- 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. The system works similar to a bank. Securities will be deposited into CDS and transactions will be effected electronically, thereby removing the current need to count, verify, store and transport countless certificates.

- 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, which 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.
� Delivery Vs payments - book entry transfer of ownership of a security in exchange for payment to settle a transaction.
� Cash only movement - movement of cash from one account to another without any associated securities movement.

- How is CDC's account structure organized?
The participant of CDC will be able to settle their transactions within CDS through five types of accounts, namely,

� Main account: Each participant in the system will be allocated a main account by virtue of being a participant in the CDS. This account will mainly be used as a transit account for movement of securities.
� House Account: It is used for securities owned beneficially by participants. Holding a house account is optional and any number of such accounts may be created by a participant.
� Sub-account (client Account): This account is used for keeping securities belonging individually to each of the clients of the participants. A participant may open any number of sub-accounts he requires and maintain these sub-accounts on behalf of his clients.
� Group Client Account:            This account is used for keeping securities, which are beneficially owned by the participant's clients. It will be used for clients who are not willing to utilize the facility of opening separate sub accounts. Each group account will contain the securities owned by a group of clients. The detailed break-up of the securities held by each client of such a group will be held by the participant and no such record will be maintained within the CDS.
� Cash Account: Each participant in the system who opts to avail the Delivery Vs Payment (DVP) facility will be required to deposit, in advance, a rolling settlement fund to be used for the settlement of his DVP obligations. The balance of the participant `s rolling settlement fund will be stored in this account.

- What is Sub-account?
The sub-account is a category of account, which the participants will maintain on behalf of their clients. The client, however, will not be able to operate the account himself. The relevant participant will handle all his transactions for him through this sub-account. The participant will open, maintain and operate this sub-account in the name of the sub-account holder, so as to record his title to the securities in his account. A sub-account holder will receive confirmation of his account balance from the relevant participant. Moreover, he can also request the CDR to directly confirm his balance.

- Are there any legal safeguards to protect the sub-account holder?
The central depositories 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 electronic settlement of securities. The following are eligible to open Investor Accounts with CDC:

l. Individuals who are Pakistani nationals (Resident) and

• are not minor.

• are not of unsound mind.

• Have not applied to be adjudicated as an insolvent

have not suspended payments and have not compounded with their creditors.
    � are not undischarged insolvents.

- What are benefits of Investor Account Services (IAS)?Back to top
Control
After the dematerialization of security certificates, investors no longer have physical possession of securities and are troubled by lack of control over their securities. By opening investor accounts with CDC, investors are able to directly control their electronic securities. Although trading is still done through brokers, settlement is done through CDS on written instruction of investors.

- How will CDC handle corporate actions?
Corporate actions will be handled by the following manner:

- What happens when you buy or sell?
Securities will continue to be bought and sold through brokers and there will be no change in the existing trading practices. The only change will be at the time of settlement: instead of physical deliveries, electronic book entry settlement will be made.

- How does the CDC affect the present system?
Trading activities are independent of the working of the CDS, This system is simply an electronic vehicle to facilitate the delivery, settlement and transfer of securities. Trading practices in securities will remain as they were before. Investors will still instruct their brokers to buy or sell, settlement and clearing will continue as per the existing system. Electronic book-entry deliveries will still be made by the participant and not by the CDC staff.

- How will confidentiality be maintained by the CDC?
Strict confidentiality is one of the key features of CDS. No unauthorized person will have access to information, including CDC employees. Legal safeguards will also ensure that strict confidentiality is maintained.