SUBJECT:

BUSINESS AND CORPORATE LAW

DATE OF SUBMISSION:
19-04-2017
 CENTRAL DEPOSITORY COMPANY OF PAKISTAN
Introduction:
Central Depository Company of Pakistan Limited provides central depository services for equity,
debt and other financial instruments. The company handles electronic (paperless) settlement of
transactions carried out at stock exchanges. It also handles various transactions that include
deposit and transfer of securities, pledging of securities, pledge release, pledge call, and
withdrawal of securities. The company also provides investor account services, trustee and
custodial services, and share registrar services. It serves brokers, asset management companies,
banks, and general retail investors, as well as issuers and registrars of securities.

Overview:

Central Depository Company is recognized as the infrastructure backbone of the Pakistan Capital
Market and it is the sole securities depository in the country. In the past two decades, CDC has
also evolved as one of the leading and most prestigious infrastructure institutions in Pakistan
with a focus on the capital market.
CDC is the sole entity handling the electronic (paperless) settlement of transactions carried out at
the stock exchanges of the country. Through efficient functioning of CDC, all the market
settlement is in book entry form.
The company is regulated by SECP and have offices in Karachi, Lahore and Islamabad. CDC is a
member of Asia-Pacific Central Securities Depository Group (ACG), which is an international
organization facilitating the exchange of information, promoting mutual assistance among
member securities depositories and clearing organizations in the Asia Pacific region.
Primarily, CDCs function was to operate the Central Depository System (CDS) for all financial
instruments traded in Pakistan Capital Market. However, with the ever-growing capital market,
company has diversified its business beyond the traditional depository domain and offered many
services as well.
Objective

CDC was primarily established to operate the Central Depository System (CDS) for equity, debt
and other financial instruments that are traded in the Pakistani Capital Market.
To provide secured and dependable services to the capital and financial market.
To operate as a central securities depository on behalf of the financial services industry so as to
contribute to the countrys ability to support an effective capital market system

Corporate Social Responsibility:

Corporate Social Responsibility is now a concept recognized worldwide whereby organizations
consider the interests of society by taking responsibility for the impact of their activities on
customers, suppliers, employees, shareholders, communities and other stakeholders.
Organizations voluntarily take steps to improve the quality of life for employees and their
families as well as for the local community and society at large in this regard.

CSR is now an integral part of CDCs culture. Being the sole depository of the country, the
organization has realized its national and moral obligations with a strong sense of responsibility.
Our approach towards community is not limited to financial support, but is also centered on the
vital element of employee engagement.

The philanthropic outreach program of the organization is currently focusing on two strategic
priorities that are to advance education and improve healthcare. The participation strategy may
be a direct approach or through NGOs of repute. Keeping in view the current status of these two
sectors where significant improvement is required, the organization contributes 2.5 percent of
profit before tax towards corporate philanthropic activities.

The company also partners with The Citizens Foundation Rahbar Program a mentorship
program aimed at the development of youth as responsible individuals and productive members
of society. Through the program, CDC employees volunteer for 10 Saturdays as mentors for
students of Class 8 to encourage them to develop a positive thought process, a vision for his/her
future, the plan to realize that vision and the capacity to deal with the failures that he/she will
inadvertently confront on this journey.

CSR program at CDC continues to enhance the image of the company as a socially responsible
corporate citizen.

CENTRAL DEPOSITORY SYSTEM:

The main function of Central Depository Company is to operate and maintain the Central
Depository System (CDS). It 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,
WAPDA Bonds, Open-End & Closed-End funds and Modaraba Certificates.
ELEMENTS OF CENTRAL DEPOSITORY SYSTEM:
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 on a day-to-day basis without direct involvement of CDC. CDC, however, keeps the system
under its surveillance to ensure its smooth functioning.
Account Holders: Account holders in CDS are divided in two categories:
1. Participants: They are allowed to keep their beneficially owned securities in CDS and
provide custody services to their clients as well.
2. Account Holders: They are only allowed to keep their beneficially owned securities in
CDS

Issuers: 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 the
Issuers in CDS. This process eliminates the problem of fake certificates as securities are
thoroughly checked by the Issuers before executing deposit of securities transaction in CDS.
Eligible Pledgees: Financial institutions that lend against securities can join CDC in the capacity
of Eligible Pledgees.
Electronic Settlement through CDS:
The benefits of electronic settlement of securities through CDS are as follows:
Reduced workload and manpower requirements due to paperless settlement.
Immediate 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.
Secure custody of securities.
Substantial reduction of paperwork during book closure.
Convenient pledging of securities.
Substantial reduction in time & capital investments

Goals and objectives of central depository system:

The SDC aims to achieve the following objectives.
Enhance the confidence of investors in securities and enable them to follow-up their
investments with ease by establishing a central registry to keep safe the ownership of
securities.
Reduce risks related to settlement of trading transactions executed through the market by
implementing by-laws, instructions and procedures that are fair, fast and safe.
 Eliminate risks resulting from trading of material securities in the Capital Market. i.e.
damage or loss or forgery.
Ensuring the safety of securities registered in central depository.
Faster and easier trading of securities in the capital market.
Eliminating counterfeiting risks resulting from the circulation of physical securities
certificate.
Adopting International standards based on the group of 30 recommendations to meet
International capital market standards.

SOURCES OF FUNDS
Central Depository Company earns its revenue through:
1. CDS Operations
2. Investor Account Services
3. Trustee & Custodial Services
4. Facility Management Fee
5. Other sources

CDS - operations
The main operations performed in the CDS are as follows:
Deposit of existing and new securities in to the Central Depository System. Once CDC declares a
security eligible, the physical certificates of that security will be deposited in the CDS for
conversion after which they will be available for further transfers within the system.
Procedure
Following is the procedure to deposit securities in the CDS:
The Account Holder will initiate the Deposit Request by entering the details of share certificates
into the system, and Securities Deposit Form: CDS will generate computer printouts of the
transaction. Transfer Deed will be executed in favor of 'Central Depository Company of Pakistan
Limited'. Account Holder will then send the relevant share certificates, transfer deeds, Securities
Deposit Form, and the computer printouts to the relevant registrar. The registrar after verification
will either approve or reject the transaction within five days from the receipt of the documents.
Registrar will update CDC nominee shareholding in the Member's Register, cancel share
certificates and transfer deeds, and return the relevant documents ( other than canceled share
certificates and transfer deeds ) to applicant account holder.

Investor account services (IAS)

Investor Account Services (IAS) offered by Central Depository Company (CDC) allows retail
investors to directly open and maintain accounts with CDC in Central Depository System for
electronic settlement of securities.
Procedure
To settle the securities through Central Depository System, investors had to open client accounts
(sub accounts) with the CDS Participants (brokers & financial institutions). With Investor
Account Services, investors can now have direct access to their account. Investors now have
direct access to their securities, which are maintained by CDC and accounts operated on the
instructions of investors.

Trustee & custodial

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 certificate
holders
The services undertaken by CDC as the Trustee/Custodian are as follows:
Transaction Settlement
Nominal Ownership of the Assets
Compliance with Regulatory Requirements
Corporate Actions
Portfolio Reporting
Tax Reporting

Facility management fee

Facilities Management uses a graduated project management fee system. The fee structure is
based on project cost, with no difference in the fees charged by FM Design & Construction and
FM Operations. The fee will be based on the initial established project budget and will not be
changed over the term of the project.

MANAGEMENT
Management of CDC consists of a chairman, chief executive officer along with 9 member board
of directors. The chief executive officer is the head of a company and all the departments and
board of directors report to him.

Organization management
The operations of the company are carried out by a team of highly talented and experienced
professionals belonging to a wide spectrum of relevant disciplines with graduate and
postgraduate qualifications from distinguished local and foreign institutions.
The Chief Internal Auditor functionally reports to the Board and administratively reports to the
Chief Executive Officer.

Benefits if depository system

 Depository system takes hold of all securities in the country listed in that particular stock
exchange.
Introduction of electronic system enables speedy transactions and accuracy.
In a depository system, the security holders can sell and buy securities by which liquidity
is brought to the securities.
Registration and stamp charges for the sale of securities could be easily collected by the
government, which was evaded under the previous system.
Depository promotes more activity in the capital market as trading in genuine share. is
ensured under Depository system.
Depository avoids use of stationery and prevents delay in registration of transfers.
It shortens the registration process in the stock exchange i.e. high speed of registering
shareholders.
It improves the liquidity of stock exchange than increase the turnover of the equity shares
in the market.
Dividend and interest on securities are properly distributed through this system and in the
case of convertible debentures, on the due date; the securities are converted into company
shares.
Depository acts as collateral security for the raising of 1oans from any financial
institution.

Problems of depository system

Agency risk

The major issue that keeps the retail investor away from the depository system is the agency risk.
From the viewpoint of the investor, the risk perception in the depository system is no less than
that in the present system of trading and settlement. In the depository system, though the
depository participant is a reputed bank, the retail investor does not feel confident until effective
insurance coverage is provided.
Risk of loss in transit

Distribution of cash benefits accruing to investors can be expedited under depository system. But
cash benefits cannot be disbursed electronically. Still they have to be sent by post. Therefore, the
risk of loss in transit is to be borne by the investor.
Multiplicity of charges

Under depository system, there are charges for opening of account, dematerialization,
dematerialization, etc. Apart from this, investors who intend to hold their investments in
dematerialized form have to pay custody charges to the depository participant. All these charges
may deter the retail investors from taking advantages of the system.
Reluctance for trading
Most of the existing shareholders do not opt for depository system. They intend to keep their
securities only in physical form.
Fear of tax liability

A large number of transactions related to securities are not accounted for, because most of the
buyers and sellers are not comfortable with their names appearing in computer printouts, as they
fear being brought into tax net. This aspect prevents the investors from taking advantage of the
depository system.

BRANCHES OF CENTRAL DEPOSITORY COMPANY

The main branch is situated in Lahore and three other branches are located in Karachi,
Islamabad, and Hyderabad.
United Bank Limited (UBL), Pakistan's Best Bank 2016, also has signed a Depository
Participant Agreement with Central Depository Company of Pakistan Limited (CDC). Through
this agreement the Bank's customers can now open and conduct transactions in their CDC
Accounts through selected UBL Branches in Karachi, Lahore and Islamabad. UBL Branches will
provide custodial services to the customers for their needs regarding the safe custody of their
investments.

FUNTIONS OF CENTRAL DEPOSITORY COMPANY

The main function of CDC is to operate and maintain the Central Depository System (CDS), an
electronic book-entry system used to record and maintain securities and to register the transfer of
securities. Central depository is an organization with which all the shares, belonging to the
shareholders are kept and the electronic system takes care of them. A depository company is
primarily responsible for operating and maintaining the depository system. The depository
system handles the electronic (paperless) settlement of shares on the stock exchanges.
Electronic book entry means that the securities or share certificates do not physically change
hands and the transfer from one client account to another takes place electronically. In Pakistan
the depository company is called the Central Depository Company of Pakistan (CDC). The
depository system will not only maintain the accounts of the shareholder but will also undertake
to collect dividends, bonus shares, etc., on behalf of the shareholder. Periodically, the
shareholders will be informed of their holdings by a Depository agent through a statement of
accounts. Any sale or purchase of shares will take place through the Depository. The use of
electronic system in the transfer of shares is an important aspect of Depository system.

Investor account services

The 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.
Investor Account Services offered by Central Depository Company allows retail investors to
directly open and maintain accounts in Central Depository System for electronic settlement of
securities. Earlier, to settle the securities through Central Depository System, investors had to
open client accounts (sub accounts) with the CDS Participants (brokers & financial institutions).
With Investor Account Services, investors can now have direct access to their account.

Trustee and custodial services

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 88 mutual funds managed by various Asset Management Companies
(AMCs)/Pension Fund Managers (PFMs) with an aggregate fund. The prime responsibility of
CDC as the trustee/custodian is to take into its custody all the assets of the Collective Investment
Scheme and hold them in trust on behalf of the unit or 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.

Share registration service

CDC has taken a competitive lead in the market for SRS services by providing a one-window
solution to shareholders, backed by a country-wide branch network and state-of-the-art IT
infrastructure. Also, independent Legal and Internal Audit departments ensure statutory and
regulatory compliances. Additionally, the feature that gives CDC a real edge is its Business
Continuity Program (BCP) supported by backup sites and disaster recovery capabilities to ensure
integrity of information and recovery of the service immediately in case of any disaster.

INFRASTRUCTURE
IT support and back-up system
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,
their in-house software development team has developed a Fund Management System (FMS)
specifically for the activities of Trustee/Custodian business.
Fund Management System (FMS)
Through FMS, the company intends to implement straight-through-processing (STP), 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 should reduce risk and uncertainty
as well as the level of customer securities and funding required for completing settlement for a
given volume of trade. Further, the need for manual processing will be reduced to a large extent.
The system has enabled CDC to perform the following functions, among others, more
effectively:
Maintenance of investment portfolio.
Ensuring compliance with the governing rules and regulations.
Recording and maintenance of the details of Unit Holder transactions.
Generation of different reports.

Central Depository Company launches 3 new services for the Capital Market
Central Depository Company has recently launched a series of customer centric services in its
drive for betterment of the Pakistani Capital Market. These services have been devised and
initiated by CDC in line with its role as the custodian of shares and as a facilitator for the
capital market processes.

Shares Registrar Services:

CDC has recently launched Shares Registrar Services for the Pakistani Capital Market. Termed
as the most comprehensive R/TA service package in the market currently, CDCs offering is
complimented by a country-wide branch network and state-of-the-art IT infrastructure. A well-
equipped call center backed by trained and dedicated customer support staff will facilitate issuers
and shareholders on a day-to-day basis. The most important feature that gives CDC a real edge
over other R/TA service providers is its Business Continuity Plan (BCP) supported by backup
sites and disaster recovery capabilities to ensure recovery of the service immediately in case of
any disaster.
With the introduction of R/TA services, CDC has raised the bar of service standards in the
industry. Arif Habib Limited has already started benefiting from these services since the recent
launch.

Fund Management System:

Realizing its importance as the largest and most preferred provider of Trustee and Custodial
services in the private sector, CDC has recently launched a comprehensive Fund Management
System (FMS). FMS is an electronic system that creates an automated interface between all its
elements to ensure Straight. Through Processing (STP) for settlement of transactions. It develops
an online link between the Trustee and Custodial Department at CDC and Asset Management
Companies & Settling Banks.
A value-added facility by CDC, FMS will bring efficiency by eliminating manual processes and
duplication of work and in minimizing chances of error. Through this system, AMCs will be able
to pass online instructions of unit management to the CDC Trustee and Custodial department.
FMS provides a single link through which Mutual funds complete transactions as well as avoid
multiple individual connections that are costly and inefficient.
CDC access SMS:
Adding another channel of increased customer convenience, CDC has recently introduced CDC
access SMS, a brand new facility that will provide upto date account information to investors
through their cell phone.
CDC access, a value-added service that enables investor account holders to access their account
information through multiple channels initially comprised of CDC access IVR, a round-the-
clock Interactive Voice Response system supported by a dedicated call center, and CDC access
Web, which allows investor account holders to access their account information through
https://www.cdcaccess.com.pk While the IVR and Web facilities are being offered completely
free of charge, a nominal fee of Rs. 25 per month is charged for CDC access SMS facility.
ORGANIZATIONAL STRUCTURE OF CDC

Board of directors

Administra
Internal audit
tin
Informatio
n
Product

auditdevelopm cheif
Finance
committee secretaria
& comp executive
HR Marketi
ng & executive
Chief
operati
officer CSS
committeeng
officer

IT User Finan COO

Accept
Operati secretari
ance Legal
Application. Trustee
D Company Trustee %
Enterprise settlemen % custodial
security Investor
R/TA account
function service
T.services
Group Lahore
ISB
branch
LEGAL FRAMEWORK OF CDC
Central Depository Company of Pakistan Limited was formed under Central Depositories Act
1997 which was passed on June 10, 1997. Subsequently, Central Depository Company of
Pakistan Limited Regulations were developed and approved by the Securities and Exchange
Commission of Pakistan.

Relevant Legislation:

Central Depositories Act, 1997

Central Depository Company of Pakistan Limited Regulations
Central Depository Companies (Establishment and Regulation) Rules, 1996

Related Legal Framework:

Securities Act 2015

Companies Ordinance, 1984
Zakat & Ushr Ordinance, 1980
Securities and Exchange Ordinance, 1969
Non-Banking Finance Companies and Notified Entities Regulations, 2008
Non-Banking Finance Companies (Establishment and Regulations) Rules, 2003
Securities and Exchange Commission of Pakistan Act, 1997
Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980
The Modaraba Companies and Modaraba Rules, 1981
The Balloters, Transfer Agents and Underwriter Rules, 2001

Other Acts / Regulations:

The Anti-Money Laundering Act 2010

The Anti-Money Laundering Rules 2008
The Anti-Money Laundering Regulations 2008
Pakistan Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012
Listed Companies (Substantial Acquisition of Voting Shares and Take-overs) Ordinance,
2002.
PSX Rule Book

Company Information:
 Company Registration Number: 0029418
NTN Number: 0710001-9

Statutory Auditors:

Grant Thornton Anjum Rahman

Chartered Accountants
1st & 3rd Floors, Modern Motors House
Beaumont Road
Karachi 75530

CURRENT PERFORMANCE
Information Facts

Number of Shares 132.39 Billion

Value of Shares PKR 6193.42

Trillion / USD
6.19 Billion

Total Number of Sub Accounts 281,907

Number of Securities 839

Number of Retail Investor 50,296

Accounts

Total Number of Shares in 77.95 Billion

Investor Accounts

Percentage of Shares In CDS 76.38%

w.r.t Share Capital

Total Number of Mutual and 292

Pension Funds

Total Net Assets in Custody PKR 777.47

Billion / USD
7.42 Billion

Total Number of Securities under 138

Share Registrar / Transfer Agent
Information Facts

Services