8/15/20151 Overview, Functionalities, Control and Check on NCSS by NATIONAL CLEARING COMPANY OF...

8/15/20151 Overview, Functionalities, Control and Check on NCSS by NATIONAL CLEARING COMPANY OF PAKISTAN LIMITED NCCPL

8/15/20152 The Companys Overview

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.

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.

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.

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

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

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;

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.

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 %

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)

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

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

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

8/15/201515 Major Challenges Hiring of appropriate Human Resource Space constraint

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

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

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

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.

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

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.

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

8/15/201523

8/15/201524 National Clearing & Settlement System (NCSS) Overview

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

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

8/15/201527 NCSS Operational Highlights

8/15/201528 Operational NCSS - Operational Highlights

8/15/201529 NCSS - Operational Highlights

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)

8/15/201531 Statistics Active Clearing Members (As of May 2007) Broker 340 Non Broker 202 Total 542

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

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

8/15/201534

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

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

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.

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

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.

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

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

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

8/15/201543 T+3 Settlement Cycle T+1 Settlement Cycle Balance Order Multilateral Netting Settlement Options

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)

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

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

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

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

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

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

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

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.

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

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

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.

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.

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.

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

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...

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

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

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

8/15/201563 UIN Registration Details Client Name Appropriate UIN Client Code/Client ID issued by the Broker Client Type

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.

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

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

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

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

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

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

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

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.

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

8/15/201574

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

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.

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.

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.

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.

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.

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.

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.

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

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

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.

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

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.

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

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.

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.

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.

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.

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.

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

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

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

8/15/20151 Overview, Functionalities, Control and Check on NCSS by NATIONAL CLEARING COMPANY OF...

Documents

Transcript of 8/15/20151 Overview, Functionalities, Control and Check on NCSS by NATIONAL CLEARING COMPANY OF...