8/15/20151 Overview, Functionalities, Control and Check on NCSS by NATIONAL CLEARING COMPANY OF...
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03/21/22 1 Overview, Overview, Functionalities, Functionalities, Control and Check on Control and Check on NCSS NCSS by by NATIONAL CLEARING COMPANY OF PAKISTAN LIMITED NCCPL
8/15/20151 Overview, Functionalities, Control and Check on NCSS by NATIONAL CLEARING COMPANY OF PAKISTAN LIMITED NCCPL
8/15/20151 Overview, Functionalities, Control and Check on NCSS
by NATIONAL CLEARING COMPANY OF PAKISTAN LIMITED NCCPL
Slide 2
8/15/20152 The Companys Overview
Slide 3
8/15/20153 BACKGROUND NCCPL NCSS Design In March 1999 the
Capital Market Project Consultants (Arthur Anderson & Co.) were
mandated to develop recommendations for a National Clearing and
Settlement System (NCSS). Accordingly various committees were
formed comprising of representatives from the three Stock
Exchanges, CDCPL and users. Based on recommendations submitted by
consultants, deliberation of the committees and subsequent
approvals from the three Stock Exchanges and SECP, System design
was finalized in October 2000.
Slide 4
8/15/20154 BACKGROUND Contd NCCPL - Incorporation &
Implementation The NCCPL was incorporated on July 03, 2001 to
provide Independent Clearing & Settlement Services to all the
three Stock Exchanges in Pakistan. NCSS Live operations were
commenced from December 24, 2001. Initially the company was managed
by CDC. Since July 01, 2005, the Company complete severed itself
from CDC and now has his own management.
Slide 5
8/15/20155 Organization Structure of NCCPL C F O / Com.Sec.
Board of Directors Chief Internal Auditor Chief Executive Officer
Head of Operations Customer Support Karachi Customer Support
Product Development Operations Customer Support Lahore Customer
Support Karachi Customer Support Islamabad Customer Support Chief
Information Officer Systems Management Software Management Network
Management Help Desk Database Management Information Security
Business Continuity Audit Committee Legal & Compliance Fin.
Dept.Admin & HR Pay & Collect G L Sec.
Slide 6
8/15/20156 The operations of NCCPL are governed by the
following: NCSS Regulations 2003; NCSS Procedures 2003; Clearing
House Companies (Registration and Regulations) Rules 2005; and
Companies Ordinance, 1984 NCCPL - Legal Frame Work
Slide 7
8/15/20157 Corporate Governance a)Board of Directors The Board
of the Directors comprises of 11 Directors of which 9 are appointed
by the shareholders,1 is nominated by the SECP and the CEO by
virtue by his office. b)Code of Corporate Governance The Company
has voluntarily adopted the Code of Corporate Governance to
implement good governance practices. These inter-alia include;
Forming an Audit Committee of the Board comprising of non-executive
directors; Appointment of Chief Internal Auditor, Chief Financial
Officer and Company Secretary by the Board; Holding the number of
the Board Meetings as recommended by the Code; Issue of Quarterly,
Half yearly and annual financial statements ; Cont
Slide 8
8/15/20158 Corporate Governance Circulation of Statement of
Ethics and Business Practices to establish a standard of conduct
for directors and employees of the Company; Adopting of
vision/mission statement and overall corporate strategy by the
Board; and Hold presentation for the orientation of directors, as
required by the Code;
Slide 9
8/15/20159 Corporate Governance Cont.. c)I.T. Steering
Committee The Company also has a I.T. Steering Committee;
deliberate IT related strategies and policies; Committee Comprising
of experts from stock exchange and Financial Institutions.
Slide 10
8/15/201510 NCCPL Shareholding Structure Authorized CapitalRs.
100.00 million Issued And Paid-up CapitalRs. 63.70 million SR.
#SHAREHOLDERS (Rs. 63.70 million) % OF SHARE HOLDING 01The Karachi
Stock Exchange47.06% 02Lahore Stock Exchange23.53% 03Pak-Kuwait
Investment Corp.17.65% 04Islamabad Stock Exchange11.76% TOTAL100.00
%
Slide 11
8/15/201511 Companys Achievements Following major achievements
have been accomplished by the Company: Independent management
Registration under Clearing House Companies (Registration and
Regulations) Rules 2005 on March 7 th, 2006 Appropriation of Rs 100
million as initial contribution towards Clearing and Settlement
Fund as required by the above Rules Formation of Clearing &
Settlement Fund Trust Successful implementation of Unique
Identification Number (UIN) functionality on the National Clearing
& Settlement System (NCSS)
Slide 12
8/15/201512 Companys Achievements Cont Introduction of
mechanism for Cash Settled Future Contracts (CSFC) to collect and
disburse marked-to-market losses and profit through its NCSS Pay
& Collect Functionality Implementation of Institutions Delivery
System (IDS) functionality to Institutions for Clearing and
Settlement of their regular trades directly through National
Clearing and Settlement System (NCSS) Modifications in NCSS to
facilitate Unified Trading System (UTS) Platform for LSE and ISE
members for execution of their trade and transaction on the same
unified trading System (UTS). Establishment of DR/BC site along
with Branch Office
Slide 13
8/15/201513 Companys Achievements Independent IT Set-Up
effective from July 01, 2007 Procurement of Server and Hardware
Implement Network infrastructure and connectivity Establish four
Data Centers
Slide 14
8/15/201514 Future Projects Following are the major upcoming
future ventures Implementation of CFS MK-II through NCCPL Risk
Management of Financial Institutions Recording & Settlement of
Futures Market Contracts Through NCSS Establishment of Companys
Owned Head Office Issuance of Share Capital
Slide 15
8/15/201515 Major Challenges Hiring of appropriate Human
Resource Space constraint
Slide 16
8/15/201516 NCCPL Data Centers Main Data Centre at Head Office
in KSE Business Continuity Site in Karachi Branch Data Centers at
Offices in LSE and ISE
Slide 17
8/15/201517 Network Links Intercity connectivity through 1-MB
DXX connectivity through PTCL First-level Redundancy through Frame
Relay link (provided by Supernet) Second-level Redundancy is
available through ISDN lines All these links are available at Head
Office, BC Site, Lahore Office and Islamabad Office Head Office and
Business Continuity Site are connected through Dark Fiber
Slide 18
8/15/201518 Remote Access Clients in KHI, LHE and ISB who do
not have offices in KSE, LSE or ISE have the option to dial in to
the network of NCC They have the option to use normal phone lines
(56 kbps) or ISDN-BRI lines (128 kbps) Redundant PRI lines have
been provided in each office for remote connectivity Also, the PRI
lines available at Main and BC sites can be used as backup of one
another
Slide 19
8/15/201519 Business Continuity Business Continuity site shall
be fully functional in July 2007. All business data shall be copied
to the BC site in real time thereby ensuring zero-loss of
data.
Slide 20
8/15/201520 Network Resilience In case of unavailability of NCC
Data Centre in KSE, the network provides seam less connectivity for
KSE with the BC Site of NCC In case of unavailability of NCC Data
Centre in LSE/ISE, the network provides seam less connectivity for
LSE/ISE with the Main/BC Site of NCC
Slide 21
8/15/201521 System Security All transactions between Clients
and business machines are encrypted through VPN tunnels All client
machines are installed with host-based security software which
eliminates any malicious activity as well as protects against
viruses, spam, etc. During next quarter, we plan to provide Digital
Certificates stored on Smart Cards to all our clients. These
certificates shall be used initially for User and Terminal
Authentication, and later on Transactional Non- repudiation will be
implemented in NCSS through the digital signatures.
Slide 22
8/15/201522 High Availability Most of the networking equipment
has been implemented in highly-available configuration For example,
if one firewall goes down the other firewall continuously provides
the protection without any interruption to the business
activity
Slide 23
8/15/201523
Slide 24
8/15/201524 National Clearing & Settlement System (NCSS)
Overview
Slide 25
8/15/201525 Cross Exchange Netting for both cash &
securities. Automated Pay & Collect No physical receipt /
issuance of instruments Automated process of securities settlement
directly between CMs. Settlement of non-broker institutions for CFS
transactions directly with NCSS. contd Major Benefits of NCSS
Slide 26
8/15/201526 Settlement of broker to broker transactions
directly with NCSS to facilitate transactions of brokers of
different exchanges. Cross Exchange Netting for both cash &
securities for CMs who are members of more than one Stock Exchange.
Margin Financing through independent module on NCSS. Settlement of
net obligations directly between CMs as per undisclosed Balance
Orders. Registration of Unique Identification Number (UIN) of all
clients with codes Major Benefits of NCSS cont
8/15/201530 NCSS - Operational Highlights Highest Ever Maximum
Number of Balance Orders (BOs). Maximum Volume of Shares Maximum
Value of Shares 13,615 314.9 (M) 24.83 (B)
Slide 31
8/15/201531 Statistics Active Clearing Members (As of May 2007)
Broker 340 Non Broker 202 Total 542
Slide 32
8/15/201532 Statistics No. of NCSS Eligible Securities (as on
May 2007) No. of Live Securities527 No. of Securities Eligible for
Broker To Broker (BTB)21 No. of Securities Eligible for
Institutional Delivery System (IDS) 527 No. of Securities Eligible
for Margin Financing (MF)143
Slide 33
8/15/201533 Statistics No. of Settling Bank / Branch Setup (as
on May 2007) BankKarachiLahoreIslamabadTotal Allied Bank Limited
1113 Bank Al-Falah Limited 11 13 Bank Al-Habib Limited 1 1 --2
Habib Bank Limited 11-- 2 KASB Bank Limited 11-- 2 MCB Bank Limited
1113 Metropolitan Bank Ltd. 1-- 1 PICIC Commercial Bank 1--12 MY
Bank Limited 1001 United Bank Limited 1001 Atlas Bank Limited 1001
JS Bank Limited 1001 TOTAL126422
Slide 34
8/15/201534
Slide 35
8/15/201535 Exchange Trades and Transactions Exchange Trades
are Locked-in contracts between broker CMs executed through
Exchange trading system in the Regular Market Exchange Transactions
are Locked-in contracts between broker CMs executed through
Exchange trading system in the Continuous Funding System (CFS)
Market. Net-buy or net sell position of broker CMs based on their
futures contracts at the close of Futures Contract Period
transmitted to NCSS for settlement. Types of Trades/Transactions on
NCSS
Slide 36
8/15/201536 Non-Exchange Transactions Broker to Broker (BTB)
Delivery Module provides the facility of recording non- Exchange
transaction between broker CMs of different exchanges based on
underlying exchange trades. Institutional Delivery System (IDS)
provides the facility of recording non-Exchange transactions
between broker CMs and non-broker CMs based on underlying Continues
Funding System (CFS). Margin Financing (MF) module facilitates
Broker CMs to arrange funds from other Broker / Non-broker CMs
based on their purchases. Types of Trades/Transactions on NCSS
Slide 37
8/15/201537 Types of Trades/Transactions on NCSS 1. Broker to
Broker (BTB) BTB module facilitates Broker CMs in settling their
inter-exchange transactions. Whereby a Broker CM, based on his
underlying exchange trade, initiates BTB transactions while the
other Broker CM affirms it. Once a transaction is affirmed, the
settlement obligation of the initiating Broker CM is passed onto
the affirming Broker CM. 1.1Initiation Process Under this module A
BTB transactions can only be initiated by Broker CM of one Exchange
to the Broker CM of another Exchange for affirmation;
1.2Affirmation Process A counter Broker CM can affirm the initiated
transactions. However, the affirming Broker CM cannot edit the
details of transactions posted by the initiating CM. Upon
affirmation the settlement obligation of the initiating Broker CM
is passed onto the affirming Broker CM.
Slide 38
8/15/201538 RECORDING OF BTB TRANSACTIONS ON NCSS BTB Module on
NCSS Trades executed by the Broker Clearing Members of Stock
Exchanges Initiation of BTB transaction on the Basis of Exchange
Trade in Regular Market Affirmation of BTB transactions by Broker
CM of Other Exchanges Settlement in NCSS by the affirming Broker
Clearing Members (CM) Received/Delivered Securities through NCSS
Payment/Receipt in NCSS
Slide 39
8/15/201539 Types of Trades/Transactions on NCSS 2.
Institutional Delivery System (IDS) IDS module facilitates a Broker
CM and a Non-broker CM to record their CFS transactions in settling
their exchange transactions directly through the NCSS. Once a
transaction is affirmed, the settlement obligation of the
initiating Broker CM is passed onto the affirming Non-broker CM.
IDS transaction is based on locked-in Continuous Funding System
(CFS & CFSR) transactions traded by a broker CM at an Exchange.
1.2Initiation Process Under this Module An IDS transactions can
only be initiated by Broker CM to a Non-Broker CM for affirmation;
2.2Affirmation Process A counter Non-broker CM can affirm the
initiated transactions. Upon affirmation the settlement obligation
of the initiating Broker CM is passed onto the affirming Non-broker
CM.
Slide 40
8/15/201540 Types of Trades/Transactions on NCSS RECORDING OF
IDS TRANSACTIONS ON NCSS IDS Module on NCSS Transactions executed
by the Broker Clearing Members of Stock Exchanges Initiation of IDS
transaction on the Basis of CFS/CFSR Transactions Affirmation of
IDS transactions by Non-Broker Clearing Member Settlement in NCSS
by the affirming Non-Broker Clearing Members Received/Delivered
Securities through NCSS Payment/Receipt in NCSS
Slide 41
8/15/201541 Types of Trades/Transactions on NCSS RECORDING OF
MF TRANSACTIONS ON NCSS Margin Financing (MF) Module on National
Clearing & Settlement System (NCSS ) Buy Trade / Transactions
executed by the Broker Clearing Members in Stock Exchanges
Initiation of MF transaction on the Basis of Aggregate Buy by
Financee Affirmation of MF transactions by the Financier Settlement
in NCSS by the affirming Clearing Members (CM) Received Securities
through NCSS Payment to NCSS
Slide 42
8/15/201542 Types of Trades/Transactions on NCSS RECORDING OF
MFR TRANSACTIONS ON NCSS Margin Financing Reversal (MFR)
transactions on NCSS Sale Trade / Transactions executed by the
Broker Clearing Members in Stock Exchanges Initiation of MFR
transaction on the Basis of sale position at Stock Exchanges &
Upto his MF open Position Affirmation of MFR transactions by the
Financier Settlement in NCSS by the affirming (CM) Received
Securities through NCSS Payment From NCSS
8/15/201544 Prerequisite for Broker CMs on NCSS Single Trader
ID CMs Accounts CDS Account with CDC Settling Account with SB SE
Trader Id (Membership Id) SE Trader Id (Membership Id)
Slide 45
8/15/201545 CDS Account with CDC KSE Trader Id LSE Trader Id
ISE Trader Id (Membership Ids) KSE Trader Id LSE Trader Id ISE
Trader Id (Membership Ids) CMs Accounts Settling Account with SB
Prerequisite for Broker CMs on NCSS Multiple Trader IDs
Slide 46
8/15/201546 Eligibility: CDS live Securities listed at any
Stock Exchange Trading Symbol: Trading symbols are allocated by
NCCPL to NCSS live securities. Marketable lot: Marketable lots are
determined by NCCPL as per following criteria. Face ValueMarket
ValueMarketable Lot Upto Rs. 10Upto Rs. 50500 shares Upto Rs.
10Greater than Rs. 50100 shares Greater than Rs. 10Any market
value20 shares Securities
Slide 47
8/15/201547 Settlement Flow in NCSS T T+2 SD-1 T+3 SD Execution
of Trades at the Stock Exchange Execution of Trades at the Stock
Exchange Selling Broker Buying Broker Online trade feed to NCSS
Netting of trades Buying Broker Selling Broker Payment to NCSS
Release PaymentCollect Payment Payment orders and Delivery Receive
order Money Receive orders and Delivery order Delivery of NCSS
eligible securities (with blocked status) Unblocking of securities
on Payment Confirmation Generation of NE Transactions
Slide 48
8/15/201548 CMs to deliver securities to buying CMs by 12:00
noon for getting credit within Banks Cash Counter Timings. CMs to
deliver securities to buying CMs by 3:30 PM for getting credits by
4:30 PM. Remaining CMs to deliver securities to buying CMs by 4:15
PM for getting credits with next Settlement Date Pay & Collect.
Delivery Schedule
Slide 49
8/15/201549 Balance Orders in NCSS are computed on net basis
for the following transactions of a CM: Exchange
Trades/Transactions Regular Market Trades Future Market Trades CFS
Market Transactions Non-Exchange Transactions Broker To Broker
(BTB) Institutional Delivery System (IDS) Margin Financing (MF)
Balance Order
Slide 50
8/15/201550 Balance Order (BO) is based on Multilateral Netting
Mechanism prioritized as under: Netting of sell and/or buy
positions of CM having multiple Exchange memberships. Sell and buy
positions matched among CMs of same Exchange. Remaining sell buy
positions are matched among CMs of different Exchanges. Balance
Order Netting Mechanism
Slide 51
8/15/201551 CMs who fail to deliver securities till 4:15 PM to
be considered delivery defaulting CMs. Failed deliveries are
reported to respective Exchange for squaring-up. Respective
Exchange to square-up failed deliveries by 11:30 AM next Trading
Day. Buying CMs who have already made the payments to get failed
deliveries by 2:00 PM, if squared-up on next Trade Day. Failed
delivery is tried to be squared-up till Settlement Date +1,
otherwise, its best market value is returned to buying CMs.
Delivery Default Management
Slide 52
8/15/201552 NCSS Pay & Collect CMs having payable, to pay
by 12:00 noon on Settlement Date. CMs having receivable, to receive
by 1:30 PM, provided they discharged all their delivery
obligations. CMs becoming liable due to short delivery reverses to
pay by 4:10 PM. In case of money default, NCCPL shall apply money
default procedures. Remaining CMs having receivable after
short-delivery reverse, if any, to receive by 4:30 PM. Settling
Banks to online confirm payments & collections through NCSS by
the Designated Time.
Slide 53
8/15/201553 Advantages of NCSS Pay & Collect: Automated
money settlements; Same day credits to CMs; Settlement of amount
net of clearing obligations, squaring-up obligations and Tariff
etc; and Single net settlement for CMs who are members of more than
one Stock Exchange. NCSS Pay & Collect
Slide 54
8/15/201554 Money Default Management Non-Payment by a Clearing
Member (CM): Payment should be made by CM on the settlement day
till the specific time. Payment Notice of 30 minutes shall be
delivered in case of non-payment. Suspension or restriction in case
of failure to comply with said notice
Slide 55
8/15/201555 Money Default Management Actions taken by a Company
in case of Suspension or Restriction Exchange-wise Money
Obligation: Segregation of Stock Exchange-wise net money obligation
of a defaulter CM. Allowing proportionate netting of receivables
with payables at different Stock Exchanges. For this purpose,
Non-Exchange transactions shall be segregated to the Stock
Exchanges where originally initiated.
Slide 56
8/15/201556 Money Default Management Actions taken by a Company
in case of Suspension or Restriction Sources to recover the
shortfall: Utilize 50% amount of Security Deposits of that Exchange
of which defaulter is a member. Above Security Deposit can only be
utilized against 85% of the value of securities retrieved or
received by the Company of a defaulter CM. Funds obtain from Stock
Exchanges to cover the short fall. For Non-Exchange transactions,
Stock Exchange of initiating Broker CM shall arrange such fund.
Hold back the proportionate amount of credits of CMs who are member
of respective Exchange and to those CMs who were involved in the
Non-Exchange transactions with the defaulting CM.
Slide 57
8/15/201557 Money Default Management Actions taken by a Company
in case of Suspension or Restriction Determination of Final Loss:
Square-up/close out the unsettled positions and determine the final
loss. Serve final loss notice to defaulter CM to pay such amount by
the next business day. Declaration of CM a Defaulter by a Stock
Exchange or by the Company.
Slide 58
8/15/201558 Exposure Monitoring and Management by the
Respective Exchange: Presently, Stock Exchanges monitor and collect
margins on CMs exposure and mark to market requirements for all
NCSS eligible securities. cont.d Risk Management
Slide 59
8/15/201559 NCSS Controls and Checks Movement of Securities:
Bought securities are delivered to buying CMs CDS main accounts in
blocked status. Blocked securities are available to buying CMs CDS
main accounts after discharging their obligations. Short Deliveries
Debits: In case of short deliveries by 3:30 PM, system additionally
debits CMs accounts with the previous day Closing Prices (i.e.,
System Prices) with 15% margin of late/fail deliveries. Retrieval
Securities: In case of money default by CM, blocked securities in
his CDS main account are retrieved by NCCPL for selling-out. Risk
Management cont...
Slide 60
8/15/201560 Exchange trades and transactions Net Security-wise
losses of defaulter CM are recovered from other CMs involved in the
respective Securities in proportion of their volumes. Claims
against allocated losses to be settled by the respective Exchange
out of the assets of the CM in its custody. Non-Exchange
transactions through BTB, IDS & MF Net losses of Defaulter CM
against his counter CMs are recovered from such counter CMs.
Counter CMs claims against recovery are proportionately entertained
from Security Deposit with NCCPL. Risk S mechanism in case of
default Risk Sharing mechanism in case of default
Slide 61
8/15/201561 UIN Functionality on NCSS Background The revised
functionality of Unique Identification Number (UIN) was discussed
in the various discussions & meetings among the representatives
of Securities & Exchange Commission of Pakistan (SECP) and
National Clearing Company of Pakistan Limited (NCCPL) The purpose
was to maintain the integrity of the UIN Database to eliminate the
changes of any erroneous entries in future and clean the existing
UIN Database The UIN system is based on UIN Procedures dated April,
03, 2006 and subsequent amendments herein approved by the SECP from
time to time
Slide 62
8/15/201562 Client Types in NCSS 1. Individual Pakistani
Citizen 2. Individual Foreigner/overseas Pakistani
citizens/Non-Pakistani residing in Pakistan 3. Non-individuals (a)
Corporate/individual - Broker (a) Corporate Company (a) Corporate
fund/other organization
Slide 63
8/15/201563 UIN Registration Details Client Name Appropriate
UIN Client Code/Client ID issued by the Broker Client Type
Slide 64
8/15/201564 How UIN Functionality will Work? All members of the
exchanges will enter the registration details along with their
client codes through the mapping table on National Clearing &
Settlement System (NCSS). All the registration details will be
provided to the Stock Exchanges at end of day. Stock Exchanges will
link up the registration details with the trading systems at their
end and it will be mandatory for the members to enter client code /
ID while placing any order in the trading system. The trading
systems of the stock exchanges will verify the client code / ID
with the UIN registration details on Pre-trade basis and will
reject any order failing this validation.
Slide 65
8/15/201565 UIN Registration for Individuals Client Type-
Individual Pakistani Citizen The Broker Clearing Member (BCM) will
first select Client Type Individual Pakistani Citizen The BCM then
enter the CNIC of a client along with the relevant details (other
than name) If the CNIC exists in the UIN Database, the name of such
client will appear automatically and the BCM can Save/Past such
record If the CNIC does not exists in the UIN Database, then the
BCM will also enter the name of such client. Upon saving, such
record(s) will be marked with status PENDING The records with
status PENDING will be displayed in the Admin List Screen for
approval or rejection by the Company
Slide 66
8/15/201566 UIN Registration for Individuals Client Type-
Individual Pakistani Citizen The Company will verify the CNIC from
a system, provided by NADRA and mark the status APPROVED for valid
CNIC. In case, where CNIC does not verify from the NADRA, this will
be marked with status REJECTED The BCM can see the reasons for each
rejected record in the UIN Setup Screen and can change the UIN and
Name of such unverified record and resubmit to the Company for
verification The Company will follow the same process of
verification as mentioned above The APPROVED records will become
part of UIN Database The same scheme will be applicable where the
joint holder accounts are created
Slide 67
8/15/201567 UIN Registration for Individual Foreigner Client
Type -Individual Foreigner/overseas Pakistani
citizens/Non-Pakistani residing in Pakistan The Broker Clearing
Member (BCM) will first select Client Type Individual
Foreigner/overseas Pakistani citizens/Non-Pakistani residing in
Pakistan The BCM then enter the UIN of a client along with the
relevant details (other than name) If the UIN exists in the UIN
Database, the name of such client will appear automatically and the
BCM can Save/Past such record If the UIN does not exists in the UIN
Database, then the BCM will also enter the name of such client. The
BCM shall also submit the attested copies of UIN documentary
evidence to the Company
Slide 68
8/15/201568 UIN Registration for Individual Foreigner
Individual Foreigner/overseas Pakistani citizens/Non- Pakistani
residing in Pakistan The Company will verify the UIN from the
documentary evidence and mark the status APPROVED for valid record.
In case, where UIN does not verify from the document, this will be
marked with status REJECTED The APPROVED records will become part
of UIN Database The same scheme will be applicable where the joint
holder accounts are created
Slide 69
8/15/201569 UIN Registration for Non-Individuals Client Type-
Non-individuals The Broker Clearing Member (BCM) will first select
the category from Client Type Non-individuals The BCM then search
the Name of a client from UIN Database If the Name exists in the
UIN Database, the UIN and Name of such client will appear
automatically and the BCM can Save/Past such record If the Name
does not exists in the UIN Database, then the BCM shall submit its
request to the Company on prescribed format along with the UIN
documentary evidence duly attested by the BCM
Slide 70
8/15/201570 UIN Registration for Non-Individuals Client Type-
Non-individuals The Company shall verify the UIN and Name from the
documentary evidence provided by the BCM. Upon verification, the
Company shall incorporate such information in the UIN Database and
the BCM can register such client through a process mentioned above
The Company may, however, reject any such record(s), and such
information shall not be included in the UIN Database. The same
scheme will be applicable where the joint holder accounts are
created
Slide 71
8/15/201571 FI Margining by NCCPL Background By the
implementation of Client Level Netting (CLN) the Broker Clearing
Member (BCM) are under burden of excessive margin payable to the
Exchange for their Institution Clients. It was decided to collect
margin directly from Financial Institution (FI) on their affirmed
IDS transaction based on Regular and CFS market trade/transactions.
FIs are presently beyond the scope of ambient of the Exchange to
impose out obligation on them. As most of the FIs are familiar with
NCSS and have direct relationship with NCCPL as a Non-Broker
Clearing Member (NBCM) it was proposed that it is appropriate that
NCCPL would collect margin from FIs
Slide 72
8/15/201572 FIs Margining Process All FIs are required to
obtain a status of Non-Broker Clearing Member (NBCM) from NCCPL.
After their admission as NBCM, they become eligible to affirm
Institutional Delivery System IDS transactions based on Ready and
CFS market trade/transactions. Upon affirmation of IDS
transactions, NCCPL shall collect Value at Risk (VaR) based margins
against exposure & Mark-to-Market (MTM) losses from NBCMs. All
NBCMs are required to pay collateral against exposure margin &
MTM losses to NCCPL with in stipulate time.
Slide 73
8/15/201573 FIs Margining Process Contd.. Collateral shall be
in the form of cash, Approved Securities, Bank Guarantee or
Irrevocable Undertaking. All BCMs would pay collateral to the
Exchanges on trade/transactions executed on behalf of FIs client in
Ready and CFS market. Once the FIs deposited collateral against
affirmed IDS transactions, NCCPL will provide the Broker side
information of such underlying trade/transaction to the relevant
Exchange(s). The Exchange(s) will adjust the exposure of their
Brokers based on the information, provided by NCCPL
Slide 74
8/15/201574
Slide 75
8/15/201575 CFS Vs CFS Mk II CFSCFS Mk II Cash and securities
are the only forms of acceptable collaterals Collaterals also
include Undertaking (by FIs rated AA or better), T-bills, PIBs and
Bank Guarantees. Risk management at KSE. Risk management at NCCPL.
Individual financiers making funds available at their discretion.
Institutional bulk pool of funds available for at least 90 days.
Orders placed through brokers. Direct financing facility available
to AFs
Slide 76
8/15/201576 CFS Vs CFS Mk II CFSCFS Mk II No provision for
continuous transactional and system audit. Continuous transactional
and systems audit and findings made public. Premium rate capped at
30-days KIBOR + 10% No cap on premium rate Financiers can hold back
lending capacity. Mandatory on Financier to lend committed
amount.
Slide 77
8/15/201577 CONTINUOUS FUNDING SYSTEM - CFS Mk II Benefits of
CFS Mk II Transparent and efficient financing for the market. Level
playing field for investors and brokers Risk management
concentrated in NCCPL. Institutional bulk pool of funds available
for at least 90 days.
Slide 78
8/15/201578 Eligible Participants Financier Categories of AFs:
I.Non Broker AFs (NBAF) II.Broker AFs (BAF) All eligible financiers
to acquire AF status from NCCPL. AF premises fitted with NCCPLs
automated terminal, enabling real time financing.
Slide 79
8/15/201579 Eligible Financiers to CFS Market All Scheduled
Banks Mutual Funds Special purpose CFS financing Mutual Funds;
NBFCs Insurance companies DFIs Brokers, both corporate and
individual Any other Corporate Entity as may be approved by the
NCCPL Board of Directors.
Slide 80
8/15/201580 Eligible Participants Finance Brokers are the only
takers of finance from CFS market on behalf of their clients and
for their own account.
Slide 81
8/15/201581 Modus Operandi for CFS- MK II Specified shares plus
desired rate of return required by Financier input into system. All
offers and bids transparently displayed on system. Finance able to
place own bid for acquiring financing. Trading done on undisclosed
basis. CFS contract will be for 22 working days. On expiry of 22
working days, CFS contract automatically be liquidated and finance
forced released. No IDS facility shall be allowed to FIs in the
stock market where they fund the CFS market through brokers. NCCPL
to conduct pre-CFS trade verification. All acceptances of finance
by inserting unique client codes registered on UIN system.
Continuous transactional and systems audit and findings made
public.
Slide 82
8/15/201582 Certainty of Funding Mandatory on Financier to lend
committed amount Financier locked in on each contract for 22
working days. AF may provide additional funds over and above
committed amount. Advance notice of 22 working days for withdrawal
of additional funds. Amounts invested in any eligible share at the
financiers discretion.
Slide 83
8/15/201583 Important Statistics to be made available to the
general public on periodic basis, such as: Utilized committed lines
Total funds due to be released in next 3 days on maturity of CFS
contracts Number of financiers and finances in the market
Slide 84
8/15/201584 Cost of Finance Market forces of demand and supply
to determine cost of finance. AFs can lend below the commitment
rate. Commitment Rate is 30-days KIBOR plus 4% Offered interest
rate determined by each individual Financier based on his own risk
assessment of each scrip
Slide 85
8/15/201585 Risk Management and Capital Adequacy Regime Current
Risk Management and Capital Adequacy Regime applicable to CFS Mk
II. Mark-to-market losses to be collected in the form of cash.
Slide 86
8/15/201586 Acceptable collateral Shares of listed companies
Undertaking by FIs rated AA and better Treasury Bills and PIBs (at
later stage) Bank Guarantee Cash
Slide 87
8/15/201587 Eligibility Criteria for scripts in CFS Mk II
Eligibility Criteria to be developed by NCCPL based on parameters
such as: 1.Average daily impact cost; 2.No. of days traded in last
3 months; 3.Free float etc.
Slide 88
8/15/201588 Position Limits Scrip-wise position limit imposed
is as follows: Market wide position limit: 40% of free-float for
each scrip. Member wide position limit: 10% of free-float of the
scrip. Client wide position limit: 5% of free-float of the scrip.
(Client position will be universal and determined on UIN basis)
Member Capital Adequacy: 15 times the NCB of member
Slide 89
8/15/201589 Default Management in CFS MK-II 1. Where Authorized
Financier (AF) or Financee fails to settle its money obligation on
a settlement day by 12 noon, the NCCPL shall issue a 30- minutes
notice to such AF or Financee as the case may be. 2. Where such AF
or Financee fails to settle its money obligation within 30-
minutes, the NCCPL shall suspend them and this information shall be
disseminated to all the Stock Exchanges. 3. The respective Stock
Exchange(s) shall also suspend such AF (in case of BAF) or Financee
in all markets namely Ready and Futures markets. 4. The NCCPL shall
take following steps to complete the settlement: The securities
held in the CDC Blocked Account of suspended AF shall with
immediate effect stand transferred in the name of NCCPL; cont.
Slide 90
8/15/201590 Default Management in CFS MK-II Collateral held
against exposure margins and MTM losses of such suspended AF or
Financee will be utilized; The NCCPL shall arrange financing
against the retrieved securities and securities deposited as
collateral; Utilization of CFS Protection Fund. The NCCPL shall ask
the relevant Stock Exchange (s) to provide the shortfall amount as
per their regulations; and If the cumulative amount mentioned above
is not sufficient, the NCCPL shall hold the proportionate amounts
according to the receivables due to all Clearing Members on that
settlement day; and cont.
Slide 91
8/15/201591 Default Management in CFS MK-II 5.In order to
proceed further the NCCPL shall refer the case to the Default
Management Committee which comprises of the MD and Chairman of the
relevant Exchange and NCCPL and nominee from Banking Association
and MUFAP 6.In consultation with the aforementioned Committee, the
NCCPL shall net- off all unsettled positions of all the market in
each security and determine the security-wise net positions for
squaring-up/closed-out. However, in case of default by AF, all his
first ticket purchase contracts will be funded by NCCPL and would
be closed out when released by the Financee(s) 7.The NCCPL shall
square-up the securities in the ready market of the relevant
exchange. cont.
Slide 92
8/15/201592 Default Management in CFS MK-II 8.Where, the NCCPL
is unable to square-up such securities in the regular market of the
relevant exchange, the NCCPL shall square-up such securities
through a system whereby all Clearing Members (including
Non-Brokers) can make a bid for such securities directly. 9.Where
the shortfall still remains after the completion of squaring-up
procedure the NCCPL shall after determining the final loss serve a
Final Loss Notice to such suspended AF or Financee. 10.Where the
suspended AF or Financee fails to comply with the said notice, the
NCCPL shall declare it to be a Defaulting AF or Financee.
11.Consequently, the relevant exchange(s), shall also declare such
AF (in case of a BAF) or Financee to be a defaulter in all markets
namely Ready and Futures markets cont.
Slide 93
8/15/201593 Default Management in CFS MK-II 12.After the
declaration of default, the assets of such defaulting AF (in case
of a BAF) or Financee under the control of relevant stock exchange
such as Membership Card and Room etc shall be liquidated and the
proceeds shall be proportionately allocated to all the markets. In
the event there are still unmet losses, the NCCPL shall determine
the balance amount exchange-wise, market-wise and security-wise.
After determination of the final loss it will be allocated on a pro
rata basis to all AFs who hold open positions in that particular
security of CFS Mark II.
Slide 94
8/15/201594 Roadmap for CFS Mk II Implementation Legal And
Regulatory Framework Milestone Target / Completion date Finalizing
of the Concept Paper of CFS MK-IIJune 04, 2007 Circulation of the
final Concept Paper of the Market elements Done Finalization of CFS
MK-II Regulations, Master Agreement with AFs, Bank Guarantee and
irrevocable Undertaking July 20, 2007 Distribution of CFS MK-II
Regulations, Master Agreement with AFs, Bank Guarantee and
irrevocable Undertaking July 25, 2007 Finalization of CFS MK-II
Regulations by the Committee July 30, 2007 Alignment of the Stock
Exchanges Regulations with NCCPL Regulations In progress Obtain
NCCPL Board and SECP Approval for NCCPL CFS MK-II Regulations
August 10, 2007
Slide 95
8/15/201595 Roadmap for CFS Mk II Implementation Cont. System
Design, Development, Testing & Implementation Connectivity
Target / Completion date Infrastructure DevelopmentDone CFS MK-II
System Development Development and Testing of Trading
Infrastructure Application July 28, 2007 Development of RMS Module
and Integration Testing with Trading Infrastructure Application
August 15, 2007 Market Participants Training Aug 15,2007 To Aug 24,
2007 Application Live Run September 1, 2007
Slide 96
8/15/201596 Thank you Thank you ! NATIONAL CLEARING COMPANY OF
PAKISTAN LIMITED 8 th Floor, Karachi Stock Exchange Building, Stock
Exchange Road, Karachi 74000 Pakistan TEL : (92-21) 246 0820-23
FAX: (92-21) 246 0827 E-Mail : [email protected] Website :
http://www.nccpl.com.pk Website :
http://www.nccpl.com.pkhttp://www.nccpl.com.pk