What is Central Depository System (CDS)?
The central depository system is an electronic book entry system to record and transfer securities. This system changes ownership of securities without any physical movement of certificates or necessity for execution of transfer deeds. The CDS is normally operated by a Central Depository Company (CDC) which records and transfers the beneficial ownership of securities. CDC may be termed as a Shares Bank.
What are the key features of the CDS?
• Electronic book entry delivery and settlement.
• Immobilization and dematerialization of certificates.
• Ability to handle corporate actions.
• Strict confidentiality and maximum security for users of the system.
• Safeguards for account holders through legislation.
What are the operations performed by CDS?
The main operations performed by CDS are as follows
• Deposit of existing and new securities into the depository.
• Withdrawal of securities in the form of certificate from the depository to cater for investors who prefer to have physical possession of certificates.
• Free transfer- book entry transfer of securities without any associated cash movement.
• Pledge/release/call - placing a lien on securities in favor of a lender, this can only be released/called by the lender.
• Stock borrowing or lending through the mechanism of transfer with or without associated money movement through the depository system.
• Corporate action - bonus issues, rights entitlements, sub-division, consolidation and any other action that changes the number of securities held in a participant's account or involves the determination of entitlement to beneficial owners.
How is CDC's account structure organized?
It is mandatory for the members to have a participant account with the CDC. It is also necessary for all the brokers to have sub-accounts for all their investors to keep all the shares in the respective clients’ sub-accounts. Other accounts include main account and house account.
"What is Sub-account?
A sub-account is an account that is maintained by the broker with the CDC for his accountholders. The account is operated by the broker himself. An investor may obtain statement of his sub-account from the CDC for confirmation of balance of his securities.
Are there any legal safeguards to protect the sub-account holder?
The central depository’s legislation has specific provisions for protecting the sub-account holder. For example, a participant is not legally allowed to undertake any transfers, pledges or withdrawals from sub-accounts without specific instructions from the sub-account holder. Violation if this clause by a participant is punishable by a significant fine and imprisonment.
Can any individual investor have an account with CDC?
Yes, Investor Account Service (IAS) offered by CDC allows the investors to directly open and maintain their accounts in CDS for independent electronic possession of securities. Individual and entities may open their account with the CDC for safe placement of their securities. CDC’s offices are available in all the stock exchanges in Pakistan.
What are benefits of Investor Account Services (IAS)?
IAS provides safe custody to the accountholders. The securities available in the IAS are under direct control and possession of the respective accountholders. No other person/broker has access to IAS. |
