In 2002, the mutual fund industry started flourishing in the Pakistani Capital Market and provided a new concept and investment arena to retail and individual investors who possess inadequate knowledge of the capital market but are interested in utilizing its benefits.
Central Depository Company, realizing the importance and service demands of this sector started Trustee & Custodial Services in 2002, initially with two open-ended mutual funds with net assets value of Rs. 500 million. The Company, through its proactive approach and high standards of service, has become the market leader in the private sector and currently provides Trustee & Custodial Services to more than 130 mutual funds and discretionary portfolios managed by various Asset Management Companies (AMCs)/Pension Fund Managers (PFMs). Since the start of this operation, the CDC Trustee and Custodial Services has become the preferred choice due to its excellent service level and the level of business understanding possessed by its staff.
Nature of services
The prime responsibility of CDC as the trustee/custodian is to take into its custody all the assets of the Collective Investment Scheme/funds and hold them in trust on behalf of the unit/certificate holders. Additionally, CDC carries out the instructions of the asset management company/investment adviser/pension fund managers in respect of the investment portfolio and the units/certificates held by the investors, while ensuring that, in all material respects, the scheme is being managed in accordance with the provisions of the constitutive documents, the NBFC Rules, the Regulations and VPS Rules.
Scope of services
The services undertaken by CDC as the Trustee/Custodian are as follows:
· Receipt and delivery of securities against payment both in script-less and physical form.
· Collection and receipt, on account of the beneficial owners.
· All income and other payments and distributions in respect of the securities and/or cash held by us on behalf of the beneficial owners.
· Cash disbursements or payments for any fees, taxes, duties, levies, expenses and/or any other payments.
Nominal Ownership of the Assets
· As the nominee owner of all the assets held by the Fund, undertake any exchange/transfer of assets on behalf of the Investor, the beneficial owner.
Compliance with Regulatory Requirements
· Responsibility to ensure compliance with the requirements of the Constitutive Documents and relevant Rules & Regulations, Circulars, Notifications, Directives, Laws and Ordinances.
· Sending intimation to the clients regarding any notices that have been received in respect of any bonus issues, rights issues, payment calls, takeover bids or general meetings of the issuers/companies in relation to the securities held on behalf of the beneficial owners.
· Receiving and holding, for the account of the beneficial owners, all securities received as a result of a stock dividend, share sub-division or reorganization, capitalization of reserves or otherwise.
· Provision of account balance reports, received from the Central Depository System, either electronically or physically
· Submission of periodic statements of balances of physical securities as per the agreed terms.
· Provision of/arrangement of bank statements of the bank accounts being maintained for and on behalf of the beneficial owners as per the agreed terms.
· Provision of necessary information relating to withholding tax on brokerage & commission and other payments pertaining to the settlement of transactions and capital gain tax on redemption of units.
IT System & Back-Up Support
Central Depository Company (CDC) is acknowledged as a model IT-based company with the finest of IT professionals in the field of system development and maintenance and state-of-the-art IT infrastructure. In order to further enhance the quality and efficiency of our Trustee services, our in house software development team has developed and a Fund Management System (FMS) specifically for the activities of Trustee/Custodian business.
Fund Management System (FMS)
Through FMS, the straight-through-processing (STP) is done, which enables the ultimate possible automation of all the financial transactions directly from AMC to Bank via CDC.
The objective of this effort is to streamline the process, eventually eliminating the need for intervention in the settlement cycle. This in turn reduces risk and uncertainty as well as the level of customer securities and funding required for completing settlement for a given volume of trade.
The system enormously increased the efficiency and reliability of trustee and custodial operations. Further, for manual processing is reduced to a large extent. The system has enabled CDC to perform the following functions, among others, more effectively:
- Maintenance of investment portfolio.
- Recording and maintenance of the details of Unit Holder transactions.
- Generation of different reports.
In addition to FMS, the company uses the Central Depository System (CDS) for safe custody and settlement of equities, National Clearing and Settlement System (NCSS) for settlement of equity/non-equity transactions on the exchange and systems of different Financial Institutions for banking transactions.
CDC being one of the most important pillars of the capital market gives utmost importance to security of information. The Company constantly upgrades its systems with the latest technology in order to maintain its position as one of the most secure and reliable IT based organizations in the country.
Various firewalls and protection systems employed at CDC effectively restrict unauthorized use of the system and virus infections with utmost efficiency. Login to the computer system is protected through RSA token which generates a constantly changing code complimented by a 4-digit PIN.
Proper back-up policy has been implemented to protect against loss of electronic data. In line with this policy periodical back-ups are taken. Similarly, all critical physical records are digitized to ensure their safety.
Business Continuity Program Arrangements
CDC established a comprehensive Business Continuity Program (BCP) in 2007. BCP at CDC was initiated with the assistance of a group of IBM experts comprising of local and international business continuity specialists.
Managed by an enterprise wide coordinator and senior staff members representing various business services and functions, multiple business continuity test drills are conducted periodically each year involving all services and functions as well as locations to ensure readiness of responding to disaster situation.
Since custody of assets is an integral part of our business, this activity is undertaken separately from normal business operations whereby dedicated staff ensures the safe custody and movement of physical securities and data. For this purpose, a proper vault and filing area is in place for the critical documents.
Considering the critical and sensitive nature of the business, there are several checks and balances which ensure the vigilant performance of duties by the Trustee. The basic documents that govern the operations of this department are as follows:
The document through which a Fund is originated and which defines rights and obligations of the three parties involved, namely unit holder, AMC/PFM and the trustee. Trust deeds are approved by the Securities & Exchange Commission of Pakistan (SECP).
This document is a link between the prospective investors and the Fund (Management Company & Trustee) and is governed by the Trust Deed. The Management Company prepares this document, which is reviewed by the Trustee and approved by the SECP.
NBFC Rules & NBFC Regulations and Directives
All the activities performed by the AMC on behalf of the Fund and executed by the Trustee/Custodian are governed by the NBFC Rules & Regulations, Directives, Circulars and Notifications issued by SECP.
Voluntary Pension Scheme (VPS)
All the activities performed by the Pension Fund Managers on behalf of the Fund and executed by the Trustee are governed by the VPS Rules issued by SECP.
The requirements of the Tax authorities with respect to deduction of tax, payment and filing of returns are assisted by Trustee and Custodial department.
Standard Operating Procedures
Comprehensive operating procedures exist to ensure smooth performance of all trustee functions.