector shrank by

32% from 2007 to 2008 and reached to the amount of 57.4 billion. However, the value was up

1 http://www.theinvestor.tv/money/thebrokerageindustry.htm2 http://www.streetdirectory.com/travel_guide/162904/trading/full_service_brokerage_firms.html

20% from the year 2004 to 2008 according to the statistics. The numbers are calculated based on

CAGR (compounded annual growth rate) method.

Global Brokerage Sector

Value

Year (in billions) % Growth

2004 46.3

2005 53.0 14.5

2006 69.0 30.2

2007 84.4 22.3

2008 57.4 -32.0

Figure 13

Stock broking companies benefit mainly from commissions received from their investors

and the rest profit comes from buying the stocks and equities themselves and selling them to

investors with the current market price (if the current market price is higher than the price they

gave for stocks).

Size of Industry

U.S., as always, plays a major role in stock broking industry along with investment

banking sector with a 46.1% of the market. Europe (along with Middle East and Africa) places

3 DATAMONITOR Global Investment Banking & Brokerage Industry Profile.pdf

second with 33.4% followed by Asia-Pacific region with 18.1%. The remaining part of the world

accounts for 2.4% of the total market share of stock broking industry.

Figure 24

Key Players in the Industry

The big four U.S. investment firms act as the major stock brokers in Americas market.

They are: (1) Goldman Sachs, (2) JP Morgan Chase, (3) Citigroup, and (4) Morgan Stanley.

Goldman Sachs has the 9.8% of the industry’s market share, followed by JP Morgan Chase with

9.6%, Citigroup with 8.3% and Morgan Stanley with 7.1%.

4 DATAMONITOR Global Investment Banking & Brokerage Industry Profile.pdf

Figure 35

Other key players in the brokerage industry are: Kim Eng, UOB Kay Hian, Phillip and so on.

A glance at Goldman Sachs

Many people know Goldman Sachs as one of the leading investment banks, but not many

know that subsidiary under Goldman Sachs, which is stock broking department, also is the

highly performing sector in Stock broking industry. The clients are of variety; corporations,

financial institutions, governments and high-net-worth individuals. Goldman Sachs primarily

operates in U.S, Europe and Asia. Goldman Sachs brokerage service is one of the many services

that the firm offers and so, it is a bit difficult to separate the brokerage services sector from other

services. Goldman Sachs securities services offer prime brokerage services, financing services

and securities lending services to institutional clients and high-net-worth individuals around the

world. The segment generates revenues mainly in the form of interest rates and commission fees.

When analyzed about why Goldman Sachs is one of the global leading brokerage service

providers is because of its excellent staffs and infrastructure. Also, Goldman Sachs Client

Services is one of the factors why individuals and corporations choose Goldman Sachs as their

service provider.6

5 DATAMONITOR Global Investment Banking & Brokerage Industry Profile.pdf6 http://www2.goldmansachs.com/services/securities/primebrokerage/process.html

Key Players:

A glance at Kim Eng

Kim Eng is one of the leading financial services companies in Asia and throughout the

world. It operates mainly in Asia as its saying goes, “Kim Eng At Home in Asia”. It also has its

offices in Europe, U.S. and in some other countries. As Kim Eng is a reputed stock broking

company, it is a listed member of FINRA (Financial Industry Regulatory Authority), SGX

(Singapore Exchange Securities Trading Limited), FSA (Financial Services Authority) London

and so on. As a financial service company, Kim Eng was also hit by credit crunch storm.

However, Kim Eng Core group strategy of investment in people and technology has helped Kim

Eng hit slightly in a way that its assets fell only around 9 million from 2007 to 2008. Operating

income fell as trading volumes across the Group’s geographic footprint declined. Net profit

attributable to shareholders for the year was $71.7 million. 2008 also saw the development of our

new strategic alliance with Mitsubishi UFJ Securities Co., Ltd. (MUS). In April 2008, MUS

completed its partial offer to shareholders of Kim Eng and brought its stake in Kim Eng to

14.6%, which as at the time of writing this Statement, it had further increased to more than

19.0%.7 In its home market of Singapore, Kim Eng’s position as one of the leading stockbrokers

remains secure. During the year, in line with continuing efforts to introduce relevant products

and services, Kim Eng introduced contracts for differences (CFDs), an over the counter product

that allows clients to take leveraged long or short positions with respect to listed equities.

Although IPO and secondary placement activity fell in tandem with market activity, Kim Eng

still had a major role in 8 capital raising transactions, which raised issuers more than S$400

million. With an eye on the future, Kim Eng also took the opportunity to bolster its corporate

finance capability by making fresh hires to the investment banking team.8

Scottrade the online brokerage industry leader

Over 25 years, Scottrade has been a leader in online brokerage market and it is also a

pioneer of its kind in technology. Its investors are equipped with stock trading tools that are

necessarily needed in order to take control of their spending. The improved exchange platform

called Elite is the application built by the company to obtain user-friendly environment in its

7 http://www.kimeng.com/pdf/ar/ke_ar08.pdf8 http://www.kimeng.com/sg_profile.html

services. Users have chance to access with live streaming references, charts, news and lists. It is

very much user-friendly in a sense that users can customize their own settings such as marking

timely barters when investing digitally. With this Elite application, investors can have access to

NASDAQ Total View that presents every bid made as well as each market participant. This kind

of activity helps a lot in making better business decisions especially when there is a risk that can

be sniffed upon making the negotiations.9 If an investor opens the account of more than $25k, the

application can be downloaded as gratis. Scottrade is dedicated to supply its customers with high

quality patron assistance and so, in a survey of 16000 respondents, majority of them tipped

Scottrade as a trusted broker through their priority for the customers and service efforts.

Moreover, it is also quoted as highest in investor satisfaction by J.D. Power and Associates in six

times continuously.

Definition of stock broking company

-An agent that charges a fee or commission for execution buy and sell orders

submitted by an investor.

for its services.

Definition of stockbrokers

-brokers who deal primarily with transactions involving stock

Activities of stock broking company

Stock broker invests in the stock market for individuals or corporations. Only members of the

stock exchange can conduct transactions, so whenever individuals or corporations want to buy or

sell stocks they must go through a brokerage house. Stockbrokers often advise and counsel their

clients on appropriate investments. Brokers explain the workings of the stock exchange to their

clients and gather information from them about their needs and financial ability, and then

determine the best investments for them. The broker then sends the order out to the floor of the

securities exchange by computer or by phone. When the transaction has been made, the broker

supplies the client with the price. The buyer pays for the stock and the broker transfers the title of

the stock to the client and performs clearing and settlement procedures. The beginning

stockbroker’s first priority is learning the market. Stockbrokers spend their time in a fast-paced 9http://www.streetdirectory.com/travel_guide/18840/investment/ some_facts_about_the_global_online_brokerge_industry.html

office, usually working from nine to five, unless they are just starting out or have to meet with

clients. The new broker spends many hours on the phone building up a client base. Sometimes

brokers teach financial education classes to expose themselves to potential investors who may

then become their clients.

Services of stock brokers

Execution-only, which means that the broker will only carry out the client’s instructions

to buy or sell.

Advisory dealing, where the broker advises the client on which shares to buy and sell,

but leaves the final decision to the investor.

Discretionary dealing, where the stocker broker ascertains the client’s investment

objectives and then makes all dealing decisions on the client’s behalf.

Above are the main services of stock broking companies. As we know, nowadays we can hardly

find a broker firm that only does stock broking. The main services of security broking companies

adre as follows:

Storage of securities

Investors can leave securities with a broker for safekeeping; thus the investor does not have to

rent a safety-deposit box or physically transfer securities to and from the broker’s office when a

transaction is made. Investors are protected against loss of the securities or cash held by brokers

by the Security Investor Protection Corporation. The SIPC insures each customer’s account up to

$500,000 in securities and up to $100,000 in cash balances. Note, however, that the SIPC does

not guarantee the dollar value of securities but guarantees only that the securities themselves will

be returned.

Execution of trading

A broker earns a commission by buying or selling all types of financial securities, from US

Treasury securities to speculative instruments such as futures and options. Brokers transact on all

the major exchanges, such as the Pacific Stock Exchange; and in the over-the counter market,

rwhere most debt instruments, such as US Treasure bonds and more speculative common stocks,

are traded.

Investment advice

Brokerage firms provide a wide range of investment information and advice to their clients,

ranging from simple stock and bond guides to detailed research reports written by a security

analyst on a particular investment. In addition, some firms publish periodic publications or

newletters that analyze economic, market, and industry conditions and provide lists of securities

or investments that the firms’s analyst remmends investors buy or sell.

Margin credit

Brntdiokerage-firm customers can obtain either a cash or margin account. Cash customers must

pay cash for the security when it is purchased. Or the client can apply for a margin account,

which allows the investor to borrow part of the money from the brokerage firm to pay for the

security purchased. The rate of interest charged is usually marked up 1 to 2 percent above the

broker’s call loan rate, which is usually slightly below the commercial bank prime rate.

● Cash management account

In recent years, the major brokerage houses have offered investors a variety of cash management

account programmes. Although the services may vary from firm to firm, a typical CMA allows

investors to write checks against credit balances and the value of securities they hold in their

brokerage account. The brokerage firm may also broker savings deposits from depository

institutions; that is , the brokerage house sells federally insured savings deposits to investors who

want to hold long-term insured deposits but do not want to bear the prepayment penalty for

possible early withdrawl. Finally, some brokerage firms issue credit cards to their CMA

customers,which allows them to obtain funds by drawing down their credit balances or

borrowing against the securities in their accounts. Thus, CMAs allow brokerage houses to

provide many of the services provided by commercial banks, but at the same time they are not

subject to restrictive bank regulations.

Services of discount broking companies

They offer fewer brokerage services and pass the savings on to the investors. They hire telephone

clerks to take customers’ orders. These clerks do not sell, do not offer any investment advice,

and work for modest salaries. These and other savings are passed along to the investor in the

form of low commissions. Discount brokers, also provide advanced trading systems, which is

why they appeal most to frequent and active traders. Beginner investors may turn away from

discounted brokers because of the advanced systems and terms, and instead go to traditional

brokers.

Regulation:

1. Introduction

To establish a stock broking company, not only the company itself should follow the law, but

also the brokers in the company also need to be within the law. So we talk about it through 3

points which are the obligations of the stock broking company, the requirement of a stockbroker

and how the act protect the investors’ interest

Obligations of Stock broking companies

Every stock broking company shall –

(1) satisfy such minimum capital requirements as may be prescribed from time to time;

(2) pay such contributions as may be prescribed for the purpose of the Compensation Fund;

(3) have as directors and other officers persons of good financial standing and integrity;

(4) comply with the provisions of this Act and such rules as the Stock Exchange Company may

make; and

satisfy such other conditions as the Minister may, upon the recommendation of the Commission,

prescribe.

A legal Stockbroker

(1) A person shall be authorised to act as a stockbroker representative.

(2) No person shall be licensed under subsection (1) unless –

(a) he is a person of sound financial means and has not been convicted of any offence involving

fraud or other dishonesty;

(b) he satisfies such minimum entry requirements and has passed or has been exempted from

such examinations as may be prescribed; and

(c) he satisfies such other conditions as may be prescribed.

(3) No person shall act as a stockbroker or hold himself out as carrying on such a business unless

he acts as such or carries on such a business as a stockbroker employed by a stockbroking

company or as a director of such a company.

(4) Every person who is licensed under subsection (1) shall abide by such code of conduct and

comply with such rules as may be prescribed.

Application for licence

(1) An application for a licence under this Part shall be made in such form and manner as may be

determined by the Commission and be accompanied by the prescribed fee.

(2) The Commission may require an applicant to supply it with such further information as it

considers reasonably necessary to determine the application.

Register of licences

(1) The Commission shall keep, in such form as it thinks fit, a register of all licences issued

under this Act.

(2) The register shall indicate -

(a) the name of the licensee;

(b) the business address of the licensee;

(c) the name under which the licensee carries on his business; and

(d) the nature of the licence held by the licensee.

(3) Any person may, on payment of the prescribed fee, inspect the register, take extracts of it and

have any such extract certified by the Commission

(4) A stockbroking company shall, in respect of a transaction of sale or purchase of securities,

forthwith issue a contract note in compliance with subsection (4).

(5) A contract note issued by a stockbroking company under subsection (3) shall include -

(a) the name under which the stockbroking company carries on its business and the address of

the principal place at which it so carries on business;

(b) the name and address of the person to whom the stockbroking company gives the

contract note;

(c) the day and time on which the transaction took place and, if the transaction did not

take place in the ordinary course of business on the Stock Exchange, a statement to

that effect;

(d) the number, or amount and description, of the securities that are the subject of the contract;

(e) the price per unit of the securities;

(f) the amount of the consideration;

(g) the rate and amount of commission (if any) charged;

(h) the amounts of all stamp duties or other duties and taxes payable in

connection with the contract; and

(i) if an amount is to be added to or deducted from the settlement amount in

respect of the right to a benefit purchased or sold together with the securities, the

first-mentioned amount and the nature of the benefit.

Accounts to be kept by stockbroking companies

(1) Every stockbroking company licensed under section 24 shall keep or cause to be kept

accounting and other records that will sufficiently explain the transactions and financial position

of its business.

(2) The directors of every stockbroking company shall cause to be made out and laid before the

company at each annual general meeting a profit and loss account showing a true and fair view

of the profit or loss of the company and a balance sheet showing a true and fair view of the

company's affairs as at the end of the financial year.

(3) The records to be kept by a stockbroking company under subsection (1) shall be kept in

sufficient detail to show particulars of -

(i) all monies received or paid by the company;

(ii) all purchases and sales of securities made by the company, including the

names of the buyer and seller of those securities;

(iii) all income received from commissions, interest and other sources;

(iv) all expenses, commissions and interest paid;

(v) all its assets and liabilities;

(vi) all securities which form part of its assets;

(vii) all underwriting transactions entered into by the company; and

(viii) every transaction it has entered into.

Separate bank accounts

(1) Every licensee shall open and maintain a separate and distinct bank account in which he shall

keep all amounts received for the purchase and from the sale of securities (less any brokerage or

other proper charges).

(2) No licensee shall withdraw any money from the bank account mentioned in subsection (1)

except for the purpose of making a payment -

(a) to the person entitled thereto or his agent; or

(b) defraying brokerage and other proper charges.

38 Appointment of auditor

Every stockbroking company shall -

(a) appoint a qualified auditor to carry out an audit of the accounts of the

company;

(b) lodge with the Stock Exchange Company, within 3 months after the end of the

financial year, the auditor's report.

39 Duties of the auditor

(1) Where, in the performance of his duties as an auditor of a stockbroking company, an auditor

becomes aware -

(a) of any matter which, in his opinion, may adversely affect the financial

position of the company to a material extent;

(b) of any matter which, in his opinion, may constitute a breach of any provision of this

Act or fraud or other dishonesty; and

(c) that irregularities that may have a material effect upon the accounts have occurred,

including irregularities that may jeopardise the funds or property of the clients of the

stockbroking company,

he shall immediately report the matter to the Stock Exchange Company and the Commission.

(2) No liability, civil or criminal, shall attach to an auditor who complies with subsection(l) in

good faith.

Investor protection

(1) A person who has been or is connected with a body corporate shall not deal in any securities

of that body corporate if by reason of his so being, or having been, connected with that body

corporate whose securities are traded or at the time of the dealing are in prospect of being traded

on any stock market, he is in possession of information that is not generally available but, if it

were, would be likely materially to affect the price of those securities.

(2) A person who has been or is connected with a body corporate shall not deal in any securities

of any body corporate referred to in subsection(1) if by reason of his so being, or having been,

connected with the first-mentioned body corporate he is in possession of information that -

(a) is not generally available but, if it were, would be likely materially to affect the

price of those securities; and

(b) relates to any transaction (actual or expected) involving both those bodies

corporate or involving one of them and securities of the other.

.

(3) Where a person is in possession of any such information as is mentioned it subsection (1) or

(2) that if generally available would be likely materially to affect the price o securities but is not

precluded by either of those subsections from dealing in those securities, hi shall not deal in

those securities if-

(a) he has obtained the information, directly or indirectly, from another person and is aware, or

ought reasonably to be aware, of facts or circumstances by virtue of which that other person is

then himself precluded by subsection (1) or (2) from dealing in those securities; and

(b) when the information was so obtained, he was associated with that other person or had with

him an arrangement for the communication of information of a kind to which those subsections

apply with a view to dealing in securities by himself and that other person or either of them.

(4) A person shall not, at any time when he is precluded by subsection (1), (2) or (3) from

dealing in any securities, cause or procure any other person to deal in those securities.

(5) A person shall not, at any time when he is precluded by subsection (1), (2) or (3) from

dealing in any securities by reason of his being in possession of any information communicate

that information to any other person if -

(a) trading in those securities is permitted on the Stock Exchange;

(b) he knows, or ought reasonably to know, that the other person will make use of the

information for the purpose of dealing or causing or procuring another person to deal in those

securities.

(6) Without prejudice to subsection (3) but subject to subsections (7) and (8), a body corporate

referred to in subsection (1) shall not deal in any securities at a time when any officer of that

body corporate is precluded by subsection (1), (2) or (3) from dealing in those securities.

(7) A body corporate is not precluded by subsection (6) from entering into a transaction at any

time by reason only of information in the possession of an officer of that body corporate if -

(a) the decision to enter into the transaction was taken on its behalf by a person other than the

officer;

(b) it had in operation at that time arrangements to ensure that the information was not

communicated to that person and that no advice with respect to the transaction was given to him

by a person in possession of the information; and

(c) the information was not so communicated and such advice was not so given.

(8) A body corporate is not precluded by subsection (6) from dealing in securities of another

body corporate at any time by reason only of information in the possession of an office of that

first-mentioned body corporate, being information that was obtained by the officer in that course

of the performance of his duties as an officer of that first-mentioned body corporate and that

relates to proposed dealings by that first-mentioned body corporate in securities of that other

body corporate.

(9) For the purposes of this section, a person is connected with a body corporate, if being a

natural person -

(a) he is an officer of that body corporate or of a related corporation;

(b) he is a substantial shareholder within the meaning of the Companies Act in that

body corporate or in a related corporation; or.

(10) Where a prosecution is instituted against a person for an offence by reason that the person

was in possession of certain information and entered into a transaction in contravention of this

section, it is a defence if the person satisfies the court that the other party to the transaction knew,

or ought reasonably to have known, of the information before entering into the transaction.

(11) For the purposes of subsection (8), "officer", in relation to a body corporate, includes-

(a) a director, secretary, executive officer or employee of the body corporate;

(b) a receiver, or receiver and manager, of property of the body corporate;

(c) a judicial manager of the body corporate;

(d) a liquidator of the body corporate; and

(e) a person administering a compromise or arrangement made between the body

corporate and another person or other persons.

(12) A person who contravenes this section shall be guilty of an offence and shall be liable on

conviction to a fine not exceeding Rs 100,000 or to imprisonment for a term not exceeding 10

years.

(13) Where an advantage is gained from a dealing in securities in contravention of the provisions

of this section, any person who gained that advantage shall, whether or not any person has been

prosecuted for or convicted of an offence in respect of the contravention, be liable -

(a) to any other person for the amount of any loss incurred by that other person by

reason of the gaining of that advantage; and

(b) to the company that issued or made available those securities, for any profit that

accrued to him by reason of the gaining of that advantage.

(14) Where a loss or profit referred to in subsection (14) is incurred by means of an advantage

gained from a dealing in securities, the amount of the loss or profit shall be the difference

between -

(a) the price at which the dealing was effected; and

(b) the price that, in the opinion of the Court before which it is sought to recover the

amount of the loss or profit, would have been the market price of the

securities at the time of the dealing if the specific information used to gain that

advantage had been generally known at that time.

(15) The Commission may bring an action in the name of and for the benefit of a person for

recovery of a loss or profit referred to in subsection (14).

(16) An action to recover a loss or profit referred to in subsection (14) may not be brought after

the expiry of the period of -

(a) two years next succeeding the dealing in securities to which the action relates; or

(b) six months next succeeding the discovery of the relevant fact by the person who

suffered the loss or seeks to recover the profit whichever first occurs.

(17) Notwithstanding the provisions of section 107 of the Companies Act 1984, any proceedings

whether civil or criminal in relation to insider dealing connected with securities listed on the

Stock Exchange shall be instituted under this Act.

Fraudulent inducement to invest

(1) Every person who, by any fraudulent means, induces or attempts to induce another person to

enter into or offer to enter into –

(a) an agreement for, or with a view to, acquiring, disposing of, subscribing for or underwriting

securities; or

(b) an agreement the purpose or pretended purpose of which is to secure a profit to any of the

parties from the yield of securities or by reference to fluctuations in the value of securities,shall

commit an offence and shall on conviction, be liable to pay a fine which shall not exceed Rs

100,000 and to imprisonment for a term which shall not exceed 5 years.

(2) For the purpose of subsection (i), fraudulent means shall include -

(a) any statement, promise or forecast which the person knows to be misleading, false or

deceptive;

(b) any dishonest concealment of material facts; or

(c) any reckless making of any statement, promise or forecast which is misleading, false or

deceptive.

False statements and transactions

Every person who knowingly or recklessly -

(a) gives a fictitious price to securities by means of false rumours;

(b) obtains admission to the Official List by means of a false statement;

(c) makes any fictitious dealings in securities; or

(d) advertises or holds out that securities which are not quoted on the Stock

Exchange are so quoted,

shall commit an offence and shall, on conviction, be liable to pay a fine which shall not exceed

Rs 100,000 and to imprisonment for a term not exceeding five years.

Misleading documents

Every person who -

(a) distributes or causes to be distributed any documents which, to his

knowledge, are circulars containing -

(i) an invitation to persons to do any of the acts the inducement or

attempted inducement to do which by a misleading, false or deceptive

statement is an offence under section 47; or

(ii) information calculated to lead directly or indirectly to the doing of any of

the acts specified in paragraph (i) by the recipient of the information;

(b) has in his possession for the purpose of distribution any circulars which, to his

knowledge, are such circulars as are specified in paragraph (a),

shall commit an offence and shall, on conviction, be liable to pay a fine which shall not be less

than Rs 10,000 or more than Rs 100,000 together with imprisonment for a term not exceeding 5

years.

Stockmarket manipulation

(1) A person shall not, with the fraudulent intent to induce other persons to purchase or subscribe

for securities of a body corporate or of a related corporation effect, take part in, be concerned in

or carry out, either directly or indirectly, 2 or more transactions in securities of the body

corporate, being transactions that have, or are likely to have, the effect of abnormally or

artificially raising the price of securities of the body corporate on the Stock Exchange.

(2) A person shall not, with the fraudulent intent to induce other persons to sell securities of a

body corporate or of a related corporation, effect, take part in, be concerned in or carry out,

either directly or indirectly, 2 or more transactions in securities of the body corporate, being

transactions that have, or are likely to have, the effect of abnormally or artificially lowering the

price of securities of the body corporate on the Stock Exchange.

(3) A person shall not, with the fraudulent intent to induce other persons to sell, purchase or

subscribe for securities of a body corporate or of a related corporation, effect, take part in, be

concerned in or carry out, either directly or indirectly, 2 or more transactions in securities of a

body corporate, being transactions that have, or are likely to have the effect of abnormally or

artificially maintaining the price of securities of the body corporate on the Stock Exchange.

(4) A reference in this section to a transaction, in relation to securities of a body corporate,

includes-

(a) a reference to the making of an offer to sell or purchase such securities of the body

corporate; and

(b) a reference to the making of an invitation, however expressed, that expressly or

impliedly invites a person to offer to sell or purchase such securities of the body

corporate.

(5) Every person who acts in contravention of this section shall commit an offence and shall, on

conviction, be liable to pay a fine which shall not be less than Rs 25,000 or more that Rs 100,000

and to imprisonment for a term not exceeding 5 years.

Bibliography

DATAMONITOR. (2009). Global Investment Banking & Brokerage Industry Profile.

DATAMONITOR.

Eng, K. (2008). Kim Eng Annual Report. Kim Eng.

http://www.kimeng.com/sg_profile.html. (n.d.). Retrieved May 17, 2009

http://www.streetdirectory.com/travel_guide/162904/trading/full_service_brokerage_firms.html.

(n.d.). Retrieved May 17, 2009

http://www.streetdirectory.com/travel_guide/18840/investment/

some_facts_about_the_global_online_brokerage_industry.html. (n.d.). Retrieved May 17, 2009

http://www.theinvestor.tv/money/thebrokerageindustry.htm. (n.d.). Retrieved May 17, 2009

http://www2.goldmansachs.com/services/securities/prime-brokerage/process.html. (n.d.).

Retrieved May 17, 2009