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 Pledgee 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: 1. 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. 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 Intra-Participant 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. Technical Info

CDS Network CDC's network is spread across the main trade hub cities of Pakistan. The sites are interconnected through highly reliable WAN links. The reliability of links is backed up with multiple levels of redundancy. In case of a link failure, the fallback to backup link is completely unnoticeable. Along with reliability and redundancy, security is one of the most important concerns for CDC. Confidentiality and authenticity are ensured for all transactions that are carried over the network. Stock users are connected through resilient and dedicated links while clients other than stock users (external clients) connect to the CDC network through dial-in to our local point of presence by using Pakistan Telecommunication Corporation Limiteds Public Switched Telecommunication Network (PSTN). Sufficient numbers of simultaneous dial-in lines are maintained at various sites to allow first call connection. We also have reliable and high bandwidth metro fiber connectivity for external clients. CDS Software CDS is a menu-driven client/server application system. The Graphic User Interface based proprietary client runs on a Microsoft Windows based PC. The Client neither stores users data nor executes the application logic; instead the customer data as well as application logic resides on the central server managed by CDC. The installation and set-up of the proprietary CDS Client at customer site is supported by the Customer Network Support Services. The application is being continuously enhanced in-house to include more functions and features. Standards based Software Engineering process is being implemented to ensure uninterrupted availability of the system and the integrity of the data. The software updates for CDS Client are delivered over the CDC network for efficient configuration management. CDS Hardware CDS Client is an Intel based PC with a LAN card for the users at local stock exchange LAN and a standard modem for the remote users. Minimum hardware Configuration for CDS Applications

Component Processor RAM Hard Disk Serial Port/USB for External Modem

Requirement Intel Pentium IV 3GHz or above 512 MB or above Atleast 5 GB Free 1 at least

Printer Mouse Keyboard Keyboard Interface on Motherboard Monitor VGA Card CD ROM Brand Operating System Configuration

High quality/speed Laser printer 2/3 Buttons (PS1 or PS2 connector type) 101/104 Keys (PS1 or PS2 connector type only) PS1/ PS2 15 SVGA Color Monitor with 1024x768 Display Resolution 16MB or above Graphics Card on AGP/PCI slot 50 x or above Branded PC

Minimum Requirement Microsoft Windows 2000 Professional/ Windows XP Professional (Licensed) with latest Service Pack & patche Internet Explorer version 6.0 or above Acrobat Reader 7.0 Connectivity Option (NIC for Stock Exchange Users)

Manufacturer Any Brand Modem for Remote Users/ Dialup Users

Type RJ-45 Connector Type (10/100 Mbps)

Minimum Requirement US Robotic / Zoltrix 56 Kbps (Internal or External)/ ISDN Modem / ISDN BRI Security Measures To ensure utmost security of information, multiple levels of protection have been deployed to create an impregnable system for hackers and unauthorized users. Some of the major security measures include:

Terminal Authentication A dual factor authentication protocol comprising of a 4 digit pin number and a 6 digit automatically generated RSA passcode) Virtual Private Network (VPN) Various Firewalls Segregated User Level Authorities CLI binding Servers - The central servers comprise of powerful, fault tolerant and redundant servers with large storage devices and fast archival systems at the primary site.

Email Integration

CDC E-mail Facility provides CDC the capability to send encrypted emails with digital signatures to its Elements in Karachi, Lahore and Islamabad. With this facility in place, CDC can correspond with its clients in an effective and cost efficient manner. Users can open the received e-mail by clicking 'Outlook Express' option from the 'Programs' sub menu of the MS-Windows 'Start' menu. The same operation can be executed by clicking MS-Outlook Express icon in the Task Bar. Once the Outlook Express main screen appears, user would be able to Receive, Read and Delete e-mails. Deployment of this E-mail service reflects CDC's efforts toward its customer centric focus and providing quality service and satisfaction to its clients.
Account Holder Account Holders are allowed to keep their beneficially owned securities into CDS. Eligibility Criteria:

As per CDCPLR, any person, company, corporation or institution in such class as the Board may, from time to time, determine in this behalf, may apply to the CDC for admission to the CDS as an Account Holder. Account Opening Procedure:

A) The applicant initiates a written request for the account-opening package. B) An account-opening package containing the following original/specimen documents is sent to the applicant. Account Opening Package contains the following documents and request for other required documents:
Documents Admission Form: General information about the client is obtained on this form. Admission Form (Individual) Admission Form (Corporate) Agreement: The agreement states terms and conditions agreed upon by both parties for opening an account with CDC. Specimen Signature Card: Name & signatures of authorized signatories are obtained on this card. Specimen Undertaking: confirmation regarding not maintaining an Investor Account with CDC. Specimen Board Resolution: Certified true copy of the Board Resolution authorizing the company to enter into an agreement with CDC and nominating signatories on behalf of the company is required. OTHER REQUIRED DOCUMENTS Individual Account Yes Yes Yes Yes No Yes Corporate Account Yes Yes Yes Yes

Power of Attorney in case of an agent (if applicable) Attested copy of Passport of Joint holder (if applicable) Attested copy of NIC/Passport of Nominee Certified true copy of Stock Exchange Registration Certificate (if applicable) Attested copy of NIC of the applicant Certified true copy of Memorandum & Articles of Association Certified true copy of certificate of incorporation Certified true copy of Certificate of Commencement of Business (if applicable) Security Deposit & Documentation Fee Certified true copy of Banking License(if applicable) Certified true copy of NBFC License(if applicable) Certified true copy of SECP Brokerage Certificate (if applicable) Certified true copy of Notification by Stock Exchange(if applicable) Certified true copy of Minimum Subscription Certificate and Prospectus (if applicable)

Yes Yes Yes Yes Yes No No No Yes No No Yes Yes No

No No No Yes No Yes Yes Yes Yes Yes Yes Yes Yes Yes

C) The applicant submits the above-mentioned documents (complete in all respect) to CDC. D) Upon receipt of the documents, CDS software is installed at the premises of the applicant. E) A comprehensive training session is conducted to train the users of the CDS to their satisfaction. The session explains in detail the concept & workings of the CDS. F) As soon as the account is activated, following Ids and passwords are sent to the Applicants: CDS Dialup ID User & IDs & Password (If Passwords Applicable)

It is also to be noted that it takes three working days to open an account after submission of documents (provided the documents are complete in every respect). Tariff
SCHEDULE OF FEES RATE BASIS (Note 1) Per share deposited Per Unit deposited (Note 2) Per share Per Unit*

S.No

NAME

LEVIED ON

COLLECTION WHEN MODE P.O./Draft/ Cheque P.O./Draft/ Cheque P.O./Draft/ Cheque

1.

Initial Deposit Fee - for Shares - for TFCs* - for WAPDA Bonds ** - for Units *** Transaction Fee - for Shares - for TFCs*

Re. 0.01 Nil Nil Re. 0.01

Participant/ Account Holder

Month end Month end

2.

Re. 0.0020 Re. 0.0020

Participant/ Account Holder

Month end (calculated on

- for WAPDA Bonds ** - for Units *** Custody Fee - for Shares - for TFCs* - for WAPDA Bonds ** - for Units *** - On Blocked Securities - For Major Shareholders CDS Connection Fee - Account holder/ Participant - Eligible pledgee Additional CDS Connection Fee

Re. 0.0020 Re. 0.0020

Per WAPDA Bond** Per Unit*** (Note 3) Market value Market value Market value Quoted or offer price Fixed monthly per CDS connection (Note 4) Fixed monthly per CDS additional connection

daily basis)

3.

0.015% p.a. 0.0125% p.a. 0.0125% p.a. 0.0125% p.a. 0.00675% p.a. 0.00675% p.a.

Participant/ Account Holder

Month end P.O./Draft/ (calculated on Cheque daily basis)

4.

Rs. 500 p.m. Rs. 10,000 p.m. Rs. 10,000 p.m.

CDS Elements

Monthly in advance

P.O./Draft/ Cheque

5.

CDS Elements

Monthly in advance

P.O./Draft/ Cheque

6.

7.

8.

Annual Fee for Eligible Security Issued Amount (Face Value) For Shares & Long-term TFCs -Upto Rs. 50m -Above Rs. 50m to Rs. 200m Rs. 16,875 p.a. -Above Rs. 200m Rs. 33,750 p.a. Rs. 67,500 p.a. For Short-term TFCs -Upto Rs. 50m Rs. 5,000 p.a. -Above Rs. 50m to Rs. 7,500 p.a. Rs. 200m Rs. 12,500 p.a. -Above Rs. 200m For WAPDA Bonds** -Upto Rs. 50m Rs. 18,750 p.a. -Above Rs. 50m to Rs. 37,500 p.a. Rs. 200m Rs. 75,000 p.a. -Above Rs. 200m Annual Fee on CDS Eligibility of Units of open- Rs. 67,500 p.a. end mutual funds Redemption Fee Nil Pledge Call Fee - for Shares Re. 0.005 - for TFCs* Re. 0.005 - for WAPDA Bonds ** Re. 0.005 - for Units *** Re. 0.005 Fresh Issue Fee Withdrawal Fee - for Shares - for TFCs* - for WAPDA Bonds ** - for Units *** Cancellation Fee Re. 0.01

Fixed annually per eligible security (Note 5)

Issuer/Asset Management Companies

Annually in advance

P.O./Draft/ Cheque

Units*** Per share Per Unit* Per WAPDA Bond** Per Unit*** Per Share (Note 6) Per share Per Unit* Per WAPDA Bond** Per Share/TFC/ WAPDA Bond**/Per Unit***

Eligible Pledgor/Pledgee Issuer/Asset Management Companies Participant/ Account Holder Issuer/Asset Management Companies

P.O./Draft/ Cheque

Month end

9.

With Application Month end Upon Cancellation

P.O./Draft/ Cheque P.O./Draft/ Cheque P.O./Draft/ Cheque

10.

Re. 0.10 Rs. 50 Rs. 50 Nil Re. 0.01

11.

12.

Fee on Consolidation and/or Re. 0.01 Sub-Division of Securities

13.

Revocation Fee

Re. 0.01

(Note 7) Per share (Note 8) Per Share/TFC/ WAPDA Bond**/Per Unit*** (Note 9) One time, fixed Per page Per statement (Note 10) Per SubAccount opened and maintained -

Issuer

With application

P.O./Draft/ Cheque

Issuer/Asset Management Companies Participant/ Account- Holder /Eligible Pledgee Participant/ Account Holder Sub Account Holder

Upon Revocation

P.O./Draft/ Cheque

14.

Documentation Fee Requested Statement Fee/Statement Verification Fee Requested Statement Fee/Statement Verification Fee Sub-Account Opening Fee

Rs. 2,500

On account opening With application With application Annually in advance

P.O./Draft/ Cheque Cash/ P. O./ Draft Cash/ P. O./ Draft P.O./Draft/ Cheque

15.

Rs. 10 Not exceeding Rs. 100

16.

17.

Rs. 200 p.a.

Participant -

18.

Short Messaging Service

Nil

S.No 1.

NAME Security Deposit from Participants/Account Holders Security Deposit from Issuers Issued Amount (Face Value) -Upto Rs. 50 million -Above Rs. 50m to Rs. 125m -Above Rs. 125m to Rs. 250m -Above Rs. 250m to Rs. 500m -Above Rs. 500m to Rs. 1000m -Above Rs. 1000m Security deposit from Asset Management Companies

SCHEDULE OF DEPOSITS RATE BASIS Rs. 100,000 One time, fixed One time, fixed per eligible security

COLLECTION WHEN MODE On signing of P.O./Draft/Cheque agreement

2.

3. 4. Stock

(Note 11) One time, fixed per 15 days before Rs. 100,000 P.O./Draft/Cheque eligible security the eligibility date One time, fixed per Security Deposit from Eligible On signing of Rs. 100,000 eligible pledgee P.O./Draft/Cheque Pledgees agreement (Note 12) One unit of TFC (both long-term and short-term) is equivalent of marketable lot defined by the Karachi Exchange (Guarantee) Ltd. which is presently Rs.5000/-. The denomination of each WAPDA Bond is Rs 5,000 as prescribed by WAPDA. Units of open-end mutual funds

Rs. Rs. Rs. Rs. Rs. Rs.

12,500 25,000 37,500 50,000 75,000 100,000

15 days before the P.O./Draft/Cheque eligibility date

Notices: 1. 2. 3. To be levied on Participant/Account Holder depositing securities in the CDS. Also to be levied on Offeror of securities pursuant to offer for sale. Initial Deposit Fee owing to any privatization by the Government of Pakistan shall be 50% of applicable fee for Privatization Commission and State Bank of Pakistan. On all Inter-Participant/Account Holder Transactions - Levied on both delivery and receipt. Closing market value of last trading session of last trading day of the month at The Karachi Stock Exchange Guarantee) Limited. Custody fee shall be 0.10% p.a. for Book-entry Securities of all kinds, types and class held in Group Account(s). Basis for calculating custody fee for un-listed securities shall be the face value of such securities. Basis for calculating custody charges shall be the quoted or offer price of units prevailing on last day of the month. Reduced custody fee is charged on Book-entry Securities remain under blocked position in the Accounts and/or Sub-Accounts in the CDS pursuant to the directive of statutory or governmental body or those held by State Bank of Pakistan on behalf of Government of Pakistan. Custody

fee shall be waived in full where the Issuer goes under Liquidation (except voluntarily), Receivership or court-appointed Manager ship or equivalent form of Administration. Custody fee shall be charged at a reduced rate in the following manner to the Book-entry Securities held in the CDS in blocked status pursuant to any statutory or regulatory requirements and to the major shareholders of any Issuer of CDS Eligible Securities holding 10% or more of the issued capital in a single Account or Sub-Account: Year Custody rate 4. 5. 2009-10 0.00675% p.a. 2010-11 0.006% p.a. 2011-12 0.00525% p.a. 2012-13 0.0045% p.a. 2013 onwards 0.00375% p.a.

Issuers will get the first CDS connection free of charge. Only those TFCs would be considered to be as Short-term whose maturity period does not exceed one year. Annual Fee shall be refunded on pro rata basis where CDS Eligibility of a Security is revoked during the year. 6. To be levied on bonus issue, right issue & new issue (including conversion of securities). Also to be levied on Transferee Company pursuant to merger and on Transferor Company pursuant to de-merger. In case of Units, this fee shall only be applicable on freshly issued Units through initial public offering or upon conversion of a close-end fund to an open-ended scheme and not on subsequent issuance of Units. 7. To be levied on Transferor Company pursuant to merger and on Transferee Company pursuant to demerger. Also to be levied on cancellation of securities. 8. To be levied on Issuer consolidating or sub-dividing its securities. 9. To be levied on Issuer upon Revocation of CDS Eligibility of its Securities based on number of Securities of such Issuer held on the CDR at the Relevant Time. 10. Presently fixed at zero per statement may be varied by the CDC Board from time to time but to a maximum of Rs. 100 per statement. 11. Issuers of both long-term and short-term TFCs have been exempted from levy of security deposit. This exemption shall also be applicable for WAPDA Bonds. 12. Participants/Account Holders will not be required to pay this deposit if admitted as eligible pledges. This exemption applies to first Pledgee account only. @Karachi, Lahore , Islamabad Stock Exchanges and National Clearing Company of Pakistan Limited have been exempted from the requirements of Schedule of Fees & Deposits.