The 8th ACG Cross Training Seminar Merits & De-Merits of Direct & In-Direct Accounts in the Pakistan Capital Ma

1. The 8th ACG Cross Training SeminarMerits & De-Merits ofDirect & In-Direct Accountsin the Pakistan Capital Market by: Shabnam Fahim Syed Faisal Hashmi Shariq Naseem

2. Agenda • Pakistan Capital Markets. • Central Depository Company of Pakistan • Merits and Demerits of Direct and Indirect account Method

3. Pakistani Capital Markets • Market regulators • Stock Exchanges • Instruments Traded • Trading Environment • Clearing and Settlement • Past Brief and Current Situation

4. Market Regulators • Securities & Exchange Commission of Pakistan (SECP) • Regulating stock exchanges, NBFCs, CDC and Corporate Sector • Functional Responsibility: framing of rules and regulations • Recent developments, REIT, VPS, NBFC rules, debt market • State Bank of Pakistan (SBP) • Regulating banking institutions • Policy measures • Monetary • Credit • Foreign exchange mechanism

5. Stock Exchanges Three Stock Exchanges in Pakistan: The Karachi Stock Exchange Lahore Stock Exchange Islamabad Stock Exchange The Stock Exchanges: Most active and Liquid- KSE Self regulatory body

6. Instruments Traded • Equity • Ordinary Shares • Preference Shares • Bonds • TFCs • Other Debt Instruments- TBs, PIBs • Derivatives • Stock Exchange offers equity futures • Monthly contract- overlap of at least 2 trading days b/w contracts

7. The Trading Environment • Equities • All Stock exchanges have own trading platforms • Automated Trading System: • Processing based on bids & offers and • Intimation of trades executed • Circuit Breakers- 5% • Bond Market • Primary Market • PIBs Auctioned monthly & TBs fortnightly • TFCs by Pakistani Companies • Secondary Market • PIBs and TBs traded freely • Investors hold TFCs until maturity- low liquidity

8. Clearing and Settlement • Clearing • Government bonds through SBP • Others through National Clearing Corporation • Scrip less • Settlement System T+3 • Payment released-broker ascertains stock transfer- CDC A/c • OTC • No formal organized market • Physical • Less than 1% Settlement

9. KSE Current Situation • Pakistan Included in MSCI Emerging Market index- May 2005 • World Bank-Investment report 2005- one of top ten reformer countries • Market capitalization- $ 57 billion with 663 securities (April 17, 06) • 4th year- one of the best performing markets- Business Week- US newspaper, USA today • Past four years compound annual growth rate-56% • KSE100 share index- increased 53.6% July 05 - May 06 - 3rd highest • Capital markets exceptional performance– Reasons • Pakistan Economic Revival- GDP growth- 2002 onwards • Consistent and transparent economic policies • Successful privatisation process-PTCL/National refinery etc • Impressive Corporate Results • Sound Monetary Polices- SBP, & Capital Market reforms- SECP

11. CDC ... … the Country’s only Securities’ Depository

12. Central Depository Company (CDC) • Incorporated in 1993 • To manage and operate the Central Depository System (CDS) • Live Operations in 1997

13. Our services • Depository Services • Trustee and Custodial Services • Registrar & Transfer Agent (in near future)

14. Legal Framework • Companies Ordinance • Central Depository Company Regulations • Central Depositories Act • Listing Regulations

15. Achievements • Implementation of National Clearing & Settlement System • Launch of trustee and custodial services • Launch of Investor Account Services • Launch of enhanced version of CDS (eCDS) • Induction of Open-end Mutual Funds in CDS • Launch of CDC call centre • CDC Access

16. Securities handled through CDS • Ordinary Shares • Preference shares • Term Finance Certificates Certificates of Open-ended mutual Funds • Certificates of Closed-end Funds • Modaraba Certificates

17. Transactions Supported through CDS • Deposit of Securities • Delivery (Transfer) of Securities • Withdrawal of Securities • Pledge • Corporate Action • Merger / De-merger • Consolidation /Split • Conversion • IPO • Issuance and Redemption of Open End Mutual Fund Units

18. CDS Elements

19. Account Holders • Account Holders • Account holders have direct access to the CDS & are allowed to keep their beneficially owned securities in CDS. • Participants • Participants also have direct access to CDS and are allowed to provide custody services to their clients in addition to keeping their beneficially owned securities.

20. Account Categories • Main Account – Transitory Account • House Account – Account Holder’s own account • Sub Account – Client Account • IAS Account – Client Account

21. Account Structure Central Depository System (CDS) Account Holder Account Holder Participants Main A/C Main A/C Investor A/C. House A/C House A/C Sub-A/C

22. Direct Account Member Stock Exchanges Financial Institutions Qualified investors that meet: Technical requirements Business Integrity requirements Capacity requirements having Data Processing & Operational Capabilities Indirect Account Any person or corporate entity. Admission Criteria

23. Merits & De-Merits of Direct & In-Direct Accounts

24. Benchmarking • Forthcoming slides would provide you the behavior of Direct & In-direct Accounts, taking different important parameters of Capital Markets as the Yardstick. • We would analyze the merits & de-merits of both the type of accounts, by placing each of them individually, in different dynamic Capital Market motions. • This exercise would allow us to determine the effectiveness of each type of account in a more practical & realistic milieu.

25. Cost

26. Efficiency In-Direct In the dynamic Capital Markets, dependency Is always treated as a Shortcoming. No matter how efficient your Custodian is, you remain dependent on them and dependency is not advisable.

27. Confidentiality

28. . Clearing

29. Settlement

30. Compliance & Audit

31. Risk Management & Security

32. Information

33. Global Operations

34. Maintenance & Convenience

35. Registration

36. Entitlements

37. Value Added Services

38. Thank You!  • Shabnam_fahim@cdcpak.com • Faisal_hashmi@cdcpak.com • Shariq_naseem@cdcpak.com