1/22/2014 CDC – Central Depository Company of Pakistan

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FAQ's->CDS

1 - What is Central Depository System?

CDS is an Electronic Book Entry System: • To record & maintain securities • To register transfer of securities. The systemchanges the ownership of securities without any physical movement /endorsement of certificates & execution of transferinstruments.

2 - What are CDS Elements?

There are three Elements of CDS namely: • Account Holders • Issuers/R/TA • Eligible Pledgees. These Elements have a definedrole in the Central Depository System as the system is driven by them without direct involvement of CDC on day-to-day basis.

3 - What is meant by Account Holder?

Account Holders are divided into two categories; Account Holders and Participants. Both, Account Holders and Participants havedirect access to CDS. Account Holders are only allowed to keep their beneficially owned securities whereas Participants, inaddition to maintaining their beneficially owned securities, are entitled to open Sub-Accounts in CDS in order to further providecustody services to their clients.

4 - Who can become Account Holder/Participant in CDS?

Members of Stock Exchanges (for Corporate Member, standard custody clause in Memorandum of Association is mandatory),Commercial Banks, Modarabas and Developmental Financial Institutions can become Participant. Whereas, all entities (Privateand Public) can be admitted as Account Holder.

5 - Who is an Issuer?

The companies whose securities (both equity and debt) are inducted in CDS (directly in book entry form or by the way ofphysical deposit of securities) are called Issuers. Issuer may appoint the R/TA (Registrar/Transfer Agent) to perform itsobligations or take action on its behalf. The Issuers/R/TA of capital also have direct access to the CDS. Once a security isdeclared eligible and becomes 'live' for the purposes of CDS, the necessary software and connection are provided to the Issuerof that particular security. The physical securities are converted into electronic book-entry securities only after properverification by these Issuers or appointed R/TA. This process eliminates the problems of forged, duplicate, damaged or lostcertificates as securities are thoroughly checked by the Issuers/R/TA before approval for CDS.

6 - Who is an R/TA?

An R/TA (Registrar/Transfer Agent) may be appointed by an Issuer of Security to perform its obligations or take action on itsbehalf. The R/TA should be a company formed and registered under the Companies Ordinance, 1984 (Refer rule 4 of theBalloters, Transfer Agents and Underwriters Rules, 2001). Such appointments are required to be notified to the CDC (Refer CDCRegulations no 5.6.1).

7- When is it mandatory to acquire the services of independent R/TA?

Issuers who are also maintaining Account Holder/Participant account in CDS are required to outsource their R/TA function to anindependent R/TA. Further, as per section 204A of the Companies Ordinance, 1984, all listed companies [whether they maintainan Account Holder/Participant Account or not] are required to appoint an independent R/TA. (Refer CDC Regulation # 8.11)

8 - Who is an Eligible Pledgee?

Any Company, Corporation or Institution such as Banks / Financial Institutions / Development Financial Institutions that areauthorized to provide financing against securities can join CDC in the capacity of Eligible Pledgees. Further, Stock Exchanges /Clearing Companies can also join CDC in the capacity of Eligible Pledgees for risk management purpose.

9 - Who can request CDC to open their Margin Trading (MT) Account in CDS?

CDS Participants / Account Holders who have been admitted as Trading Financiers by NCCPL can request CDC to open their MTAccount.

10 - Who can request CDC to open Margin Financing (MF) Account in CDS?

CDS Participants / Account Holders who have been admitted as Eligible Financiers by NCCPL can request CDC to open their MFAccount.

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