Central Depository Company CDC

Problems Faced Before CDC

a) Increased volume of book keeping and paper work. b) Problems in settlement due to increased volume. c) Maintenance of huge vaults for safe keeping of certificates. d) Long and cumbersome share transfer procedure taking up to 45 days. e) Payment of stamp duty on share transfers which ranged from 0.1% to 1.5% of the face value. f) In case of new issues the issuers would take more than two months for the dispatch of certificates to the successful applicants and for the subsequent preparation and verification of transfer deeds. g) Risks of damaged, lost, forged and duplicate certificates. h) Lengthy and tedious procedure involved in pledging of physical securities. i) Capital and time investment required for issue and dispatch of share certificates, cash dividend, bonus and right issues. j) Issuance of duplicate certificates. k) Activities carried out for share transfer during book closure: Signature verification Checking correct value of transfer stamps Verifying genuineness of certificates Signature of Director for confirmation of transfer

Electronic vs. Physical

Instant Credit of Shares Ready for Sale

Delay in delivery of Physical scrip Subsequent deposit into CDS required Deposit in CDS -Security Deposit Form to be filled -Verification of Transfer Deed

Instant credit of entitlements (Bonus and Rights Shares) into CDS Accounts Pledge Facility Available Minimum Risk involved

-Wait for 5 working days for deposit approval

-Transfer Stamp Cost In case of bonus & right shares, subsequent deposit of shares into CDS required

Pledge of Physical Scrip is not allowed

Risk of Loss, Forgery, Theft etc.

Benefits of Electronic Settlement through CDS:

Following are some of the benefits of electronic settlement of securities through CDS: 1. Reduced workload due to paperless settlement. 2. Reduced manpower and requirements. 3. Instantaneous transfer of ownership. 4. No stamp duty on transfers in CDS. 5. No risk of damaged, lost, forged or duplicate certificates. 6. No impact in case of sudden increase of settlement volumes. 7. Instant credit of bonus, rights and new issues. 8. Substantial reduction of paperwork during book closure. 9. Convenient pledging of securities. 10. Substantial reduction in time & capital investments.

CDS Statistics
as of December 31, 2005

Number of Shares available in CDS Market Value of Shares in CDS % of Shares in CDS w.r.t. Issued Share Capital * Units available in CDS * % of Units in CDS w.r.t. total issue

29.45 Bn Rs. 1080.37 Bn 69.87 % 12.84 Mn 70.36%

Elements

Securities in CDS Participants / Account Holders in CDS Pledgees in CDS

599 485 89

Incorporation & Implementation

CDC was incorporated in 1993, as public limited company. In November 1994, the board of CDC awarded a turnkey contract for the implementation of the Central Depository System to IBM led consortium. The company commenced its operations w.e.f. September 3, 1997

Legal Frame Work

Regulator: the Securities and Exchnage Commission of Pakistan Relevant legislations Central Depositories Companies (establishment and regulation) Rules, 1996 Central Depositories Act, 1997 Central Depository Company of Pakistan Limited Regulations Companies Ordinance 1984

Supporters

Price Waterhouse, a renowned international firm developed the conceptual framework for the deposiotry and a consortium of leading technology and depository experts, management and the financial consultants and lawyers along with the management of CDC successfully implemented the CDS

Share Holders
S. No. 1 2 Share Holders The Karachi Stock Exchange (G) Limited Lahore Stock Exchange (G) Limited Share Holding (% age) 39.80 10.00

3
4 5 6 7 8 9 10 11

Citi bank Overseas Investment Corporation

Muslim Commercial Bank Limited Habib Bank Limited National Investment Trust Limited (NIT) Investment Corporation of Pakistan (ICP) Pakistan Industrial Credit & Investment Corporation Ltd Islamabad Stock Exchange (G) Limited Cresecent Steel & Allied Products Limited International General Insurance Company of Pakistan Ltd

10.00
10.00 6.35 6.35 5.00 5.00 2.50 1.75 1.00

12
13 14 15

Crescent Standard Investment Bank Limited

Crescent Leasing Corporation Limited Shakarganj Mills Limited Crescent Standard Business Management (Pvt.) Limited Total

0.65
0.50 1.00 0.10 100.00

Elements of CDC
There are three elements of CDC
1. 2. 3.

Account Holders Issuers Eligible Pledges

Elements of CDC Account Holders

Account Holders Account holders in CDC are divided in to two categories 1. Participants 2. Account Holders Account Holders are allowed to keep their beneficially owned securities in CDS whereas Participants apart from keeping their beneficially owned securities, are entitled to have client accounting facilities and therefore can provide custody services to their clients. Account holders can access CDS directly.

Elements of CDC Issuers

The companies or issuers of capital whose securities are converted from physical to electronic securities play a significant role in CDS. The issuers of capital also have direct access to the CDS. Once a security is declared eligible and becomes Live for the purposes of CDS, the necessary software and connection are provided to the issuer of the particular security. The physical securities are converted into electronic book-entry securities only after proper verification by these issuers. This process eliminates the problems of forged , duplicate, damaged or lost certificates as securities are thoroughly checked by the Issuers before approval for CDS.

Elements of CDC Eligible Pledgees

Financial institutions that lend against securities can join CDC in the capacity of Eligible Pledgees. These institutions also have direct access to CDS and are provided with the necessary connection at the time of account opening. The borrowers can mark lien on their electronic book-based securities in favor of any Eligible Pledgees in CDS. Once the beneficial owner of a security marks a lien on that security, only the Eligible Pledgees in whose favor the lien is marked can either CALL the security in any specified account in CDS or RELEASE the security back to the beneficial owner.

CDS Account Structure

There are three Securities Accounts
1. 2. 3.

Main Account House Account Sub or Client Account

CDS Account Structure

Main Account is provided to both participants and Account Holders and is used as a transitory account. All securities coming in or going out of an account family of a Participant or Account Holder go through this account.

CDS Account Structure

House Account is provided to both participants and Account Holders to keep securities beneficially owned by them

CDS Account Structure

Sub Account is provided only to Participants to maintain securities beneficially owned by their clients. Participants can open and maintain as many Sub-Accounts on behalf of their clients as they desire.

CDS Transactions

Deposits Free Delivery Pledge Pledge Release Pledge Call Withdrawal Corporate Action IPO

CDS Transactions
Deposit deposit transaction is series of actions through which physical share certificates are converted into electronic book entry securities in CDS. The deposit request transaction is initiated by the Participant either on behalf of their client or on their own behalf. It is only after the approval of the relevant issuer that the physical securities become available for electronic settlement.

CDS Transactions
Free Delivery The term free delivery applies to all book entry delivery of securities, which takes place without any corresponding movement of cash in the system. Once the securities are deposited in CDS, they become available for delivery from one account to another. If the transfer of securities is within the account family of a participant, it is called an intra-participant free delivery. If securities are transferred from one participant to another, the transaction is called an inter-participant free delivery.

CDS Transactions
Pledge An account holder or a participant, acting either on his own behalf or on behalf of his client, can place securities under pledge in favor of a pledgee. Placing securities under pledge results in the securities being flagged as no longer available for delivery until released from pledge. The beneficial owner however continues to get the corporate benefits like dividends etc. on flagged securities.

CDS Transactions
Pledge Release Pledgees can release securities, which have been placed under pledge in their favor. As soon as securities are released from pledge, they become available to the pledgor for furhter transactions such as a delivery, withdrawal or another pledge.

CDS Transactions
Pledge Call Pledgees are capable of calling pledged securities in their own account or in any other account in CDS.

CDS Transactions
Withdrawal Securities can be withdrawn in the form of physical certificates from CDS through withdrawal transaction. This facility is provided to cater to those investors who prefer to keep physical security certificates.

CDS Transactions
Corporate Action At the time of book closure for corporate action, the records of the depository are considered as an extension of the Members Register maintained by the Registrars/Transfer Agents. In other words, the detailed breakup of the CDCs nominee shareholding is obtained from the records of the depository and shareholder entitlements like bonus, dividends etc. are distributed on the basis of the list of beneficial owners provided by the CDC. CDS also facilitates the processes of Merger, Consolidation etc in an efficient manner.

CDS Transactions
IPO Investors can now have their securities subscribed through IPOs, directly credited to their accounts in electronic form. With this they can save costs and avoid the hassle involved in obtaining physical certificates and then converting them into electronic form.

Sector wise break-up of securities in CDS

Central Depository Company CDC