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 Pledgees 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: 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.
1.

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 IntraParticipant 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 CDCs 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.

Statistics
Performance at a glance Number of shares in CDS (in Bn) Market Capitalization of shares in CDS (in Trillion) % of shares in CDS w.r.t. total share capital (Exl.GOP) Total number of Investor Accounts Number of Securities in Investor Accounts (in Bn) June 30, 2010 78.14 1.403 June 30, 2011 83.83 1.659 March 31, 2012 95.68 1.862

84.09% 52,714 24.489

83.57% 52,986 34.332

84.83% 51,128 36.497

National Clearing Company of Pakistan Limited (NCCPL) is a significant institution of Pakistan's Capital Market providing clearing and settelment services to all three stock exchanges in the country.
As a part of Capital Market Development Programme of Asian Development Bank (ADB) in Pakistan, the Capital Market Project Consultants, Arthur Anderson & Company were given mandate to develop recommendations for a National Clearing & Settelment System (NCSS) to replace the separate and individual Clearing Houses of three Stock Exchanges, namely Karachi Stock Exchange, Lahore Stock Exchange and Islamabad Stock Exchange by a single and centralized entity. Accordingly the Company was incorporated on July 3, 2001 to manage and operate the National Clearing & Settlement System (NCSS) in a fully automated electronic settlement system. NCSS Live Operations commenced from December 24, 2001. However, the Company became fully operational in the year 2003-04 by inducting and handling clearing and settlement of all book-entry securities through NCSS. Thereafter, any security which becomes live in Central Depository System, on ready status, is accordingly inducted into the NCSS. The Capital Market of Pakistan has a traingular foundation comprising of the stock exchanges, Depository Company and NCCPL; the goal of all being an economically stronger, more prosperous Pakistani Capital Market. Armed wih this vision, NCCPL is playing a significant role in ensuring growth and prosperity to the Capital Market of Pakistan.