The 8th ACG Cross Training Seminar Merits & De-Merits of Direct & In-Direct Accounts in the Pakistan Capital Market

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The 8th ACG Cross Training SeminarMerits
De-Merits ofDirect In-Direct Accountsin the
Pakistan Capital Market

• by
• Shabnam Fahim
• Syed Faisal Hashmi
• Shariq Naseem

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Agenda

• Pakistan Capital Markets.
• Central Depository Company of Pakistan
• Merits and Demerits of Direct and Indirect
  account Method

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Pakistani Capital Markets

• Market regulators
• Stock Exchanges
• Instruments Traded
• Trading Environment
• Clearing and Settlement
• Past Brief and Current Situation

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Market Regulators

• Securities Exchange Commission of Pakistan
  (SECP)
• Regulating stock exchanges, NBFCs, CDC and
  Corporate Sector
• Functional Responsibility framing of rules and
  regulations
• Recent developments, REIT, VPS, NBFC rules, debt
  market
• State Bank of Pakistan (SBP)
• Regulating banking institutions
• Policy measures
• Monetary
• Credit
• Foreign exchange mechanism

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• Stock Exchanges
• Three Stock Exchanges in Pakistan
• The Karachi Stock Exchange
• Lahore Stock Exchange
• Islamabad Stock Exchange
• The Stock Exchanges
• Most active and Liquid- KSE
• Self regulatory body

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Instruments Traded

• Equity
• Ordinary Shares
• Preference Shares
• Bonds
• TFCs
• Other Debt Instruments- TBs, PIBs
• Derivatives
• Stock Exchange offers equity futures
• Monthly contract- overlap of at least 2 trading
  days b/w contracts

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The Trading Environment

• Equities
• All Stock exchanges have own trading platforms
• Automated Trading System
• Processing based on bids offers and
• Intimation of trades executed
• Circuit Breakers- 5
• Bond Market
• Primary Market
• PIBs Auctioned monthly TBs fortnightly
• TFCs by Pakistani Companies
• Secondary Market
• PIBs and TBs traded freely
• Investors hold TFCs until maturity- low liquidity

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Clearing and Settlement

• Clearing
• Government bonds through SBP
• Others through National Clearing Corporation
• Scrip less
• Settlement System T3
• Payment released-broker ascertains stock
  transfer- CDC A/c
• OTC
• No formal organized market
• Physical
• Less than 1 Settlement

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• KSE Current Situation
• Pakistan Included in MSCI Emerging Market index-
  May 2005
• World Bank-Investment report 2005- one of top ten
  reformer countries
• Market capitalization- 57 billion with 663
  securities (April 17, 06)
• 4th year- one of the best performing markets-
  Business Week- US newspaper, USA today
• Past four years compound annual growth rate-56
• KSE100 share index- increased 53.6 July 05 - May
  06 - 3rd highest
• Capital markets exceptional performance Reasons
• Pakistan Economic Revival- GDP growth- 2002
  onwards
• Consistent and transparent economic policies
• Successful privatisation process-PTCL/National
  refinery etc
• Impressive Corporate Results
• Sound Monetary Polices- SBP, Capital Market
  reforms- SECP

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(No Transcript)
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CDC ...
the Countrys only Securities Depository
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Central Depository Company (CDC)

• Incorporated in 1993
• To manage and operate the Central Depository
  System (CDS)
• Live Operations in 1997

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Our services

• Depository Services
• Trustee and Custodial Services
• Registrar Transfer Agent (in near future)

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Legal Framework

• Companies Ordinance
• Central Depository Company Regulations
• Central Depositories Act
• Listing Regulations

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Achievements

• Implementation of National Clearing Settlement
  System
• Launch of trustee and custodial services
• Launch of Investor Account Services
• Launch of enhanced version of CDS (eCDS)
• Induction of Open-end Mutual Funds in CDS
• Launch of CDC call centre
• CDC Access

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Securities handled through CDS

• Ordinary Shares
• Preference shares
• Term Finance Certificates
• Certificates of Open-ended mutual Funds
• Certificates of Closed-end Funds
• Modaraba Certificates

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Transactions Supported through CDS

• Deposit of Securities
• Delivery (Transfer) of Securities
• Withdrawal of Securities
• Pledge
• Corporate Action
• Merger / De-merger
• Consolidation /Split
• Conversion
• IPO
• Issuance and Redemption of Open End Mutual Fund
  Units

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CDS Elements
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Account Holders

• Account Holders
• Account holders have direct access to the CDS
  are allowed to keep their beneficially owned
  securities in CDS.

• Participants
• Participants also have direct access to CDS and
  are allowed to provide custody services to their
  clients in addition to keeping their beneficially
  owned securities.

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Account Categories

• Main Account Transitory Account
• House Account Account Holders own account
• Sub Account Client Account
• IAS Account Client Account

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Account Structure
Central Depository System (CDS)
Account Holder
Account Holder
Participants
Main A/C
Main A/C
Investor A/C.
House A/C
House A/C
Sub-A/C
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Admission Criteria

• Direct Account
• Member Stock Exchanges
• Financial Institutions
• Qualified investors that meet
• Technical requirements
• Business Integrity requirements
• Capacity requirements
• having Data Processing Operational Capabilities
  

• Indirect Account
• Any person or corporate entity.

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• Merits De-Merits
• of
• Direct In-Direct Accounts

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Benchmarking

• Forthcoming slides would provide you the behavior
  of Direct In-direct Accounts, taking different
  important parameters of Capital Markets as the
  Yardstick.
• We would analyze the merits de-merits of both
  the type of accounts, by placing each of them
  individually, in different dynamic Capital Market
  motions.
• This exercise would allow us to determine the
  effectiveness of each type of account in a more
  practical realistic milieu.

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Cost
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Efficiency

In-Direct In the dynamic Capital Markets,
dependency Is always treated as a Shortcoming. No
matter how efficient your Custodian is, you
remain dependent on them and dependency is not
advisable.
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Confidentiality
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Clearing

• .

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Settlement
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Compliance Audit
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Risk Management Security
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Information
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Global Operations
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Maintenance Convenience
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Registration
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Entitlements
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Value Added Services
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• Thank You!
• ?
• Shabnam_fahim_at_cdcpak.com
• Faisal_hashmi_at_cdcpak.com
• Shariq_naseem_at_cdcpak.com