By Goh Eng Yeow, Markets Correspondent

SINGAPORE'S largest brokerage, UOB Kay Hian, has been fined $115,000 by the Singapore Exchange (SGX) for failing to ensure an examination designed to qualify its dealers and remisiers to sell a complex product was conducted properly.

The new product - known as an extended settlement contract and set to begin trading on Feb 20 - allows traders to bet on the price movements of stock for up to 38 days.

SGX's fine for UOB Kay Hian followed a two-week investigation in which more than 50 witnesses from five brokerages were interviewed.

The investigation found that UOB Kay Hian was the only trading house which lacked proper administration and invigilation procedures.

Forty-three dealers, who possessed the leaked exam questions, have been told to retake the exam. On top of this, SGX has ordered UOB Kay Hian to retest all dealers and remisiers who took the exam on Oct 2, Oct 7, Oct 10 and Oct 21, because it has not been possible to determine which UOB Kay Hian dealers had access to the leaked exam papers.

Emphasising the gravity of the issue, SGX's head of risk management and regulation, Ms Yeo Lian Sim, said yesterday: 'The examination is a means to ensure that (dealers) are familiar with the contracts. This is a serious matter.'

Rumours of widespread cheating emerged last month, with some dealers noting that sets of questions used in the exam were circulating freely in the market.

The opportunity for a leak came about because SGX prepared the exam questions for the extended settlement contracts, but made individual brokerages responsible for conducting exams for their dealers and remisiers.

UOB Kay Hian failed to take 'all adequate measures to safeguard the integrity of the examination and ensure that the exam was properly conducted and supervised by appropriate persons', said SGX.

This resulted in four dealers making photocopies of examination papers on four separate occasions and passing them to other dealers.

UOB Kay Hian also failed to warn SGX of a possible leak of exam materials.

SGX said its disciplinary committee had originally fined UOB Kay Hian a total of $150,000 for the breaches. But its appeals committee reduced UOB Kay Hian's fine to $115,000, while upholding the order to reconduct the examinations.

In its appeal against the fine, UOB Kay Hian said conducting the exams was a large logistical challenge for it and that they were carried out under tight time constraints.

'At the time the exams were conducted, the market was volatile and required additional manpower resources to cope,' it added.

This article was first published in The Straits Times on February 11, 2009.