::::::::: CA Entitlements for CFS Shares :::::::::

1. Preamble

As per current CDS design and CDC Procedures supported by CD Act & CDCPL Regulations, the holder of the securities is treated as the Beneficial Owner of the securities irrespective of the nature of transaction/trade due to which securities are transferred to the transferee accounts and to which the resultant entitlements, as and when announced, are also calculated in favor of account holders in whose name the securities are appearing in the CDS account at the end of the day before the start of the book closure date.

Due to the recent development /changes in respect of Stock Exchange’s CFS Regulations, CFS transactions are not forced released before start of book closure period, consequently entitlements are calculated on CFS Financed securities which are parked in CFS Blocked Accounts of the CFS financier and subsequently entitlements are required to be transferred by the financiers to the financees through Stock Exchange following the manual process.

Considering the risk issues relating to the recovery of the entitlements from financiers and manual process for the receipt and delivery of entitlements to the fiancées and as required by SECP vide their letter SMD-South/CDC (0124)/2007 dated May 23, 2007, we propose the following mechanism through which entitlements will be directly delivered to the Financee:

2. Proposed Mechanism/ Transaction Flow

To provide complete automation of trading, settlement and clearing of the CFS trades, SECP in consultation with CDC, NCCPL and KSE has developed a mechanism through which CFS financees will get their entitlement of corporate benefits automatically for their CFS trades.

An upload mechanism will be created in the CDS to execute Automatic movement of securities from Financer’s account to Financee’s account during the end of the day process on the day preceding the start of the book closure date and subsequently the same securities will be transferred back to the financiers account on the next business day.

i) Pre-requisites for implementation

The above mechanism is subject to:

a. Legal & regulatory Approval.

b. Implementation of all corrective measures relating to UIN which includes cross exchange transactions, input of CNIC for individual brokers in NCCPL UIN database instead of Broker registration number, etc.

ii) Application of the Mechanism

The mechanism would only be applicable for Book closures related to following entitlements:

a. Cash Dividend
b. Stock Dividend
c. Rights

For other Corporate Actions like Mergers & de-mergers, splits or consolidation, etc., the CFS trades will be required to be forced released before the start of Book Closure period.

iii) Responsibility of Participants / Brokers

a. The responsibility of correctness of UIN & to ensure that the same number is used both in NCSS UIN database as well in CDS House/Sub-Account lies with the Participant/ Broker. Consequently entitlement will be issued / credited into financier account.

b. It will be mandatory for CFS Financee to open & maintain CDS House or Sub Account (as applicable), in order to avail the financing facility from CFS market.

c. One time authorization will be required from all CFS Financier Participants and Financee Participants for movement of securities. Participants will be required to obtain approval from their respective sub Account holders. Confirmation to this effect will be part of one time authorization from Participant.

d. Members shall remain responsible for settlement of dividend / Bonus shares / Right issue with the Clearing House of the Exchange on behalf of their Clients including institutions, Corporate and foreign clients.

e. The broker Financier will remain responsible for all his IDS transactions.

iv) Exceptions

The automatic transfer will not be executed in following cases:

a. UIN of Financer or Financee mismatches with CDS Account details.

b. If shares are pledged from a Financer’s account.

c. Any restriction for the movement of securities on either side (Financee or Financer) by any Regulatory authority.

d. If shares are parked in Main account instead of respective account such as Sub Account or House Account of Financer.

Considering that the automatic transfer would not be executed in aforementioned cases the current prevailing mechanism of dealing with the CFS securities would be applied. Appropriate actions should also be taken against non-compliant Participants.

3. Application of the Mechanism at the Exchange level

i) CFS trades shall remain locked from the date of start of spot trading till the date of commencement of the Ex-date. (Book Closure).

ii) During the period company is traded on Spot basis, no CFS release or open market CFS sessions will be allowed.

iii) All exposure margins and mark-to-market differences shall remain applicable as per the prevailing RMS regime.

iv) KSE shall prepare a scrip-wise list of all CFS Financiers and Financees and forward to NCCPLat the end of trading day position at least three business day prior to ex-date.

4. Application of the Mechanism at NCCPL level

i) NCCPL to upload the following financier and Financee details in CDS, one business day prior to the commencement of Book Closure period:

a. CM Id
b. UIN (Both for Financier and Financee)
c. Security Symbol
d. SE location
e. Volume.
f. UIN Type

ii) NCCPL to ensure using CDS Participants id as CM id in line with current practice.

5. Application of the Mechanism at the CDC level

i) CDS to process the transfer on the basis of data uploaded by NCCPL.

ii) In cases where more then one CDS Sub / House account of a Financee exists with a Participant, CDS will recognize the UIN appearing in the first account as a principal title e.g. same CNIC appearing in three House accounts (i.e. 22, 36, and 44) system will recognize “22” as the beneficiary account.

iii) In cases where more then one CDS Sub/House account exists for a particular UIN with the Financer’s Participant Account, system will allow the transfer on the basis of “SE location”.

iv) Transfer of securities in case where Financee’s CDS account is closed at the time of transfer, then the securities will be transferred to the Main account of the Participant (Broker Financee).

v) A new CDS report shall be developed reflecting the mismatch details of UIN with the details available in CDS. On the basis of this report action to be taken against non-compliant Brokers which will include fine, restriction to trade on CFS market and/or Termination of facility to execute trades on CFS Market.

Timeline for Necessary Regulatory & System Changes:

Corporate Action entitlement for CFS Shares
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