CENTRAL DEPOSITORY AND SETTLEMENT SYSTEMS Presented by Md

CENTRAL DEPOSITORY AND SETTLEMENT SYSTEMS Presented by Md. Ashraful Islam Executive Director, SEC Email: ashraf@secbd. org Website: www. secbd. org

What is Depository ? A depository is an infrastructure, both legal and computerized, that provide service of preservation and maintenance of eligible securities, issued by an issuer, under its owners separate beneficiary owner (BO) accounts with position of their current holdings and transaction records. An organization which is established with legal provision to develop such infrastructure and render such service is called depository organization. In Bangladesh, there is only one organization which provide such service, the Central Depository Bangladesh Limited (CDBL), established in 2003 and commenced operation in 2004.

Current status of dematerialization l Currently, all listed securities in DSE and CSE are eligible securities and have been dematted with CDBL. Therefore, owners of these securities may enjoy the benefits of electronic or dematted securities by maintaining their securities in their BO accounts l At present, all listed securities are demated. But if any owner wants his/her securities be paper-based, this can be done by re-materialization. But again, it needs to be demated before exchange transaction, because now paper based securities are not allowed for exchange transaction

Services of CDBL A depository can be compared to a bank. A Depository holds securities of investors in electronic form. It ensures safe preservation and safe transfer/transmission of owners securities through proper procedure and examination technique. CDBL provides following related services: Extend service in buy/sell of securities by accepting to and transferring from the account Ensure safe transfer of securities from account holder’s one account to another link account Extend service to freeze, suspend and close the account BO A/C balance inquiry with portfolio valuation by web-based system and mobile SMS Demat and remat services etc

Services of CDBL (continued. . ) Ensure transmission of securities in case of account holder’s death to his/her legal heir on their application in appropriate form and through examination of necessary documents. Settlement of trade executed in stock exchanges and T-bill/T-bond of Bangladesh Bank in their OTC market Provide information to issuer about its owners as on certain date from its depository register through its system Provide pledge service to its clients on their request Security lending and borrowing related service if applicable IPO, Bonus and right share credit and on request of issuer distribution of cash dividend through its system

Benefits No bad deliveries l Immediate transfer of shares on settlement l Reduction in handling large volume of papers l Elimination of risks associated with physical certificates such as loss, theft, mutilation, forgery etc. l

Who is Depository Participant (DP)? Depository interfaces with investors through its agent called depository participants (DP). If an investor wants to utilize the services offered by a depository, the investor has to open an account with a DP. Financial institutions, banks, insurance companies, limited companies, approved clearing corporation, clearing house of stock exchanges and any registered stock dealer, stock broker, merchant banker, asset management company, custodian or any capital market intermediary can become DP.

Types of DP l Trading DP- Only broker/dealer can be this type of DP, can operate own account and clearing account for transaction settlement l Full Service DP- Can operate own account, investors accounts and clearing account l Custody DP- Can operate own account, its clients custody account and stock broker/dealer’s clearing account l Settlement Agent DP- Only licensed stock broker/dealer can be such DP and can operate account related to providing services for settlement

Types of depository accounts l l l Clearing account- for transaction settlement with exchange Principal account- for DP’s own securities Customer account- for investor’s securities Omnibus account- for more than one investors’ securities Direct account- CDBL can directly open this account for investor’s securities

Process of Account Opening The process of opening an account with the depository through a DP is similar to opening an account with a bank. Procedures : Approach DP Fill up an account opening form Sign a standard agreement

Am I restricted to having only one DP? No. There absolutely no restrictions on the number of DPs you can open accounts with but if your are an individual (not institution) then you can not open more than one account with the same DP.

Do I have to keep any minimum balance of securities in my account? No. In fact you can have zero balance in your account.

Dematerialization is a process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited in the investor’s account with his/her DP.

Can I dematerialize my share certificates ? Yes, you can dematerialize only those certificates that are already registered in your name and belong to the list of securities admitted for dematerialization.

Do my dematerialized shares have distinctive/certificate numbers ? No. Your dematerialized shares will not have any distinctive or certificate numbers. These shares are fungible

Can I dematerialize odd-lot shares ? Yes. Odd lot shares certificates can also be dematerialized.

How long the dematerialization process will take ? It may take only two days.

REMATERIALIZATION

Can my electronic holdings be converted into certificates ? Yes. If you wish to get back your securities in physical form, all you have to do is to request your DP for rematerialization of the same. ‘Rematerialization is the term used for converting electronic holdings back into certificates. Your DP will forward your request to depository after verifying that you have the necessary balances. Depository in tern will intimate the registrar who will print the certificates for you

Will I get back the same certificates after rematerialization ? You may not be allotted certificates with the same distinctive and certificate numbers. However, it does not matter really. You will usually be allotted a new certificate. But for that matter your right as a shareholder will not be affected.

Purchasing of dematerialized shares l l l Investors purchase shares in any of the stock exchanges connected to depository through a broker of his choice and makes payment to his broker Broker arranges payment to clearing house Broker receives credit on his clearing account with his DP on the pay-out day Broker gives instruction to his DP to debit his clearing account and credit his client's account Investors gives instruction to his DP for receiving credit in his investor account If the instructions match, investors account with his DP is credited

Why should I prefer to buy dematerialized shares ? When you buy dematerialized shares you become the owner of those shares as soon as they are credited to your account. This is unlike the physical market where it will take a long time. Further, the possibility of loss or theft of share certificates is completely eliminated.

PUBLIC OFFER

Is it possible for me to get securities allotted to me in public offerings directly in dematerialized form? Yes, In fact in the public issue application form you have to mention your DP account number, any allotment due to you will be credited to your account.

CORPORATE ACTION

Who will give me the benefits arising out of my holdings, say a bonus or a dividend ? When any corporate event such as rights or bonus or dividend is announced for a particular security, depository will give the details of all the clients having electronic holdings in that security as of the record date to the company. The company will then calculate the corporate benefits due to all the shareholders. The disbursement of cash benefits such as dividend/interest will be done by the company whereas depository will do the securities entitlements based on the information provided by the company.

CHARGES

What will be the charges for account opening and other depository related transactions ? l l The depository can not fix the charges of its own. The fees payable by a DP for the services provided by the depository in respect of transaction of securities is prescribed by regulations. But DP’s can determine their own service charge. The present relevant rate chart of the depository are given below: Demat fee: 0. 000175 of market value of securities or Taka 5. 00 whichever is higher. Transaction fee: 0. 000175 of market value of securities or Taka 5. 00 whichever is higher. Custody fee: Yearly Tk. 500. Remat fee: 0. 10 or Taka 100/= per security whichever is higher.

Proof of De-mat Securities

What will be the proof of my de-mat securities ? As per provision of the Depositories Act, 1999 the statement given by the depository will be accepted as a prima facie evidence by a court of law.

Some Statistics ( As on 16. 06. 2013) §Number of companies under CDBL 307 §Number of BO accounts opened 26. 80 laces §Number of DPs 446

SETTLEMENT SYSTEMS

Clearing and Settlement q. Investor sells shares in any of the stock exchanges linked to depository through a broker of his choice and trade executed through exchanges is settled amongst the brokers through the clearing house of the exchanges; l On trading day, investor gives instruction to his DP for debit of his account and credit of his broker’s clearing member pool account. l On the pay-in day investor’s broker gives instruction to his DP for delivery to clearing house of the relevant stock exchange

Clearing and Settlement (Contind. ) The broker receives payment from the clearing house l The investor receive payment from the broker for the sale in the same manner he would receive payment for sale in the physical mode. l q In settlement of trade, except Z category securities, the buying and selling brokers deposit cheque and securities respectively to the clearing house on 2 nd day of the trade (T+1) and the clearing house deliver securities and give cheque to the buying and selling broker respectively on 4 th day of the trade (T+3). For settlement of the trades of the securities under Z-category the aforesaid periods are T+1 and T+9 respectively.

Clearing and Settlement (continue) Þ Check fund balance position before submitting buy order Þ Check shares in vault before submitting sale order Þ In case of demat share, transfer shares from BO account to DP’s clearing account before submitting sale order

Flow Chart of Clearing and Settlement (Except Z category) Day-0 Trading Day Selling Broker Securities T+1 Cheque T+1 Buying Broker DSE Clearing House Cheque T+3 Securities T+3

Settlement to clients by Members q A member shall make settlement to his client by delivery of securities and/or payment by cheque within one day of his receipt of securities and/or cheque from the Clearing house. Any default shall attract a fine of Tk. 500 for each day for each default. Interest shall also be payable to a client for delayed payment at 1. 5% per month.

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