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What is Central Depository System ?

The main function of CDC is to operate and maintain the Central Depository System
(CDS), drawing guidance from a well-defined legal framework laid down by Securities
& Exchange Commission of Pakistan (SECP). Installed by an IBM-led consortium,
CDS is an electronic book-entry system used to record and maintain securities and to
register the transfer of securities.

The system changes the ownership of securities without any physical movement or
endorsement of certificates and execution of transfer instruments. CDS facilitates
equity, debt and other financial instruments in the Pakistani Capital Market. It
manages Ordinary & Preference shares, TFCs, WAPDA Bonds, Sukuk, Open-End &
Closed-End funds and Modaraba Certificates.

Benefits of Electronic Settlement through CDS.

Following are some of the benefits of electronic settlement of securities through CDS:

• Reduced workload and manpower requirements due to paperless settlement.


• Instantaneous transfer of ownership.
• No stamp duty on transfers in CDS.
• No risk of damaged, lost, forged or duplicate certificates.
• No impact in case of sudden increase of settlement volumes.
• Instant credit of corporate entitlements (bonus, rights and new issues).
• Paperless environment (no traditional vaults).
• Secure custody of securities.
• Substantial reduction of paperwork during book closure.
• Convenient pledging of securities.
• Substantial reduction in time & capital investments.

CDS Elements

The Elements of CDS are:


• Participants / Account Holders
• Issuers
• Eligible Pledgee
These elements have a defined role in the Central Depository System as the system
is driven by them without direct involvement of CDC on a day-to-day basis. CDC,
however, keeps the system under its surveillance to ensure its smooth functioning
and confidentiality.

Account Holders in CDS are divided in two categories:

1. Participants: are allowed to keep their beneficially owned securities in CDS


and provide custody services to their clients as well.
2. Account Holders: are only allowed to keep their beneficially owned
securities in CDS.
All the members of Stock Exchanges, Banks (Both Commercial and Investment), and
DFIs can open their account as a Participant whereas, Corporate Bodies and Qualified
Private Investors can open their account as an Account Holder.
The companies or Issuers of capital whose securities (both equity & debt) are
converted from physical to electronic securities play a significant role in CDS. The
physical securities are converted into electronic book entry securities only after
proper verification and approval by these Issuers in CDS. This process eliminates the
problem of fake certificates as securities are thoroughly checked by the Issuers
before approval for CDS.
Financial institutions that lend against securities can join CDC in the capacity of
Eligible Pledgees.

Transactions handled by CDS

• Deposit of Securities
• Transfer of Securities
• Pledging of Securities
• Pledge Release
• Pledge Call
• Withdrawal of Securities
• Corporate Action

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 CDS
account to another. If the transfer of securities is within the account family of a
Participant, it is called Intra-Participant Free Delivery. Similarly, if securities are
transferred from one Participant to another, the transaction is called Inter-Participant
Free Delivery.

An Account Holder or a Participant can place securities under pledge in favor of an


eligible 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 (dividends, etc.) on flagged
securities. Only eligible pledgees can release securities, which have been placed
under pledge. As soon as securities are released from pledge, they become available
to the Pledgor for further transactions such as a delivery, withdrawal or another
pledge. Eligible pledgees can call pledged securities in their own account or in any
other account in CDS.

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

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 Issuer or
Registrar / Transfer Agent on behalf of issuer. In other words, the detailed break-up
of the CDC’s 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, Demerger and Consolidation / Sub-Division in an efficient
manner.

Investors can have their securities, subscribed in IPOs, directly credited to their
accounts in electronic form. With this feature, they can save costs and hassles
involved in obtaining physical certificates and then getting them deposited in
electronic form.

Transaction is a series of actions through which physical certificates are converted


into electronic book entry securities in CDS. The deposit request transaction is
initiated by Participants either on behalf of their client or on their own behalf. It is
after the approval of the relevant Issuer that the physical securities become available
for electronic settlement.

Technical Info
CDS Network

CDC's network is spread across the main trade hub cities of Pakistan. The sites are interconnected
through highly reliable WAN links. The reliability of links is backed up with multiple levels of
redundancy. In case of a link failure, the fallback to backup link is completely unnoticeable. Along
with reliability and redundancy, security is one of the most important concerns for CDC.
Confidentiality and authenticity are ensured for all transactions that are carried over the network.

Stock users are connected through resilient and dedicated links while clients other than stock users
(external clients) connect to the CDC network through dial-in to our local point of presence by using
Pakistan Telecommunication Corporation Limited’s Public Switched Telecommunication Network
(PSTN). Sufficient numbers of simultaneous dial-in lines are maintained at various sites to allow first
call connection. We also have reliable and high bandwidth metro fiber connectivity for external
clients.

CDS Software

CDS is a menu-driven client/server application system. The Graphic User Interface based proprietary
client runs on a Microsoft Windows based PC. The Client neither stores users’ data nor executes the
application logic; instead the customer data as well as application logic resides on the central server
managed by CDC. The installation and set-up of the proprietary CDS Client at customer site is
supported by the Customer Network Support Services.

The application is being continuously enhanced in-house to include more functions and features.
Standards based Software Engineering process is being implemented to ensure uninterrupted
availability of the system and the integrity of the data.

The software updates for CDS Client are delivered over the CDC network for efficient configuration
management.

CDS Hardware

CDS Client is an Intel based PC with a LAN card for the users at local stock exchange LAN and a
standard modem for the remote users.

Minimum hardware Configuration for CDS Applications


Component Requirement
Processor Intel Pentium IV 3GHz or above
RAM 512 MB or above
Hard Disk Atleast 5 GB Free
Serial Port/USB for
1 at least
External Modem
Printer High quality/speed Laser printer
Mouse 2/3 Buttons (PS1 or PS2 connector type)
Keyboard 101/104 Keys (PS1 or PS2 connector type only)
Keyboard Interface on
PS1/ PS2
Motherboard
15” SVGA Color Monitor with 1024x768 Display
Monitor
Resolution
VGA Card 16MB or above Graphics Card on AGP/PCI slot
CD ROM 50 x or above
Brand Branded PC Operating
System Configuration

Minimum Requirement
Microsoft Windows 2000 Professional/ Windows XP Professional (Licensed) with latest Service Pack & p
Internet Explorer version 6.0 or above
Acrobat Reader 7.0
Connectivity Option

(NIC for Stock Exchange Users)

Manufacturer Type
Any Brand RJ-45 Connector Type (10/100 Mbps)
Modem for Remote Users/ Dialup Users

Minimum Requirement
US Robotic / Zoltrix 56 Kbps (Internal or External)/ ISDN Modem / ISDN BRI
Security Measures

To ensure utmost security of information, multiple levels of protection have been deployed to create
an impregnable system for hackers and unauthorized users. Some of the major security measures
include:

 Terminal Authentication – A dual factor authentication protocol comprising of a 4 digit pin


number and a 6 digit automatically generated RSA passcode)
 Virtual Private Network (VPN)
 Various Firewalls
 Segregated User Level Authorities
 CLI binding
 Servers - The central servers comprise of powerful, fault tolerant and redundant servers with
large storage devices and fast archival systems at the primary site.
Email Integration

CDC E-mail Facility provides CDC the capability to send encrypted e-


mails with digital signatures to its Elements in Karachi, Lahore and
Islamabad. With this facility in place, CDC can correspond with its
clients in an effective and cost efficient manner.

Users can open the received e-mail by clicking 'Outlook Express' option
from the 'Programs' sub menu of the MS-Windows 'Start' menu. The
same operation can be executed by clicking MS-Outlook Express icon
in the Task Bar. Once the Outlook Express main screen appears, user
would be able to Receive, Read and Delete e-mails.

Deployment of this E-mail service reflects CDC's efforts toward its


customer centric focus and providing quality service and satisfaction to
its clients.
Account Holder

Account Holders are allowed to keep their beneficially owned securities into CDS.

Eligibility Criteria:

As per CDCPLR, any person, company, corporation or institution in such class as the
Board may, from time to time, determine in this behalf, may apply to the CDC for
admission to the CDS as an Account Holder.

Account Opening Procedure:

A) The applicant initiates a written request for the account-opening package.


B) An account-opening package containing the following original/specimen
documents is sent to the applicant.

Account Opening Package contains the following documents and request


for other required documents:
Individual Corporate
Documents
Account Account
Admission Form: General information about the client is obtained on
Yes Yes
this form. Admission Form (Individual) Admission Form (Corporate)
Agreement: The agreement states terms and conditions agreed
Yes Yes
upon by both parties for opening an account with CDC.
Specimen Signature Card: Name & signatures of authorized
Yes Yes
signatories are obtained on this card.
Specimen Undertaking: confirmation regarding not maintaining an
Yes Yes
Investor Account with CDC.
Specimen Board Resolution: Certified true copy of the Board
Resolution authorizing the company to enter into an agreement
No Yes
with CDC and nominating signatories on behalf of the company
is required.
OTHER REQUIRED DOCUMENTS
Power of Attorney in case of an agent (if applicable) Yes No
Attested copy of Passport of Joint holder (if applicable) Yes No
Attested copy of NIC/Passport of Nominee Yes No
Certified true copy of Stock Exchange Registration Certificate (if
Yes Yes
applicable)
Attested copy of NIC of the applicant Yes No
Certified true copy of Memorandum & Articles of Association No Yes
Certified true copy of certificate of incorporation No Yes
Certified true copy of Certificate of Commencement of Business
No Yes
(if applicable)
Security Deposit & Documentation Fee Yes Yes
Certified true copy of Banking License(if applicable) No Yes
Certified true copy of NBFC License(if applicable) No Yes
Certified true copy of SECP Brokerage Certificate (if applicable) Yes Yes
Certified true copy of Notification by Stock Exchange(if
Yes Yes
applicable)
Certified true copy of Minimum Subscription Certificate and
No Yes
Prospectus (if applicable)
C) The applicant submits the above-mentioned documents (complete in all respect)
to CDC.

D) Upon receipt of the documents, CDS software is installed at the premises of the
applicant.

E) A comprehensive training session is conducted to train the users of the CDS to


their satisfaction. The session explains in detail the concept & workings of the CDS.

F) As soon as the account is activated, following Ids and passwords are sent to
the Applicants:

• CDS User IDs & Passwords


• Dialup ID & Password (If Applicable)

It is also to be noted that it takes three working days to open an account after
submission of documents (provided the documents are complete in every respect).

Tariff
SCHEDULE OF FEES
S.No NAME RATE BASIS LEVIED ON COLLECTION
WHEN MODE
(Note 1)
Initial Deposit Fee Per share P.O./Draft/
- for Shares Re. 0.01 deposited Month end Cheque
Participant/
1. - for TFCs* Nil - - -
Account Holder
- for WAPDA Bonds ** Nil - - -
- for Units *** Re. 0.01 Per Unit Month end P.O./Draft/
deposited Cheque
(Note 2)
Transaction Fee
Per share
- for Shares Re. 0.0020 Per Unit* Participant/ Month end P.O./Draft/
2. - for TFCs* Re. 0.0020 Per WAPDA Account Holder (calculated on Cheque
- for WAPDA Bonds ** Re. 0.0020 Bond** daily basis)
- for Units *** Re. 0.0020 Per Unit***

Custody Fee (Note 3)


- for Shares 0.015% p.a. Market value
- for TFCs* 0.0125% p.a. Market value
Participant/ Month end P.O./Draft/
3. - for WAPDA Bonds ** 0.0125% p.a. Market value
Account Holder (calculated on Cheque
- for Units *** 0.0125% p.a. Quoted or
daily basis)
- On Blocked Securities 0.00675% p.a. offer price
- For Major Shareholders 0.00675% p.a. -

CDS Connection Fee Fixed monthly


- Account holder/ per CDS Monthly in P.O./Draft/
4. CDS Elements
Participant Rs. 500 p.m. connection advance Cheque
- Eligible pledgee Rs. 10,000 p.m. (Note 4)
Fixed monthly
Additional CDS Connection per CDS Monthly in P.O./Draft/
5. Rs. 10,000 p.m. CDS Elements
Fee additional advance Cheque
connection

Annual Fee for Eligible


Security
Issued Amount (Face Value)
For Shares & Long-term
6. TFCs
-Upto Rs. 50m
-Above Rs. 50m to
Rs. 200m Rs. 16,875 p.a.
-Above Rs. 200m Rs. 33,750 p.a.
Rs. 67,500 p.a. Fixed annually
per eligible Issuer/Asset
For Short-term TFCs Annually in P.O./Draft/
security Management
-Upto Rs. 50m advance Cheque
Rs. 5,000 p.a. Companies
-Above Rs. 50m to
Rs. 7,500 p.a. (Note 5)
Rs. 200m
Rs. 12,500 p.a.
-Above Rs. 200m
For WAPDA Bonds**
-Upto Rs. 50m
Rs. 18,750 p.a.
-Above Rs. 50m to
Rs. 37,500 p.a.
Rs. 200m
Rs. 75,000 p.a.
-Above Rs. 200m
Annual Fee on CDS Eligibility
of Units of open-end mutual Rs. 67,500 p.a.
funds
7. Redemption Fee Nil Units*** - - -
Pledge Call Fee Per share
- for Shares Re. 0.005 Per Unit*
Eligible P.O./Draft/
8. - for TFCs* Re. 0.005 Per WAPDA Month end
Pledgor/Pledgee Cheque
- for WAPDA Bonds ** Re. 0.005 Bond**
- for Units *** Re. 0.005 Per Unit***

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