Capital Market Development
Capital Market Development
Since its inception, CDC has been taking initiatives for the creation of an efficiently functional marketplace and making a remarkable difference to how it operates. From ensuring the smooth functioning of the market with steadfast operations to constant scrutiny of risk management processes and the resulting upgrades, the routine protocol practices and contingency planning rehearsals, to continuous investor awareness efforts, CDC has been the leading force in Capital Market development.
We have focused primarily on empowering the people, safekeeping their assets and investments and secondarily on the improvement of mechanisms and processes.
National Clearing and Settlement System (NCSS)
Formulated by the CDC management, National Clearing Company operates the National Clearing and Settlement System (NCSS), another capital market infrastructure mechanism, providing settlement and clearing facilitates to all three exchanges for trades in eligible securities.
Clearing and settlement are among the most important aspects in the operation of the securities business. It is the process of reporting, matching, correcting securities transactions and the ultimate delivery or receipt of net balances.
Formerly managed by the CDC management, NCCPL is registered as a separate legal entity and now independently manages the National Clearing and Settlement System (NCSS).
Automation of Security Transfer Mechanism
A core contribution that CDC has made is the automation of security transfer mechanism. The project, implemented as a joint collaboration between NCCPL and CDC, was launched in 2008 with the objective of ensuring that all movements associated with security transfer are done efficiently while reducing downtime and further mitigating any risks or possible data theft.
CDC Security Transfer Mechanism was designed to expedite the process of settlement via the Partner’s Main Account. The automation allowed for restricted use of Main Account where transactions were only to be viewed in exceptional circumstances and permitting the process of settlement to be directly reflected on the accounts of the investors, thereby limiting manual entries.
The first Balance Order, executed by adopting the automated process, was launched on December 27, 2010, marking significant improvements in the settlement of securities transactions. This complex, interconnected project was weaved and assessed with great detail and successfully delivered by both teams working at NCCPL and CDC.
Induction of National Savings Bonds (NSB’s) in CDC
CDC takes pride in serving as the custodian of multiple instruments traded in the Pakistan Capital Market. In line with its vision of digitizing and de-materializing instruments for consequent improvement of operational efficiency and elimination of risk of loss & damage, CDC has launched the National Savings Bonds (NSB’s) in book entry form as part of its system.
All variants of NSB’s are available in maturities of three, five and ten years, with 12.50%, 12.55% and 12.60% return rates respectively. The induction of NSBs in Central Depository System (CDS) has made their handling more convenient and secure for investors, as it has eliminated their risk of loss and damage of physical certificates. This facility has further removed the inconvenience of delivering physical documents to multiple parties, significantly improving efficiency and reducing cost of managing these certificates in physical form. An investment in a NSB can be made through subscription, with registration under the name of the investor with Central Depository Company (CDC).
Considering there was no limitation of size, a minimum, uncapped offer of Rs. 20,000 has been placed as subscription. It is obligatory for investors to open an Investor Account/Sub Account that would permit them to hold their securities in book-entry form.
These bonds can be bought by individuals as well as through mutual funds, gratuity, pension, provident fund or trust, excluding body corporate and banks. It will then become listed on all the stock exchange. Foreign residents living abroad can make their investment by payments remitted through official banking channels.
Implementation of Maximum Limit on Asset under Custody
Asset under custody implies the aggregate worth of all securities maintained with the Broker Participant, exclusive of instruments maintained in the House Account and those that are in blocked form. Under a joint initiative undertaken by CDC and Securities and Exchange Commission of Pakistan (SECP), a security protocol has been embedded to restrict the number of securities held by Trading Rights Entitlement Certificate (TREC Holder) Participants (Brokers).
“Limit on Assets under Custody” prescribes a limit to the extent of which a TREC holder (Broker) may have custody of securities under their control. As per the regulations coined by SECP, the Maximum Custody Limit is 25 times the Capital Adequacy level. The adequacy level has been pre-defined and is applicable to all TREC holders to maintain compliance. CDC has also devised a set of periodic actions which will be taken against a TREC holders in case of non-compliance of these procedures.
Centralized eIPO System
In its dedication to cater to its customers right down to the singular level, CDC has introduced a Centralized eIPO System (CES) which enables investors to submit their online subscription applications for securities offered via the Initial Public Offering (IPO). The service is readily accessible to the general public and also aids the process of payment through various banking channels of 1Link member banks such as such as internet banking, Automated Teller Machines, mobile banking and Over-The-Counter.
In order to expedite the process of receiving dividends given by companies, CDC has introduced its eDividend Repository which will help investors receive their payments directly into their accounts as well as assist them in tracking their dividends. This repository has been designed as a web-based portal with global accessibility and provides the investors with a holistic overview of their earnings.. Additionally, it identifies reasons of non-disbursement in case payments have not been made. Furthermore, in order to help investor file their tax returns, it issues certificates which summarize areas such as dividend rates, net dividend paid, tax and zakat deductions etc.
The service is offered free of cost and requires a simple registration with the CDC eService portal which will allow the investor to avail this service.
eLOR (electronic Letter of Rights)
Another initiative undertaken by CDC in its endeavor of capital market transformation through digitization is the Electronic Letter of Rights (eLOR) launched in 2015. The eLOR can be availed by the investors through CDC Web Access portal by subscribing to Online Transactions and allows investors submit online Transaction Orders for right subscription. After the requisite payment by the investor against the right shares subscribed, they will be automatically transferred into his account on the due date.
Revamping of the Capital Gain Tax (CGT) regime
CDC has worked closely with the National Clearing Company of Pakistan (NCCPL) on the Computation and Revamping of the Capital Gain Tax (CGT) regime. CDC collaborates with NCCPL for the provision of CGT data which is calculated under the First In First Out (FIFO) Method. NCCPL receives the data to derive, accumulate and deposit the CGT earned to the national treasury on behalf of all capital market investors.
It is noteworthy that all transactions and trades reflected on trade platforms and the transfer of securities through free-delivery in the Central Depository System (CDS) are covered under CGT Regime. All capital gains arising on redemption of units of open ended mutual funds and on trading of future commodity contacts at Pakistan Mercantile Exchange (“PMEX”) are included in CGT Regime of NCCPL, from July 1, 2016.
Margin Trading/ Financing
CDC has also rendered its support in improving and transforming the processes adopted in Margin Financing (MF) and Margin Trading (MT). Account Holders that are deemed Trading Financers by NCCPL can request CDC to open their MF account, while Account Holders that are deemed Eligible Financers by NCCPL can request CDC to open their MT account.
Free Float is the remainder of total shares in the market subtracted by treasury stocks and shares held by institutions and are traded publicly. Companies are obliged to fulfill the free float requirement in order to be able to trade in the stock market. CDC has also contributed greatly to enhance the paradigm of free float in the Pakistan Capital Market. All reports and data is maintained in the Central Depository System (CDS) and then disseminated to the issuers and Pakistan Stock Exchange (PSX).
Caps on Bank’s Sponsor Holding
In an attempt to reduce the occurrence of money laundering and theft, PSX, NCCPL, CDC and the SECP have jointly developed a centralized portal where UIN of investors with more than 2% of shares of any listed banking companies will reflect and be uploaded on a daily basis by CDC. NCCPL identifies the unsettled transactions of the determined UINs in this portal to understand and identify the true holding of an investor.
Investment Road Shows and Awareness Programs
With a vision for wide scale development of the Pakistani Capital Market and to educate investors throughout Pakistan, Central Depository Company launched a series of Investment Road Shows in 2005. These target-driven events transformed into a platform for the capital market leaders and executives to meet and interact with the investors and stakeholders. The road shows have become a channel in educating the investors about the workings of Pakistan Capital Market & investment opportunities and clearing misconceptions about associated risks.
The core objective of Central Depository Company through these programs is to provide comprehensive knowledge about Central Depository System, Account Maintenance and Value Added Services that help in managing and maintaining CDS accounts effectively. It also apprises the audience about their role and responsibilities as an investor.
Other than Karachi, Lahore and Islamabad, where Investor Awareness Programs are more frequently arranged, CDC has organized Investment Road Shows in several other cities of Pakistan including Hyderabad, Sukkur, Daharki, Gujranwala, Multan, Sialkot, Faisalabad, Quetta, Rawalpindi, Islamabad, Abbottabad, Muzaffarabad, Mirpur Azad Kashmir and Peshawar.
Similarly, CDC regularly conducts Awareness Programs for colleges and universities across the country to help educate their students about Pakistan Capital Market and the investment and job opportunities offered by it.
Capital Market Days
Apart from covering several local cities in Pakistan, CDC has taken the road shows to Abu Dhabi and Dubai in 2006 and held similar events in London (in collaboration with London Stock Exchange) and in New York (in collaboration with Citibank and The Bank of New York Mellon) in July 2007. These events by the name of Capital Market Days have played a key role in foreign-investor relationship development by enabling face-to-face dialogue between corporate entities and fund managers/institutional investors.