Transcript Slide 1

Overview, Functionalities,
Control and Check on
NCSS by
NCCPL
NATIONAL CLEARING COMPANY OF PAKISTAN LIMITED
7/18/2015
1
The Company’s
Overview
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2
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.
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BACKGROUND
Cont…d
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.
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Organization Structure of NCCPL
Board of Directors
Audit
Committee
Chief Executive
Officer
CFO/
Com.Sec.
Chief Information
Officer
Legal &
Compliance
Software
Management
Network
Management
Systems
Management
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GL
Sec.
Pay &
Collect
Chief Internal
Auditor
Admin & HR
Product
Development
Customer
Support
Operations
Database
Management
Help Desk
Information
Security
Fin. Dept.
Head of
Operations
Business
Continuity
Customer
Support
Lahore
Customer
Support
Karachi
Customer
Support
Islamabad
5
NCCPL - Legal Frame Work
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
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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……
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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;
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Corporate Governance
c)
Cont…..
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.
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NCCPL – Shareholding Structure
Authorized Capital
Rs. 100.00 million
Issued And Paid-up Capital
Rs. 63.70 million
SR. #
SHAREHOLDERS
(Rs. 63.70 million)
% OF SHARE HOLDING
01
The Karachi Stock Exchange
47.06%
02
Lahore Stock Exchange
23.53%
03
Pak-Kuwait Investment Corp.
17.65%
04
Islamabad Stock Exchange
11.76%
TOTAL
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100.00 %
10
Company’s Achievements
Following major achievements have been accomplished by the Company:

Independent management

Registration under Clearing House Companies (Registration and Regulations) Rules
2005 on March 7th, 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)
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Company’s 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
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Company’s Achievements

Independent IT Set-Up effective from July 01, 2007

Procurement of Server and Hardware

Implement Network infrastructure and connectivity

Establish four Data Centers
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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 Company’s Owned Head Office

Issuance of Share Capital
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Major Challenges

Hiring of appropriate Human Resource

Space constraint
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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
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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
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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
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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.
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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
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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 Nonrepudiation will be implemented in NCSS through the digital signatures.
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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
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National Clearing & Settlement
System (NCSS) Overview
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Major Benefits of NCSS

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.
cont…d
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Major Benefits of NCSS
cont…

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
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NCSS – Operational Highlights
Monthly per Day Average No. of Trade and Transaction Settlements on NCSS
200,000
192,454
182,256
180,000
167,904
160,000
150,767146,291
139,166
140,000
126,522
114,944
120,000
126,790
124,578
100,000
126770
112,582
102,235
109,341
Sep '06
Dec '06
80,000
60,000
40,000
20,000
Jan '06
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Feb '06
Mar '06
Apr '06
May '06
Jun '06
Jul '06
Aug '06
Oct '06
Nov '06
Jan '07
Feb '07
27
NCSS - Operational Highlights
Monthly per Day Average of Settlement Volume (Shares in million)
196
200
180
160
140
141
135
121
120
126
100
100
101
90
80
71
76
85
77
77
59
60
40
20
-
Jan-06
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Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
28
NCSS - Operational Highlights
Monthly per Day Average of Settlement Value (Rs. in million)
297,169
300,000
248,363
250,000
230,316
213,536
206,740
200,000
187,814
182,145
146,836
150,000
143,881
139,851
123,632
124,727123,157
100,866
100,000
50,000
-
Jan-06
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Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
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NCSS - Operational Highlights
Highest Ever
Maximum Number of Balance Orders (BO’s).
13,615
Maximum Volume of Shares
314.9 (M)
Maximum Value of Shares
24.83 (B)
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Statistics
Active Clearing Members (As of May 2007)
Islamabad, 58
Lahore , 138
Broker
340
Non Broker
202
Total
542
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Karachi, 346
31
Statistics
No. of NCSS Eligible Securities (as on May 2007)
No. of Live Securities
527
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
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Statistics
No. of Settling Bank / Branch Setup (as on May 2007)
Bank
Karachi
Lahore
Islamabad
Total
Allied Bank Limited
1
1
1
3
Bank Al-Falah Limited
1
1
1
3
Bank Al-Habib Limited
1
1
--
2
Habib Bank Limited
1
1
--
2
KASB Bank Limited
1
1
--
2
MCB Bank Limited
1
1
1
3
Metropolitan Bank Ltd.
1
--
--
1
PICIC Commercial Bank
1
--
1
2
MY Bank Limited
1
0
0
1
United Bank Limited
1
0
0
1
Atlas Bank Limited
1
0
0
1
JS Bank Limited
1
0
0
1
12
6
4
22
TOTAL
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National Clearing Company Of Pakistan Limited
Types of Trades/Transactions on NCSS
NCSS
Exchange
Trades
Regular
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Exchange
Transactions
Future
Non-Exchange
Transactions
CFS
BTB/MF
IDS
Regular &
Future Trades
CFS
34
Types of Trades/Transactions on NCSS
Exchange Trades and Transactions
 Exchange Trades are
 Locked-in contracts between broker CMs
Exchange trading system in the Regular Market
executed
through
 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.
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Types of Trades/Transactions on NCSS
Non-Exchange Transactions
 Broker to Broker (BTB) Delivery Module provides the facility of recording nonExchange 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.
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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.
1.1
Initiation 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;
1.2
Affirmation 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.
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RECORDING OF BTB TRANSACTIONS ON NCSS
Trades executed by the Broker
Clearing Members of Stock
Exchanges
BTB Module on NCSS
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)
Payment/Receipt in
NCSS
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Received/Delivered
Securities through
NCSS
38
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.
1.2
Initiation Process
•
Under this Module
An IDS transactions can only be initiated by Broker CM to a Non-Broker CM for affirmation;
2.2
Affirmation 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.
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Types
of Trades/Transactions
on NCSS
RECORDING
OF IDS TRANSACTIONS
ON NCSS
Transactions executed by the
Broker Clearing Members of
Stock Exchanges
IDS Module on NCSS
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
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Payment/Receipt
in NCSS
Received/Delivered
Securities through NCSS
40
Types
of Trades/Transactions
on NCSS
RECORDING
OF MF TRANSACTIONS
ON NCSS
Buy Trade / Transactions executed by the
Broker Clearing Members in Stock
Exchanges
Margin Financing (MF) Module on
National Clearing & Settlement System
(NCSS)
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)
Payment to
NCSS
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Received Securities
through NCSS
41
Types
of Trades/Transactions
on NCSSON NCSS
RECORDING
OF MFR TRANSACTIONS
Sale Trade / Transactions executed
by the Broker Clearing Members in
Stock Exchanges
Margin Financing Reversal (MFR)
transactions on NCSS
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)
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Payment From
NCSS
Received Securities
through NCSS
42
Settlement Options
Balance Order
Multilateral Netting
T+3 Settlement Cycle
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T+1 Settlement Cycle
43
Prerequisite for Broker CMs on NCSS Single
Trader ID
CM’s Accounts
CDS Account with
CDC
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Settling Account
with SB
SE Trader Id
(Membership Id)
44
Prerequisite for Broker CMs on NCSS
Multiple Trader IDs
CM’s Accounts
CDS Account with
CDC
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Settling Account
with SB
KSE Trader Id
LSE Trader Id
ISE Trader Id
(Membership Ids)
45
Securities
 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 Value
Upto Rs. 10
Upto Rs. 10
Greater than Rs. 10
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Market Value
Upto Rs. 50
Greater than Rs. 50
Any market value
Marketable Lot
500 shares
100 shares
20 shares
46
Settlement Flow in NCSS
Buying Broker
T
Selling Broker
Execution of Trades at the
Stock Exchange
Online trade feed to NCSS
Generation of NE Transactions
Netting of trades
T+2
Money Receive orders and Delivery
SD-1 Payment orders and Delivery Receive
order
order
Delivery of NCSS eligible securities
(with blocked status)
Buying Broker
Selling Broker
Unblocking of securities on Payment
Confirmation
T+3
Collect Payment
SD
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Payment to NCSS
Release Payment
47
Delivery Schedule

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.
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Balance Order

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



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Broker To Broker (BTB)
Institutional Delivery System (IDS)
Margin Financing (MF)
49
Balance Order Netting Mechanism

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.
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Delivery Default Management

CM’s who fail to deliver securities till 4:15 PM to be considered delivery defaulting
CM’s.

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.
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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.
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NCSS Pay & Collect
 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.
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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
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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.
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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 CM’s who are member of
respective Exchange and to those CM’s who were involved in the Non-Exchange
transactions with the defaulting CM.
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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.
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Risk Management
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
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Risk Management
cont...
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.
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Risk Sharing mechanism in case of default
 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.
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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
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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
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UIN Registration Details
• Client Name
•
Appropriate UIN
•
Client Code/Client ID issued by the Broker
•
Client Type
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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.
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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
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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
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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
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UIN Registration for Individual Foreigner
Individual Foreigner/overseas Pakistani citizens/NonPakistani 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
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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
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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
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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
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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 .
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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
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National Clearing Company of Pakistan Limited
FINANCIAL INSTITUTIONS (FIs) POST-AFFIRMATION MARGINING SYSTEM
BROKERS
Execute orders on behalf of FIs
Ready Market
CFS Market
KATS
NCSS
Online Trade Feed
IDS on NCSS
Initiation by
Affirmation by NON-
BROKERS
BROKERS
Exposure Calculation
Affirmed
IDS Transactions
Margin Computation
Exposure Adjustment of
BROKERS by
Exchanges
RMS
at NCCPL
MTM Computation
Confirmation of affirmed IDS
transactions provided to
Exchanges
Non-Broker will pay Margin and MTM
to NCCPL
Collateral Management System
Dropout Mechanism
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CFS Vs CFS Mk II
CFS
CFS 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
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CFS Vs CFS Mk II
CFS
CFS 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.
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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.
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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 NCCPL’s automated terminal, enabling real time
financing.
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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.
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Eligible Participants – Finance
Brokers are the only takers of finance from CFS market on behalf of their
clients and for their own account.
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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.
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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.
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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
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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
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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.
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Acceptable collateral

Shares of listed companies

Undertaking by FIs rated AA and better

Treasury Bills and PIBs (at later stage)

Bank Guarantee

Cash
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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.
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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
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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 30minutes notice to such AF or Financee as the case may be.
2.
Where such AF or Financee fails to settle its money obligation within 30minutes, 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….
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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….
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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 netoff 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….
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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….
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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.
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Roadmap for CFS Mk II Implementation
Legal And Regulatory Framework
Milestone
Finalizing of the Concept Paper of CFS MK-II
Circulation of the final Concept Paper of the Market
elements
Target / Completion
date
June 04, 2007
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
Obtain NCCPL Board and SECP Approval for NCCPL CFS MK-II
Regulations
7/18/2015
In progress
August 10, 2007
94
Roadmap for CFS Mk II Implementation
Cont….
System Design, Development, Testing & Implementation
Connectivity
Infrastructure Development
Target / Completion
date
Done
CFS MK-II System Development
Development and Testing of Trading Infrastructure
Application
Development of RMS Module and Integration Testing with
Trading Infrastructure Application
Market Participants Training
Application Live Run
7/18/2015
July 28, 2007
August 15, 2007
Aug 15,2007
To
 Aug 24, 2007
September 1, 2007
95
Thank you !
NATIONAL CLEARING COMPANY OF PAKISTAN LIMITED
8th 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
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