Preamble

WHEREAS the question of review of the Rules and Regulations governing the members default and procedure for recovery of losses at the Islamabad Stock Exchange has been under consideration for a long time. And whereas in the process of review of various aspects of default under the existing Rules and Regulations, it is deemed necessary that a separate regulation governing members default and procedure for recovery of losses is desirable in order to protect the interest of the institution and of all concerned. Now, the Board of Directors of Islamabad Stock Exchange (Guarantee) Limited, with prior approval of the Corporate Law Authority, hereby make these regulations which shall deemed to be effective at once.

(1.) Short Title

These Regulations may be called “Members Default and Procedure for Recovery of Losses Regulations-1996”.

(2.) Default

(i) In case a Member fails to pay any amount payable by him or fails to deliver shares as per Rules and Regulations of the Exchange over and above the prescribed amount, he shall be issued a notice by the Exchange requiring him to deposit the amount and deliver the shares. On failure to comply with the notice by the Member within the time allowed, he shall be suspended by the Board.

(ii) Upon suspension of a Member;

a) All his dues, and amounts payable to the Exchange and the clearing house shall be grossed up.

b) All his transactions relating to clearing house payments or delivery of shares shall be opened to determine the counter parties (party to party) against the trade of the defaulting member.

c) In consequence of the above analysis and the ascertainment of other parties, the remaining transactions, not pertaining to defaulting member shall be consolidated separately in the manner of a clearing house processing. The Floor Committee shall square up the transactions by application of hammer prices if such need arises. The receivable and payable arrived at as above shall be settled forthwith.

d) All the transactions pertaining to the defaulting member and the counter parties to such transactions so ascertained shall be squared up in the open market or at hammer price and a final loss shall be determined.

e) Any other liability of the member as explained in clause (a) above shall be added to the loss so determined.

f) A final notice of liability shall be served, calling upon the member, who has failed to make the payment or delivery of shares, to pay liability so determined, within the time stipulated therein. If he fails to comply with such notice, he shall be declared defaulter by the Board.

(iii) Upon declaration of Defaulter, a statement shall be prepared by the Exchange to ascertain such Defaulter’s scrip-wise loss with a statement of transactions inclusive of carry over transactions made with other members in those scrips through the computerized trading system. The losses arising out of the squaring up of the transactions by the Exchange in a particular clearing shall be debited to the account of all those members involved in the trading/financing of that particular scrip in which the defaulter suffered the losses on pro-rata basis and such member will have to pay the uncovered losses to the Clearing House of the Exchange under these Regulations.

Provided that carry-over trade (COT) transactions through contract tickets/slips shall not qualify for proportionate distribution of losses and full loss arising out of such transactions will be debited to the members who enter into COT transaction with defaulter through contract tickets. This will also apply in case of carry-over of deliveries transactions with defaulter.

Further Provided that claims arising out of COT transactions through the contract tickets/slips will have second priority under the Clearing House claims.

(iv) Such payments by the members will, however, be treated as “claims” by them against the defaulter and shall be settled alongwith other claims out of the assets of the defaulter that may be realized/recovered by the Exchange on a proportionate basis.

(3.) Recovery and Distribution of Loss of a Defaulter

Losses shall be recovered in the following sequence.

(i) Deposit of the member with the Exchange.

(ii) Sale of member’s assets in the control of the Exchange.

(iii) Contribution from clearing house protection fund as may be prescribed by the Board.

(iv) Any other sources of recovery as may be determine by the Board.

(4.) Payment of Claims

Payment of claims will be made in accordance with the general Rules and Regulations of the Exchange.