Download - ICM Stock Brokers Study Guide 2010
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ICM Stock Brokers' Certification
SSttoocckk BBrrookkeerrss''
CCeerrttiiffiiccaattiioonn
Study and Reference Guide
Firs t Edi t ion
InstituteofCapitalMarkets2010.
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SSttoocckkBBrrookkeerrss''
CCeerrttiiffiiccaattiioonnEExxaamm
Study and Reference Guide
FIRSTEDITION:2010
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Copyright2010
INSTITUTEOFCAPITALMARKETS
Allrightsreserved
Thisisan
educational
manual
only
and
the
Institute
of
Capital
Markets
(ICM)
accepts
no
responsibilityforpersonsundertakingtradingorinvestmentsinwhateverform.
While every effort has been made to ensure its accuracy, no responsibility for loss
occasionedtoanypersonactingorrefrainingfromactionsasaresultofanymaterialin
thispublicationcanbeacceptedbytheICMoritsmembers.
ICMhaspreparedthisstudyguidewiththebestintentforreferencepurposeonlyand
thisdocumentshallnotbeconsideredasanultimateauthorityonthesubjectortopass
the ICM qualifications. Readers are encouraged to study additional relevant material
andasrecommendedbyICM.
Thistrainingmaterial issolelyforthepurposeofreferencingandthematterprovided
here may not be taken as any empirical theory on the subject which is dynamic and
evolvingwith latest researchanddevelopments.Whilesomeofthecontenthasbeen
taken from thirdparty sources, their efforts and work on the topic are highly
acknowledged. ICM and its member institutions accept NO responsibility for the
informationinthisdocument.
Foranycomments,suggestionsandinformation,[email protected]
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TABLEOFCONTENTS
1. OBJECTIVEOFTHEEXAMINATION. 052. TARGETAUDIENCE..053. SYLLABUSSTRUCTURE.054. EXAMSPECIFICATION. 065. ASSESSMENTSTRUCTURE.066. SUMMARYSYLLABUS077. RECOMMENDEDREADINGS 178. ACRONYMS. 199. ELEMENT1 INTRODUCTIONTOMARKETS.2010.ELEMENT2 REGULATORYFRAMEWORK. 3011.ELEMENT3 PRIMARYMARKET 3412.ELEMENT4 SECONDARYMARKET. 4013.ELEMENT5 CLEARING,DELIVERY,SETTLEMENTANDDEPOSITORY... 5914.ELEMENT6 STOCKBROKERSANDTHEIRCLIENTS. 9015.ELEMENT7 COMMODITYEXCHNAGEANDDERIVATIVES 10316.ELEMENT8 INVESTORPROTECTION.. 12817.ELEMENT9 ECONOMICSANDFINANCE 13818.GLOSSARY.. 168
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OBJECTIVEOFTHEEXAMINATION
ThisCertificationExamisspecificallydesignedtomeettheminimumqualificationneeds
of the capital market participants at brokerage houses with client interaction and to
ensure that they are competent to provide buying & selling services to stock market
investors.
TARGETAUDIENCE
ThisexamisbyandlargemandatedforBrokers,AgentsofBrokers,EquityTradersand
SalesStaffofBrokersandBrokerageFirms.
SYLLABUSSTRUCTURE
The unit is divided into elements. These are broken down into a series of learning
objectives. Each learning objective begins with one of the following prefixes: know,
understand,beable tocalculateandalsobeable toapply.Thesewords indicate thedifferentlevelsofskilltobetested.Learningobjectivesprefixed:
know require the candidate to recall information such as facts, rules andprinciples
understand require the candidate to demonstrate comprehension of an issue,fact,ruleorprinciple
beabletocalculaterequirethecandidatetobeabletouseformulaetoperformcalculations
beabletoapplyrequirethecandidatetobeabletoapplytheirknowledgetoagiven
set
of
circumstances
in
order
to
present
aclear
and
detailed
explanation
of
asituation,ruleorprinciple
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EXAMINATIONSPECIFICATIONS
Each examination paper is constructed from a specification that determines the
weightingsthatwillbegiventoeachelement.Thespecificationisgivenbelow.
Itisimportant
to
note
that
the
numbers
quoted
may
vary
slightly
from
examination
to
examinationasthereissomeflexibilitytoensurethateachexaminationhasaconsistent
levelof difficulty.However, the numberof questions tested in each element will not
changebymorethanplusorminus2.
ExaminationSpecification100multiplechoicequestions
ElementNo. Elements Questions
1 IntroductiontoMarkets 10
2 RegulatoryFramework 10
3
Primary
Market
10
4 SecondaryMarket 20
5 Clearing,Delivery,SettlementandDepository 106 StockBrokersandtheirClients 10
7 CommodityExchangeandDerivatives 108 InvestorProtection 10
9 EconomicsandFinance 10Total 100
ASSESSMENTSTRUCTURE
Thiswillbeaonehourexaminationof100MultipleChoiceQuestions. Allquestionswillcarryequalmarks. Therewillbenonegativemarking.
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SUMMARYSYLLABUS
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ELEMENT 1
INTRODUCTIONTOMARKETS
Oncompletion,thecandidateshould:
1.1 knowtheProducts,ParticipantsandFunctionsofthecapitalmarkets
1.2 knowtheroleoftheSecuritiesMarketandFinancialSystemincluding: StockExchanges StockBrokers Retail/Commercialbanks InvestmentBanks Pension/Mutualfunds InsuranceCompanies
Fund
managers
/
Asset
Management
Companies
Custodians IndustryTradeBodies
1.3 understandtherelationshipofSecuritiesMarketandEconomicDevelopment
1.4 knowtheInvestorPopulationincludingretailandinstitutionalinvestors
1.5 understandtheroleandfunctionsofPrimaryMarket
1.6 understandtheroleandfunctionsofSecondaryMarket
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ELEMENT 2
REGULATORYFRAMEWORK
Oncompletion,thecandidateshould:
2.1 understandthescope,corefunctionsandpowersoftheSecuritiesandExchangeCommissionofPakistan(SECP)asconferredinSECPAct,1997
2.2 understandtheSECPRegulations,RulesandProcedures,PowersandFunctions,
Appeals,Jurisdictionsincluding:
Functionalresponsibilityandpowers Approvalaccordingbody Powertocallforinformation Enforcementandinvestigativepowers
2.3
understandthe
key
elements
of
the
Securities
and
Exchange
Ordinance,
1969
2.4 knowtheSecuritiesandExchangeRules,1971
2.5 understandandinterprettheSECPDirectivestoBrokersonConductofBusiness,
InvestorWarnings,etc.
2.6 knowthesectionsoftheCompaniesOrdinance,1984thatarerelevanttocapital
markets
2.7 knowtheSECPCodeofCorporateGovernance2002inthelightoflisting
regulationsofstockexchanges
2.8 know the listing regulations of the Karachi, Lahore and Islamabad Stock
Exchangesandshouldbeabletoapplythedifferencesintheseregulations
2.9 knowtheCentralDepositoriesAct,1997andRegulations
2.10 knowtheNationalClearingCompanyofPakistanLimitedRegulations
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ELEMENT 3
PRIMARYMARKET
Oncompletion,thecandidateshould:
3.1 understandthefunctionsandprocessesofthePrimaryMarketincluding
IssueofShares Prospectus/OfferingDocuments PreInitialPublicOfferandPrivatePlacement InitialPublicOffering
3.2 knowthegeneralrequirementsandprocedureforcompaniestolistshareson
theKarachi,Lahoreand/orIslamabadStockExchanges
3.3 knowtherequirementsfordelistingfromthestockexchanges3.4 understandthefactorsleadingtolistedcompaniesbeingsuspendedorplacedon
theDefaultersCounter
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ELEMENT 4
SECONDARYMARKET
Oncompletion,thecandidateshould:
4.1 knowtheroleandimportanceoftheStockExchange4.2 understandtheStockTradingprocessthroughstockexchangesincluding:
ElectronicTradingTerminals EntryofQuotesandOrders Price/TimePriority OrderTypes TransactionandOrderReports
4.3 knowtheTradingCycle4.4 understandtheProductsavailableonthestockexchangesincluding:
EquityInstrument DebtInstrument
4.5 understandtheDerivatives/FuturesContractsavailableonthestockexchangesincluding:
DeliverableFuturescontracts CashSettledFutures
Index
Futures
contracts
4.6 knowthecompositionandtypesoftheIndexes4.7 knowtheprocessofdisseminatinganddealingwithCorporateActionsand
Announcements
4.8 knowtheStockandMarketIndicatorsandOutcomesincluding: Turnover,growthanddistribution MarketCapitalization LiquidityandFinancing TransactionCosts
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ELEMENT 5
CLEARING,DELIVERY,SETTLEMENTandDEPOSITORY
Oncompletion,thecandidateshould:
5.1 knowtherole,functionsandworkingofaClearingHouseofanExchange
5.2 knowtheRiskManagementandTypesofRisksinClearing&Settlement
5.3 knowtheprocessofClearingHouseDepositsandCreditRiskincludingthe
CapitalAdequacyrequirementsandExposureLimits
5.4 understandtheMarginrequirementsandshouldbeabletocalculate VaR(ValueatRisk) MarketRisk ImpactCost LiquidityRisk AcceptableCollateraltomeetMarginRequirements Haircuts MarktoMarket(VariationMargin)&MarginCalls SpecialMargins
5.5 knowtheroleandfunctionsofDepository,thebookentrysystemandits
advantagestothecapitalmarket
5.6 knowthedifferentservicesofferedbyaDepositoryandTypesofAccounts
5.7 understandtheworkingmechanism,benefits,elementsandaccountstructureof
CentralDepositorySystem(CDS)
5.8 knowthemaintenanceofsubaccountsandparticipantaccountinCDS
5.9 understandthefunctionsandprocessofSettlementincluding:
SettlementCycle DeliveryversusPayment InstitutionalDeliverySystem(IDS) PayinandPayout SettlementofFuturesContractsincludingDeliverableandCashSettled
Futures
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ELEMENT 7
COMMODITYMARKETSandPRODUCTS
Oncompletion,thecandidateshould:
7.1 understandthefunctioningofaregulatedcommoditiesmarket
7.2 knowtheNationalCommodityExchangeLimitedandthelistedproducts
7.3 understand thebasic featuresandpricingmechanismof thedifferent typesofcontractstradedontheNCEL,includingdeliveryandsettlement
7.4 understand the requirements for becoming a broker at the commoditiesexchange
7.5 knowactsthatmayleadtosuspensionorcancellationofregistration
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ELEMENT 8
INVESTORPROTECTION
Oncompletion,thecandidateshould:
8.1 knowtherequirementsofFairDealingincluding:
Risks&RewardsofInvesting BestPrice MaintenanceofRecords TimeStamps RecordingofTelephoneCalls AccountStatements&ContractNotes Misstatements&Misselling/FalseSelling
8.2
know
the
process
and
handling
of
Investor
Complaints
8.3 knowtheInvestorProtectionFundofstockexchanges
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ELEMENT 9
ECONOMICSANDFINANCE
Oncompletion,thecandidateshould:
9.1 knowtheTaxationlawsrelevanttocapitalmarketsincluding:
IncomeTax CapitalGainTax CapitalValueTax CorporationTax
9.2 understandandinterprettheFinancialStatementsandconductbasicFinancial
StatementAnalysisincluding:
Revenueandprofitgrowth EarningsandDistributions BookvalueandIntrinsicvalue
9.3 understandandbeabletoapplybasicmathematicsandstatisticsincluding:
Mean,MedianandMode Dispersionandregressionanalysis
9.4 understandandbeabletoapplybasicfinancialmathematicsincluding:
Timevaluemoney,annuitiesandperpetuities Calculationsofannuitiesandperpetuities Present&futurevalueofcashflows
9.5 knowPrincipalFactorsAffectingStockMarkets&Pricesincluding:
BusinessCyclesanditsIndicators EffectoftheBusinessCycle MoneyMarkets EquitiesMarkets Price/Earnings&Price/Bookvaluemultiples Dividend/CapitalgainYield
9.6 knowtheMacroeconomicindicatorsincluding:
GDP MoneySupply TheRoleofStateBankofPakistan International/RegionalEconomiesandMarkets
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RECOMMENDEDREADINGS
The next section of this study guide covers a brief extract from some of the below
mentioneddocuments.Candidatesareadvised to study the respectivedocuments (in
detailandoriginal)whichareavailable freetodownload from ICM'swebsiteand/or
therespective
organization's
websites.
1. AntiMoneyLaunderingOrdinance20072. AntiMoneyLaunderingRegulations20083. AntiMoneyLaunderingRules20084. BondAutomatedTradingSystem(BATS)Regulations20095. BrokerAgentsRegistrationRules20016. CDCAct19977. CDCRegulations8. CodeofCorporateGovernance20029. DirectivetoBrokersonConductofBusinessFebruary7,200310.IncomeTaxOrdinance200111.ISE/KSE/LSEListingRegulations12.KSEInvestorProtectionFundRegulations13.KSECashSettledFutureContractRegulationsOctober200814.KSEMembersDefaultManagementRegulationsSep200915.KSEDeliverableFutureContractRegulationsApril200916.GeneralRegulationsofKSEAmendedAugust20,200917.KarachiAutomatedTradingSystem(KATS)RegulationsMarch199818.KSEInvestorProtectionFundRegulations19.MarginTradingRegulationsOctober200420.NCCPLProcedure200321.NCCPLRegulations200322.NCELGeneralRegulationsMay200723.NCELCommodityExchangeandFuturesContractsRulesMarch200524.RegulationsGoverningOvertheCounterMarketSeptember200925.RegulationsGoverningSystemAuditofBrokersofExchanges200426.SECPAct199727.Securities&ExchangeOrdinance196928.ShortSellingRegulations200229.StockExchangeMembers(InspectionofBooksandRecord)Rules,200130.
Securities
&
Exchange
Rules
1971
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ACRONYMS
CDC CentralDepositoryCompanyofPakistanLimited
CDS CentralDepositorySystem
IDS InstitutionalDeliverySystem
ISE
IslamabadStock
Exchange
(Guarantee)
Limited
KSE KarachiStockExchange(Guarantee)Limited
LSE LahoreStockExchange(Guarantee)Limited
MUFAP MutualFundsAssociationofPakistan
NBFC NonBankingandFinanceCompanies
NCCPL NationalClearingCompanyofPakistanLimited
NCCS NationalClearingandSettlementSystem
NCEL NationalCommodityExchangeLimited
SECP Securities&ExchangeCommissionofPakistan
SBP StateBankofPakistan
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ELEMENT 1
INTRODUCTIONTOMARKETS
Oncompletion,thecandidateshould:
1.1 knowtheProducts,ParticipantsandFunctionsofthecapitalmarketsHistorically, worldwide, buyers and sellers were individual investors, such as wealthy
businessmen,with long familyhistories toparticularcorporations.Overtime,markets
havebecomemore "institutionalized";buyersand sellersare largely institutions (e.g.,
pensionfunds,insurancecompanies,mutualfunds,indexfunds,exchangetradedfunds,
hedgefunds,investorgroups,banksandvariousotherfinancialinstitutions).Theriseof
theinstitutionalinvestorhasbroughtwithitsomeimprovementsinmarketoperations.
INVESTOR
An investor isanypartythatmakesan Investment.However,thetermhastakenona
specific meaning in finance to describe the particular typesof people and companies
thatregularlypurchaseequityordebtsecuritiesforfinancialgain.
EQUITYINVESTOR
In Equities, "Investor" means a person, not being Member, his agent or
representative, who, has purchased or sold any of the securities listed at the
Exchange.[InvestorsProtectionFundRegulations]
A
person
is
generally
involved
in
buying
and
holding
of
shares
orstock
on
astock
marketin anticipation of income fromdividendsandcapital gainas the value of the
stockrises. Italsoreferstoanactivityofacquisitionofequityparticipationinaprivate
company or a startup company; when this investment is in infant companies, it is
generallyunderstoodtobehigherriskthaninvestmentinalreadylistedcompany.
SPECULATION
Speculationmeanspurchasingriskyinvestmentsthatholdthepossibilityoflargeprofits,
butalsohaveahigherthanaveragepossibilityoflossandtheinvestorwithnointention
toholditforlongerterm.
Speculation, inthenarrowsenseoffinancialspeculation, involvesthebuying,holding,
selling and shortselling of stocks, TFCs, bonds, commodities, currencies, collectibles,
realestateoranyvaluablefinancialinstrumenttoprofitfromfluctuationsinitspriceas
opposed to buying it for income via methods such as dividends or interest and/ or
capitalgains.Speculatorsinanassethavenointentiontohavelongtermexposure.
INSTITUTIONALINVESTOR
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An institutional investor is an investor, such as a bank, insurance company, pension
fund,ormutualfundthatisfinanciallysophisticatedandmakeslargeinvestments,often
heldinverylargeportfoliosofinvestments.Becauseoftheirsophistication,institutional
investors may often participate in private placements of securities, in which certain
aspects
of
the
securities
laws
may
not
be
applicable.
RETAILINVESTOR
Aretailinvestorisanindividualinvestorpossessingsharesofagivensecurityorunitsof
amutualfund.Retailinvestorscanbedividedintotwocategoriesofshareownership.
An investorwhoholdsshares inhisDepositoryaccountof thesecurities, italsoincludeinvestorshavingphysicalcopiesoftheirsharesascertificates
Aninvestorwhohaspurchasedtheunitsofamutualfundorfunds
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Oncompletion,thecandidateshould:
1..2 knowtheroleoftheSecuritiesMarketandFinancialSystemincluding: stockexchanges stockbrokers retail/commercialbanks investmentbanks pension/mutualfunds insurancecompanies fundmanagers/assetmanagementcompanies custodians industrytradebodies
RETAIL/COMMERCIAL
BANKS
ACommercialBank isatypeoffinancial intermediaryandatypeofbank.Commercial
bankingisalsoknownasbusinessbanking.Itisabankthatprovideschequingaccounts,
savingaccounts,moneymarketaccountsandacceptstimedepositsaswell.
Retail banking refers to banking in which banking institutions execute transactions
directly with consumers, rather than corporations or other banks. Services offered
include:savingsandchequingaccounts,mortgages,personal loans,debitcards,credit
cards,andsoforth.Mostbanksofferbothcommercialandretailbankingservices.
Retailand
Commercial
Banks
in
Pakistan
are
regulated
by
the
State
Bank
of
Pakistan.
INVESTMENTBANKS
An investmentbankisafinancialinstitutionthatraisescapital,tradesinsecuritiesand
manages corporate mergers and acquisitions. Investment bank generates profits by
raisingmoneythrough issuingandsellingsecuritiesinthecapitalmarketsandthrough
providingadviceandservicesontransactionssuchasmergersandacquisitions.
A majority of investment banks offer strategic advisory services for mergers,
acquisitions, divesture, Initial Public Offerings, Private Placement, or advice on other
financial
transactions
in
the
international
markets
including
issuance
of
Global
DepositoryReceipts(GDRs),EurobondsandSukuk(anIslamicBond).
PENSION/MUTUALFUNDS
Amutual fund isaprofessionallymanaged typeofCollective InvestmentSchemethat
pools money from many investors and invests it in stocks, bonds, money market
instrumentsofdifferentmaturities,and/orothersecurities.Themutualfundhasafund
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manager that trades the pooled money on the basis of the investment policy of the
mutualfundandasapprovedbytheinvestmentcommittee.
Apensionfundisapoolofassetsforminganindependent legalentitythatarebought
withthecontributionstoapensionplanfortheexclusivepurposeoffinancingpension
plan
benefits.
INSURANCECOMPANIES
InsuranceisdefinedundersubsectionxxviiofSection2ofthe InsuranceCompanies
Ordinance2000.
Insurancemeansthebusinessofenteringintoandcarryingoutpoliciesorcontracts,
bywhatevernamecalled,whereby,inconsiderationofapremiumreceived,aperson
promisestomakepaymenttoanotherpersoncontingentuponthehappeningofan
event,specifiedinthecontract,onthehappeningofwhichthesecondnamedperson
suffersloss,andincludesreinsuranceandretrocession:
Provided that a contract of life insurance shall be deemed to be a contract of
insurancenotwithstandingthatitmaynotcomplywiththedefinitionsetoutinthis
clause;
Aninsurerisacompanysellingtheinsurance;aninsuredisthepersonorentitybuying
the insurance. Insurance isdefinedastheequitabletransferoftheriskofa loss,from
one entity to another, in exchange for a premium, and can be thought of as a
guaranteedsmallloss/expensetopreventalarge,possiblydevastatingloss. Insurance
companiesareoneofthemajorinvestorinequitymarkets.
ASSETMANAGEMENT
COMPANIES
(AMCs)/
FUND
MANAGERS
Asset management company means a company which offers investment
schemesundertrustdeedsandissuesredeemablesecurities;undersection2(ac)
oftheSecurities&ExchangeOrdinance1969
Assetmanagement servicesmean the servicesprovidedformanagement of
collective investment schemes; defined under Section 2 (iii) of the NBFC Rules
2003
Collective investment scheme means a closedend fund and an openend
scheme;defined
under
Section
2(xii)
of
the
NBFC
Rules
2003
Openend schememeans a scheme constituted byway of a trust deed that
continuouslyoffersforsaleitsunitsasspecifiedintheconstitutivedocumentthat
entitletheholderofsuchunitsondemandtoreceivehisproportionate shareof
thenetassetsoftheschemelessanyapplicablecharges;definedunderSection2
(xxxvii)oftheNBFCRules2003
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Closedendschememeansaschemeconstitutedbywayoftrusttoraisefunds
through issue of certificates to thepublicfor investing in securities including
moneymarketinstrumentsforadefiniteorindefiniteperiodbutwhichdoesnot
continuouslyoffercertificatesentitlingtheholderofsuchcertificates,toreceive,
ondemand,
his
proportionate
share
of
the
net
assets
of
the
closed
end
scheme;
definedunderSection2(x)oftheNBFCRules2003
Acompany that invests itsclients'pooled fund intosecurities thatmatch itsdeclared
financial objectives. Asset management companies provide investors with more
diversificationand investingoptions thantheywouldhaveby themselves.AMCsoffer
theirclientsmorediversificationbecausetheyhavealargerpoolofresourcesthanthe
individualinvestor. Poolingassetstogetherandpayingoutproportionalreturnsallows
investorstoavoidminimum investmentrequirementsoftenrequiredwhenpurchasing
securitiesontheirown,aswellastheabilitytoinvestinalargersetofsecuritieswitha
smallerinvestment.
Mutual funds and pension plans are run by Asset Management Companies. These
companiesearnincomebychargingmanagementfeestotheirclients.
STOCKBROKERS
A"Broker"meansanypersonengaged inthebusinessofeffectingtransactionsinsecuritiesfortheaccountofothers;[S&EOrdinance,1969]
Astockbrokerorstockbrokerisaregulatedprofessionalwhobuysandsellssharesand
other securities through market makers or Agency Only Firms on behalf of investors.
Stockbroker isamemberoftheExchangeand isauthorizedtodeal inscripsof listedcompaniesonbehalfoftheirclients/investors.
Stockbrokercanbeanindividualmemberorbodycorporate.Tobuyandsellsharesofa
particularcompany,aninvestorhastocontacthisstockbroker.Abrokerbuysandsells
securitiesonbehalfofthe investorandchargescommissionfortheservicesrendered.
The stock brokersjob is to assist clients in meeting their investment objectives by
handlingordersforstocks,maintainingaccountrecordsandproviding informationand
advisoryservice.
Therearethreetypesofstockbrokingservice.
- Executiononly; which means that the broker will only carry out the client'sinstructionstobuyorsell.
- Advisorydealing;wherethebrokeradvisestheclientonwhichsharestobuyandsell,butleavesthefinaldecisiontotheinvestor.
- Discretionarydealing;where thestockbrokerascertains theclient's investmentobjectivesandthenmakesalldealingdecisionsontheclient'sbehalf.
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CUSTODIAN
A "Custodian"means a Banking Companywithin themeaning of the BankingCompanies Ordinance, 1962 (LVII of 1962), or a Central Depository Company
approvedby
the
SECP,
which
is
appointed
to
be
acustodian
under
the
rules;
[NBFCRules,2003]
Custodianisatrustcompany,bankorsimilarfinancialinstitutionresponsibleforholding
andsafeguardingthesecuritiesownedwithinamutualfund.Amutualfund'scustodian
may also act as the mutual fund's transfer agent, maintaining records of shareholder
transactionsandbalances.Sinceamutualfundisessentiallyalargepooloffundsfrom
manydifferent investors, itrequiresathirdpartycustodiantoholdandsafeguardthe
securitiesthataremutuallyownedbyallthefund's investors.Thisstructuremitigates
the risk of dishonest activity by separating the fund managers from the physical
securitiesandinvestorrecords.
STOCKEXCHANGES
The "stock exchange" means any person who maintains or provides a
market place or facilities for bringing together buyers and sellers of
securities or for otherwise performing with respect to securities the
functions commonly performed by a Stock Exchange, as that term is
generally understood, and includes such market place and facilities;
[Securities&ExchangeOrdinance,1969]
A stock exchange is a corporation or mutual organization which provides "trading"
facilities
for
stock
brokers
and
traders,
to
trade
stocks
and
other
securities.
Stock
exchangesalsoprovide facilities for the issue and redemptionof securitiesaswell as
other financial instruments and capital events including the payment of income and
dividends. The securities traded on a stock exchange include: shares issued by
companies, unit trusts and bonds. To be able to trade a security on a certain stock
exchange, it has to be listed there. Usually there is a central location, at least for
recordkeeping,buttradeisnowlessandlesslinkedtosuchaphysicalplace,asmodern
markets are electronic networks, which gives them advantages of speed and cost of
transactions.Tradeonanexchangeisbymembersonly.Theinitialofferingofstocksand
TFCs/bonds to investors is by definition done in the primary market and subsequent
tradingisdone
in
the
secondary
market.
Astock
exchange
isoften
the
most
important
componentofastockmarket.Supplyanddemandinstockmarketsisdrivenbyvarious
factorswhich,asinallfreemarkets,affectthepriceofstocks.
Stocknottradedviathestockexchangeitself,aresaidtobetradedofftheexchangeor
OvertheCounter(OTC).
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more efficient firm. Thus, a free market in corporate control, by providing financial
discipline, isexpectedtoprovidethebestguaranteeofefficiency intheuseofassets.
Similarly, the ability to effect changes in the management of listed companies is
expectedtoensurethatmanagerialresourcesareusedefficiently.
Efficientand
well
organized
securities
markets
may
also
reduce
the
costs
of
acquiring
information. Effectively, doing so by generation and dissemination of firm specific
information that efficient stock prices reveal. Stock markets are efficient if prices
incorporateallavailableinformationquicklyintothem.Reducingthecostsofacquiring
information isexpectedto facilitateand improvetheacquisitionof informationabout
investment opportunities and thereby improves resource allocation in the economy.
Stockpricesdeterminedinexchangesandotherpubliclyavailableinformationmayhelp
investor make better investment decisions and thereby ensure better allocation of
fundsamongcorporationsandasaresultahigherrateofeconomicgrowth.
Securitiesmarket liquidity isexpectedtoreducethedownsideriskofstockpricesand
costsof investing inprojectsthatdonotpayofffora longtime.Witha liquidmarket,
theinitialinvestorsdonotloseaccesstotheirsavingsforthedurationoftheinvestment
projectbecausetheycaneasilyandquicklyselltheirstakeinthecompany.Thus,more
liquid securities markets could ease investments in long term, thereby improving the
allocationofcapitalandenhancingprospects for longtermgrowth. It is important to
point out, however, that, the greater liquidity in the securities markets may have
adverse effect on the economic growth of the country as the initial investor may, in
difficult circumstances either for short term or longer term, be able to withdraw his
investmentthathasbeencommittedforthelongertimeperiodinitially.Thebehaviour
of such an investor may influence the other investors as well and resulting in sharp
declinein
economic
activity
and
growth.
Nowadays,theabsenceofawelldevelopedstockmarket isaseriousdisadvantagefor
anyeconomyaseaseofequitygenerationisessentialfortheemergenceandgrowthof
firms.
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Oncompletion,thecandidateshould:
1.5 knowthebasicsofTheSecondaryMarketSecondary
Market
When there is a sale/ purchase transaction ofexisting shares,between two investors
throughtheirBrokersontheStockMarketitisknownasatransactionintheSecondary
Market.
AdvantagesofSecondaryMarket(asopposedtoPrimaryMarket):
Subjecttoavailabilityofawillingsellerattherightprice,anynumberofsharescanbebought.
SellercaneasilydisposeofliquidsharesinthemarketDisadvantagesofSecondaryMarket(asopposedtoPrimaryMarket):
BuyerhastopaytheMarketPriceoftheshare,whichisdeterminedonthebasisofdemandandsupply
TaxCreditisnotavailableonsuchtransactions ThebuyerhastopayTransferFeeoneverysuchsharehebuys
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ELEMENT 2
REGULATORYFRAMEWORK
Oncompletion,
the
candidate
should:
2.1 understand the scope, core functions and powers of the Securities andExchangeCommissionofPakistan(SECP)asconferredinSECPAct,1997
PARTVI:POWERSANDFUNCTIONS SECPAct1997
In order to understand the Powers and Functions of SECP candidates are advised to
refertoSection20ofSECPAct1997.
Oncompletion,
the
candidate
should:
2.2 understandtheSECPRegulations,RulesandProcedures,PowersandFunctions,Appeals,Jurisdictionsincluding:
Functionalresponsibilityandpowers Approvalaccordingbody Powertocallforinformation Enforcementandinvestigativepowers
PARTVIII:ENFORCEMENTANDINVESTIGATION SECPAct1997
To understand the Securities & Exchange Commission of Pakistan (SECP) Rules,
Regulations and Procedures, Powers, Functions, Appeals and Jurisdictions candidates
areadvisedtorefertheSection29to33ofSECPAct1997.
Oncompletion,thecandidateshould:
2.3 understandthekeyelementsoftheSecuritiesandExchangeOrdinance,1969
Candidatesare
advised
to
refer
the
following
sections
of
the
Securities
and
Exchange
Ordinance,1969
- Section2- Section15Ato15E- Section16- Section17
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- Section18- Section18A- Section19
Oncompletion,
the
candidate
should:
2.4 knowtherelevantsectionsofSecuritiesandExchangeRules,1971To know the relevant sections of Securities and ExchangeRules, 1971 candidates are
advisedtorefertheSection3and4ofSecuritiesandExchangeRules,1971
Oncompletion,thecandidateshould:
2.5
understand
and
interpret
the
SECPs
Directives
to
Brokers
on
Conduct
ofBusiness,InvestorProtection,etc.
Asenvisaged for capital markets development in Pakistan, the three stock exchanges
adjusted their board and management structures, promoted the corporatization of
memberbrokersandcreated investorprotectionfunds. SECPhasalwaysbeen issuing
mostoftherulesthatthestockexchangeswererequiredtoadopt,like,tradereporting
rules including penalties for insider trading, inspection rules, licensing standards for
traders and agents, listing requirements and guidelines, and model contractual
agreements.
SECP,
from
time
to
time,
also
issues
directives
to
exchanges,
their
members,
CDC,
National Clearing Company and other regulated entities on conduct of business and
investorprotection.TheSECPdirectiveshavebeenamajordrivingforceforintroducing
regulatoryreformsatexchanges.
Regulatory directives outline the statutory requirements and provide format of
comprehensivepracticesas requiredby regulators. Theprofessionalsareexpected to
understandthesedirectivesandactintheprudentmanneraccordingly.Alsothisisthe
responsibilityof thebrokingagent toacquaint themselves regularlyon thedirectives.
ThesedirectivesareusuallyavailableonthewebsitesofSECPandstockexchangessoon
after
their
issuance.
The
websites
of
the
exchanges
are
regularly
updated
in
order
to
keepabreastthemarketparticipantswiththeregulatorychangestakingplace.
Detailed guidelines on the brokers conduct of business are provided in the Third
ScheduleoftheBrokersandAgentsRegistrationRules,2001andshallbediscussed in
detailinElement6ofthisstudyguide.
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Oncompletion,thecandidateshould:
2.6 know the relevant sections of the Companies Ordinance, 1984 to capitalmarkets
CompaniesOrdinance,1984
To know the relevant sections of the Companies Ordinance, 1984 to capital markets,
candidates are advised to refer to the following sections in the original Ordinance
availableatICM'saswellasSECP'swebsite.
Part V: Provides information about the Prospectus,Allotment, Issue and Transfer of
SharesandDebentures,Depositsetc.
Pleaserefersection52to88ofCompaniesOrdinance,1984.
PartVI: Provides information about the Share Capital andDebentures, theirNature
NumberingandCertificateofShares.
PleasereferSection89to95AofCompaniesOrdinance,1984.
Oncompletion,thecandidateshould:
2.7 know the listing regulations of the Karachi, Lahore and Islamabad StockExchangesandshouldbeabletoapplytheseregulations
ListingRegulationsofKSECandidates are advised to refer to the Listing Regulations of Karachi Stock Exchange
(KSE)availableatICMaswellasonthewebsiteofKSE.
ListingRegulationsofLSECandidatesareadvisedtorefertotheListingRegulationsofLahoreStockExchange(LSE)
availableatICMaswellasonthewebsiteofLSE.
ListingRegulationsofISECandidatesareadvisedtorefertotheListingRegulationsof IslamabadStockExchange
(ISE)available
at
ICM
as
well
as
on
the
website
of
ISE.
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manycasesdetailedfinancialinformationisnotdisclosedandtheneedforaprospectus
is waived. Finally since the placements are private rather than public, the average
investorisonlymadeawareoftheplacementusuallyafterithasoccurred.
INITIALPUBLICOFFERING
Initialpublicoffering(IPO),alsoreferredtosimplyasa"publicoffering"or"flotation,"is
whenacompanyissuescommonstockorsharestothepublicforthefirsttime.Theyare
often issuedbysmaller,youngercompaniesseekingcapitaltoexpand,butcanalsobe
donebylargeprivatelyownedcompanieslookingtobecomepubliclytraded.
Inan IPOthe issuermayobtain theassistanceofanunderwriting firm,whichhelps it
determinewhattypeofsecuritytoissue(commonorpreferred),bestofferingpriceand
timetobringittomarket.
AnIPOcanbeariskyinvestment.Fortheindividualinvestor,itistoughtopredictwhat
thestockorshareswilldoonitsinitialdayoftradingandinthenearfuturesincethere
isoftenlittlehistoricaldatawithwhichtoanalyzethecompany.Also,mostIPOsareof
companiesgoingthroughatransitorygrowthperiod,andtheyarethereforesubjectto
additionaluncertaintyregardingtheirfuturevalue.However, inordertomakemoney,
calculatedrisksneedtobetaken.
It is also defined as the selling of securities to the public in the primary market. It is
whenanunlistedcompanymakeseitherafreshissueofsecuritiesoranofferforsaleof
itsexistingsecuritiesorboth forthefirsttimetothepublic.Thispaveswayfor listing
andtradingofthe issuerssecurities.Thesaleofsecuritiescanbeeitherthroughbook
buildingorthroughnormalpublicissue.
BOOKBUILDINGPROCESS
Book Building is basically a process used in IPOs for efficient price discovery. It is a
mechanismwhere,duringtheperiodforwhichtheIPOisopen,bidsarecollectedfrom
investorsatvariousprices,whichareaboveorequaltothefloorprice.Theofferpriceis
determinedafterthebidclosingdate.
CUTOFFPRICE
In
a
Book
building
issue,
the
issuer
is
required
to
indicate
either
the
price
band
or
a
floor
price intheprospectus.Theactualdiscovered issuepricecanbeanyprice intheprice
bandoranypriceabove the floorprice.This issueprice iscalledCutOffPrice.The
issuer and lead manager decides this after considering the book and the investors
appetiteforthestock.
FLOORPRICE
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Floorpriceincaseofbookbuildingistheminimumpriceatwhichbidscanbemade.
PRICEBAND
The prospectus may contain either the floor price for the securities or a price band
withinwhich
the
investors
can
bid.
The
cap
should
not
be
more
than
120%
of
the
floor
price.Thepricebandcanalsoberevised.Itisuptothecompanytodecideontheprice
orthepriceband,inconsultationwithMerchantBankers.
NORMALPUBLICISSUE
Inthis issue,Priceatwhichsecuritieswillbeallotted isknown inadvanceto investor.
Thedemand isknownonlyat thecloseofthe issue.Thenormalpublic issuesarenot
followednowaday.
MINIMUMNUMBEROFDAYS
Thebookshouldbekeptopenforatleastthreedays.
RATINGS
It isanother importantcriteriontobeconsideredforan IPO.Thegrade isnothingbut
therankgiventotheIssuerbythethirdpartycompanieslikeStandard&Poor,Moodys,
JCRVIS,PACRA,Etc.
RIGHTISSUE
Rights Issue is an issue of securities when a listed company which proposes to issue
freshsecuritiestoitsexistingshareholdersasonarecorddate.Therightsarenormally
offeredinaparticularratiotothenumberofsecuritiesheldpriortotheissue.Thisroute
isbestsuitedforcompanieswhowouldliketoraisecapitalwithoutdilutingstakeofits
existingshareholders.
PREFERENTIALISSUE
A Preferential issue is an issue of securities or of convertible securities by a listed
company
to
a
select
group
of
persons,
which
is
neither
a
rights
issue
nor
a
public
issue.
Thisisafasterwayforacompanytoraiseequitycapital.
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Oncompletion,thecandidateshould:
3.2 knowthegeneralrequirementsandprocedureforcompaniestolistsharesontheKarachi,Lahoreand/orIslamabadStockExchanges
Candidates are advised to refer the following regulations of the listing regulations of
relevantexchanges;availableatICM'saswellasrelevantexchange'swebsite.
- Regulation3- Regulation4- Regulation5
Oncompletion,
the
candidate
should:
3.3 knowtherequirementsfordelistingfromthestockexchangesCandidates are advised to refer the following regulations of the listing regulations of
relevantexchanges;availableatICM'saswellasrelevantexchange'swebsite.
Regulation30Bto30D
Oncompletion,thecandidateshould:
3.4 understandthefactorsleadingtolistedcompaniesbeingsuspendedorplacedontheDefaultersCounter
Generally,a listedcompanymaybedelisted,suspendedorplacedontheDefaulters
Counter, under Regulation 32 of Listing Regulations of the Exchanges, for any of the
followingreasons:
a) If its securities are quoted below 50 per cent of face value for a continuousperiodofthreeyears.Providedthat ifthesharesofthecompanyquotedat50
percent
or
above
of
their
face
value
then
such
a
rate
is
maintained
for
a
continuousperiodofthirtyworkingdays.
b) Ifithasfailedtodeclaredividendorbonus:i. forfiveyearsfromthedateofdeclarationoflastdividendorbonus;orii. inthecaseofmanufacturingcompanies,forfiveyearsfromthedateof
commencementofproduction;and
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iii. for fiveyears from thedateofcommencementofbusiness inall othercases
c) ifithasfailedtoholditsannualgeneralmeetingforacontinuousperiodofthreeyears
d) ifithasgoneintoliquidationeithervoluntarilyorundercourtorder;e) if it has failed to pay the annual listing fees as prescribed in the regulations
payableto theExchange foraperiodof2yearsofpenalty imposedunder the
regulationsoranyotherduespayabletotheExchange;
f) ifithasfailedtocomplywiththerequirementsofanyoftheseregulations;i. IfthecompanyforanyreasonwhatsoeverrefusestojointheCDSafterits
securitieshavebeendeclaredeligiblesecuritiesbytheCDC.
g) no company which has been delisted or suspended shall be restored and itsshares
re
quoted
until
it
removes
the
causes
of
delisting/suspension
and
receivestheassentoftheBoardfortherestoration
NocompanyisdelistedorplacedonDefaultersCounter,undertheListingRegulations,
unlesssuchcompanyhasbeengivenanopportunityofbeingheard.
Fordetails,pleaserefertothelistingregulationsofrelevantexchanges.
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ELEMENT 4
SECONDARYMARKET
Oncompletion,thecandidateshould:
4.1 knowtheroleandimportanceoftheStockExchangeAs discussed earlier, a stock exchange is a corporation or mutual organization which
provides "trading" facilities for stock brokers and traders, to trade stocks and other
securities. Stock exchanges also provide facilities for the issue and redemption of
securitiesaswellasother financial instruments including thepaymentof incomeand
dividends. The securities traded on a stock exchange include shares issued by
companies,unittrusts,pooled/collectiveinvestmentproductsandTFCs/bonds.
To
be
able
to
trade
a
security
on
a
certain
stock
exchange,
it
has
to
be
listed
there.
Usuallythere isacentral locationat leastforrecordkeeping,butnowtrade is lessand
less linkedtosuchaphysicalplace,asmodernmarketsareelectronicnetworks,which
gives themadvantagesofspeedandcostof transactions.Tradeonanexchange isby
membersonly.Theinitialofferingofstocksandbondstoinvestorsisbydefinitiondone
intheprimarymarketandsubsequenttradingisdoneinthesecondarymarket.Astock
exchange is often the most important component of a capital market. Supply and
demandinstockmarketsisdrivenbyvariousfactorswhich,asinallfreemarkets,affect
thepriceofstocks.
Ashare/securitynottradedonanexchange,usuallyduetoan inabilitytomeetlisting
requirements.For
such
securities,
broker/
dealers
negotiate
directly
with
one
another
over computer networks and by phone, and their activities are monitored by the
Exchange.Overthecounter(OTC)stocksareusuallyveryriskysincetheyarethestocks
thatarenotconsideredlargeorstableenoughtotradeonamajorexchange.Theyalso
tendtotradeinfrequently,makingthebidaskspreadlarger.Also,researchaboutthese
stocksismoredifficulttoobtainasmostofthemareunlisted.
RoleandImportanceofaStockExchange
Stockexchangesprovideanumberofservicesandfunctionswithinthefinancialsystem;
In
short
they
monitor
and
provide
the
marketplace
for
a
corporation
lookingto
raise
fundsbygoingpublic
Many individualsandcompaniestendtobelievethatoncefundinghasbeenobtained,
their goal is accomplished and the importance of further involvement with the stock
exchangeisminimal. Onthecontrarytheimportanceofthestockexchangeliesinthe
factthatitallowsinvestorstomaintainliquidityfortheirinvestments. Whenastockis
listedonamajorexchange, itallowsany shareholder to sellhisorher sharesalmost
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TRANSACTIONSANDORDERREPORTS:KSE100TradeScreenofKATS(CourtesyKSE)
TRANSACTIONSANDORDERREPORTS:OutstandingTradesReportofKATS(CourtesyKSE)Daily Trade log
Outstanding
orders log
Terminal Code
Daily Trade log
Exchange
Status
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TRANSACTIONSANDORDERREPORTS:TradeLogReportofKATS(CourtesyKSE)UnifiedTradingSystem(UTS):
TRANSACTIONANDORDERREPORTS:MainWindowofUnifiedTradingSystem(UTS)
Company
SymbolClient CodeTotal Purchased
uantity Total PurchaseAmount
Average
Purchase Rate
Market Watch
divided into
five pages
Search Symbol
feature
Header labels
Scroll Bar
When coloured
green indicates
real-time increase
in value
When coloured
yellow indicates
real-time decreasein value
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TRANSACTIONANDORDERREPORTS:MarketSummaryofUTS
TRANSACTIONANDORDERREPORTS:BuyOrderinUnifiedTradingSystem
TRANSACTIONANDORDERREPORTS:SellOrderofUnifiedTradingSystem(UTS)
Market Type
Save current
market summary
Refresh for up-to-date information
Print the current market
summary
Header row labels
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TRANSACTIONANDORDERREPORTS:WaterFallTickerofUnifiedTradingSystem(UTS)
TRANSACTIONANDORDERREPORTS:OrderBookofUnifiedTradingSystem(UTS)
Order symbolAccount number View Buy and Sell
ordersType of Market
Heading of all
columns
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Oncompletion,thecandidateshould:
4.3 knowtheTradingCycleTRADINGCYCLE
All stock exchanges in the country have introduced computerized trading system to
provide a fair, transparent, and efficient market mechanism to facilitate the market
participants,includingtheinvestors.ThesystembeingoperatedatKSEiscalledKarachi
AutomatedTradingsystem(KATS);LSEiscalledTradingWorkstations(TWS)whileISEis
calledUltra.
Thetradingsystemcomprisesofvariousdistinctsegments,whichare:
T+2SettlementSystems:In
the
T+2
Settlement
systems,
purchase
and
sale
of
securities
isnetted
and
the
balance
issettledontheseconddayfollowingthedayoftrade.
BenefitofT+2SettlementSystems:Itreducesthetimebetweenexecutionandsettlementoftrades,whichinturnreduces
themarketrisk.Italsoreducessettlementrisk,asthesettlementcycleisshorter.
ProvisionallyListedCounter:The shares of companies, which are not already listed and which make a minimum
publicofferingofaspecifiedamount,which ispresentlyRs.150million, tradeonthis
counter from the date of publication of prospectors/offering document. When the
company
completes
the
process
of
dispatch/credit
of
allotted
shares
to
subscriber
through CDC, it is officially listed and placed on the T + 2 counter. Trading on the
provisionallylistedcounterthencomestoanend andalltheoutstandingtransactions
aretransferredtotheT+2counterwitheffectfromthedateofofficiallisting.
T+1/SpotTransactions:Spottransactionsimplydeliveryuponpayment.Normallyinspottransactionsthetrade
issettledwithin24hours.
FuturesContract:Afuturescontractinvolvespurchaseandsaleofsecuritiesatsomefuturedate(normally
within
one
calendar
month),
at
a
price
fixed
today.
The
number
and
names
of
companiestobetradedontheFuturescounteraredeterminedeverysixmonthsbased
ontheeligibilitycriteriaapprovedbytheSECP inthisregardandwhicharenotifiedto
themarketparticipantsinadvance.
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OTCMarket:Inordertoencourageenterprisingpromoterstosetupnewindustriesorexpandtheir
existing enterprises by raising finance in a cost effective way through listing
mechanismwithcomparativelylesserrequirements,anOver theCounter(OTC)market
has
been
also
made
operative.
The
OTC
market
operates
under
the
Regulations
GoverningOvertheCounterMarketoftheKarachiStockExchangenotifiedSeptember
17,2009.
Oncompletion,thecandidateshould:
4.4 understandtheProductsavailableonthestockexchangesincluding: EquityInstrument DebtInstrument
Equity instrumentstradedontheexchangesare inthe formofsharesthatprovesthe
ownership interest of common and preferred stock holders in a company. The
ownership interest is representedbyshares reflecting theassetsandearnings.Equity
instrumentstradedonthelocalstockexchangesare:
OrdinaryShares PreferenceShares SharesRights DeliverableFuturesContracts CashSettledFuturesContracts StockIndexFuturesContracts ClosedendMutualFunds
Debt instruments are the written promise to repay a debt. Examples include bills of
exchange,TreasuryBills,TFCs,bonds,notes,CDs,etc.
Inordertofacilitatethe institutionsdealing inmoneymarketsKarachiStockExchange
has introduced Bond Automated Trading System (BATS). Currently, Term Finance
Certificates
TFCs
have
been
introduced
for
trading
on
the
BATS
but
later
Bonds,TreasuryBillsandotherdebtinstrumentswillalsobetraded.
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instrument with actual delivery of the underlying instrument occurring. Settlement
occurs30daysafterthecontractispurchased.
For further details, candidates are advised to refer to the "Regulations Governing
DeliverableFuturesContract"ofKSEavailableatICM'saswellasKSE'swebsite.
CASHSETTLED
FUTURES
The Cash Settled Futures Contract is a standardized contract, to buy or sell a certain
underlying instrumentatacertaindate inthefuture,atspecifiedprice.Allsettlement
occurspurelyoncashbasis.Dependingonthecontract,settlementoccurs30,60&90
daysafterthecontractispurchased.
Forfurtherdetails,candidatesareadvisedtorefertothe"RegulationsGoverningCash
SettledFuturesContract"ofKSEavailableatICM'saswellasKSE'swebsite.
INDEXFUTURESCONTRACTS
StockIndexFuturesaretradedinanumberofcontracts.Eachcontractistobuyorsella
fixedvalueoftheindex.StockIndexFuturesContractoccurs90daysafterthecontract
ispurchased.
Forfurtherdetails,candidatesareadvisedtorefertothe"RegulationsGoverningIndex
FuturesContract"ofKSEavailableatICMaswellasonthewebsiteofKSE.
Oncompletion,thecandidateshould:
4.6 knowthecompositionandtypesoftheoftheIndexesMovementsofstockexchangeindicesarepopularlyconsideredaskeyindicatorsofthe
economyofacountry.Stockexchangeindicesarenotonlybarometersoftheeconomy
andpublicopinionofthestateofeconomy,butarealsousedbymanytechnicalanalysts
toforecastandevaluatemarkettrendsandbasetheiropiniononthefuturedirectionof
themarket.
Itisoftenmoreimportantforobserversoftheindextonottotakeitatfacevaluebutto
alsoexploredeeper into theconstituentsof the indexand thepolicy followedby the
indexmanagers
in
its
maintenance.
Onaverybasiclevel,anystockmarketindexissimplyanumericalvaluethatmeasures
the change in the market. In Pakistan, the main objective for the construction of an
indexistotracktheperformanceofthevariouslistedstocksaccordingtotheirmarket
capitalization.Ingeneral,acapitalweightedindexiscomposedofabasketofsecurities,
whichcapturesthechangeinmarketcapitalizationduetothevariationinprices.
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KSE100
KSE100isthemostrecognizedindexoftheKSE,representingalmostallsectorsofthe
KSE and includes the largest companies on the basis of their market capitalization. It
representsapproximately85%ofthemarketcapitalizationoftheExchange.
For further details, candidates are advised to refer to the Index Brochure of KSE100
IndexofKSEavailableatICMaswellasonthewebsiteofKSE.
KSE30
TheKSE30Indexwasintroducedin2006andisbasedontheFreeFloatMethodology.
Theindexincludesonlythetop30mostliquidcompanieslistedontheKSE.
For further details, candidates are advised to refer to the Index Brochure of KSE30
IndexofKSEavailableatICMaswellasonthewebsiteofKSE.
KMI30
(KSE
Meezan
Index)
TheKMI30 indexwas introduced inSeptember2008andcomprisesof30Companies
thatqualitytheKMIShariahscreeningcriteriaandisweightedbyfloatadjustedmarket
capitalization.There isa12%caponweightsof individualsecurities,whilerebalancing
oftheIndexisdonebiannually.AtotalreturnIndexbasedonfreefloatmethodology
For further details, candidates are advised to refer to the Index Brochure of KMI30
IndexofKSEavailableatICMaswellasonthewebsiteofKSE.
KSEAllShares
TheAllShareIndexconsistsofallthecompanieslistedontheKSE.
LSE25
The Lahore Stock Exchange's LSE25 index also calculates the performance of stocks
assumingthatallrightsissuesandbonusshareissuesonlyincreasethelistedcapital.In
thecaseofbonusesorrightsthepricesofthesharesarenotadjustedastheyareinthe
case of the LSETRI. However, the LSE25 assumes that dividends paid out by a
component company are not reinvested. In summary, in the LSE25, no price
adjustmentsaremadewhenanycomponentcompanyissuescashdividends.
Forfurther
details,
candidates
are
advised
to
refer
to
the
Index
Brochure
of
LSE
25
Index
ofLSEavailableatICM'saswellasLSE'swebsite.
LSETotalReturnIndex
The LSE Total Return Index calculates the performance of stocks assuming that all
payouts are reinvested in the index on the exdate. The LSETRI assumes that if a
componentcompanyissuesbonussharesorannouncesarightsissueitwillincreasethe
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Manycompanieshaveadominantshareholder,whichmaybeagovernmententity,a
family,oranothercorporation.Manystockmarket indicessuchastheKSE100adjust
forthesebycalculatingonafreefloatbasis,i.e.themarketcapitalizationtheyuseisthe
valueofthepubliclytradablepartofthecompany.
Note
that
market
capitalization
is
a
market
estimate
of
a
company's
value,
based
on
perceivedfutureprospects,economicandmonetaryconditions.Stockpricescanalsobe
moved by speculation about changes in expectations about profits or about mergers
and acquisitions. Market capitalization is only a rough measure of the true size of a
market.
LIQUIDITY
Market liquidity is an investment term that refers to an asset's ability to be easily
convertedthroughanactofbuyingorsellingwithoutcausingasignificantmovementin
thepriceandwithminimumlossofvalue. Money,orcashonhand,isthemostliquid
asset. Anactofexchangeofa less liquidassetwithamore liquidasset isalsocalled
liquidation. Liquidityalsoreferstoabusiness'abilitytomeetitspaymentobligations,in
termsofpossessingsufficientliquidassets.
A liquidassethassomeormoreof the following features. Itcanbesoldrapidly,with
minimal loss of value, any timewithin markethours. The essentialcharacteristic of a
liquidmarketisthattherearereadyandwillingbuyersandsellersatalltimes.
An illiquid asset isan asset which is not readily saleable due touncertainty about its
valueorlackingamarketinwhichitisregularlytraded.Theliquidityofaproductcanbe
measured as how often it is bought and sold; this is known as volume. Often
investments
in
liquid
markets
such
as
the
stock
exchange
or
futures
markets
areconsideredtobemoreliquidthaninvestmentssuchasrealestate,basedontheirability
to be converted quickly. Some assets with liquid secondary markets may be more
advantageoustoown,sobuyersarewillingtopayahigherpricefortheassetthanfor
comparableassetswithoutaliquidsecondarymarket.
Amarketasawhole isconsidereddeeply liquid iftherearereadyandwillingbuyers
and sellers in large quantities. This is related to a market depth, where sometimes
orderscannotstronglyinfluenceprices.
TRANSACTIONCOSTS
Ineconomicsandrelateddisciplines,atransactioncost isacost incurred inmakingan
economicexchange.Forexample,mostpeople,whenbuyingorsellingastock,mustpay
acommissiontotheirbroker;thatcommission isatransactioncostofdoingthestock
deal. When rationally evaluating a potential transaction, it is important to consider
transactioncoststhatmightprovesignificant.
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ELEMENT 5
CLEARING,DELIVERY,SETTLEMENTandDEPOSITORY
Oncompletion,thecandidateshould:
5.1 knowtherole,functionsandworkingofaClearingHouseofanExchange
AClearingHouse isanorganization/companyaffiliatedwithaStockexchangethrough
whichbrokers,financial institutions,andotherpartiessettletrades.ClearingCompany
handlesthevalidation,deliveryandsettlementofsecuritiestransactions.
ClearingandSettlement isoneof themost importantaspects in theoperationof the
securities
business.
It
is
the
process
of
reporting,
matching,
correcting
securities
transactionandtheultimatedeliveryorreceiptofnetbalances.
NationalClearingandSettlementSystem (NCSS) isanelectronic systemdeveloped to
replace the individualClearingHousesofPakistans three stockexchangesbya single
entity. This system is operated by National Clearing Company of Pakistan Limited
(NCCPL),whichhasbeenregisteredasaseparatelegalentity.TheoperationofNCSShas
rapidlygainingacceptanceandnowmajorityofthesecuritieshavebeen inducted into
thesystemforsettlementpurpose.
NCSSprovidesstabilitytothemarketbycappingthesystemicrisktoagreatextent. It
has
also
improved
efficiency
of
the
settlement
process
by
introducing
a
consolidated
andgeographicalneutralclearingandsettlementsystem.NCSS,withitstechnologically
advance features such as automated Pay and Collect functionality, introduced
transparencyandefficiencyintheclearingprocess.
Oncompletion,thecandidateshould:
5.2 knowtheRiskManagementandTypesofRisksinClearing&Settlement
An efficient settlement system diminishes risks inherent in the settlement system. It
constantlymonitors
and
enhances
risk
measures
to
pre
empt
market
failures.
Ittracks
the record and performance of members and their net worth. It monitors members
exposures and collects margins and disables the license of members if the limits are
breached.
Therearebasicallytwotypesofrisksinvolvedinthesettlementsystem
1. CounterPartyRisk.
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2. SystemicRisk.CounterPartyRisk: Itariseswhenamemberdoesntdischargehis/herobligationsfully
intimeoranytimethereafter.This leadstotworisksreplacementcostriskpriorto
settlementandprincipalriskatthetimeofsettlement.
Replacementcostrisk:Whenoneofthepartiestothetransactionfailstodelivertheir
obligations, the nondefaulting party tries to replace the original transaction for his
client at current market price. So he loses the profit, that would have accumulated
betweenthedateoforiginaltransactionanddateofreplacementtransaction,hadthe
counterpartywouldnothavedefaulted,butnottheprincipalbecausebythattimehe
has not delivered his obligations. This risk is lessened by reducing time gap between
tradingandsettlementandbylegallybindingnettingsystems.
The Principal Risk: This risk arises when one party delivers obligations and the other
party doesnt. This risk is rare in current day market scenario wherein the clearing
corporation
makes
sure
that
delivery
versus
payment
mechanism
works
properly.Clearingcorporationactsasathirdpartytoeverytransactionanddeliversthesecurities
tothebuyeruponreceivingthefundsandtransfersfundstotheselleruponreceiving
thesecurities.
Liquidity Risk: When one of the parties defaults his/her obligations the other party
looksforreplacement.But ithas toarrange funds/securitiesbyborrowing fromother
membersandwhichmaynotbeavailableatthatpointintime.
ThirdParty risk: This arisesnotbecauseof thedefaultsby theoriginalpartiesof the
tradebutbyathirdpartyforexamplefailureofclearingbank,custodianetc.Allowing
partiesto
have
accounts
with
multiple
clearing
banks
reduces
this
risk.
SystemicRisk:Thisriskarisesbecauseofoperationalriskslikeerrors,fraudsandoutages
andsystemicriskforexamplefailureofoneparttodeliverobligationsmayleadtothe
failureofotheranditmayleadtocontagion/dominoeffectandeventothecomplete
failureofthesettlementsystemitself.
Oncompletion,thecandidateshould:
5.3 know the process of Clearing House Deposits and Credit Risk including theCapital
Adequacy
requirements
and
Exposure
Limits
Clearing denotes all activities from the time a commitment is made for a transaction
untilitissettled.Clearingisnecessarybecausethespeedoftradesismuchfasterthan
thecycletimeforcompletingtheunderlyingtransaction.
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Someoftheprimaryreasonsofliquidityrisksare:
Wideningbid/offerspread Makingexplicitliquidityreserves LengtheningholdingperiodforVaRcalculations
Liquidity risk' arises from situations in which a party interested in trading an asset
cannot do it because nobody in the market wants to trade that asset. Liquidity risk
becomesparticularly important topartieswhoareabout toholdorcurrentlyholdan
asset,sinceitaffectstheirabilitytotrade.
Liquidityriskisfinancialriskduetouncertainliquidity.Aninstitutionmightloseliquidity
ifitscreditratingfalls,itexperiencessuddenunexpectedcashoutflows,orsomeother
eventcausescounterpartiestoavoidtradingwithorlendingtotheinstitution.Afirmis
also exposed to liquidity risk if markets on which it depends are subject to loss of
liquidity.
Liquidity
risk
tends
to
compound
other
risks.
ACCEPTABLECOLLATERALTOMEETMARGINREQUIREMENTS
HAIRCUTS
Ahaircut isa percentage that is subtracted from theparvalueof theassets that are
being used as collateral. The size of the haircut reflects the perceived risk associated
withtheholdingofthoseassets.
Forexample,Treasurybills(whichareseenasfairlysafe)mighthaveahaircut
of1%,whileformutualfunds(whichareseenaslesssafe)thehaircutmightbe
ashigh
as
30%.
In
other
words,
aRs.
1,000
treasury
bond
will
be
accepted
as
collateralforaRs.990 loan,whileaRs.1,000mutualfundmightonlyallowa
Rs.700loan.
MARKTOMARKET(VARIATIONMARGIN)&MARGINCALL
Marktomarketorfairvalueaccountingreferstotheaccountingstandardsofassigning
avaluetoapositionheldinafinancialinstrumentbasedonthecurrentfairmarketprice
forthe instrumentorsimilar instruments. FairvalueaccountinghasbeenapartofUS
GenerallyAcceptedAccountingPrinciples(GAAP)sincetheearly1990s.Theuseoffair
valuemeasurementshasincreasedsteadilyoverthepastdecade,primarilyinresponse
toinvestor
demand
for
relevant
and
timely
financial
statements
that
will
aid
in
making
betterinformeddecisions.
When the margin posted in the margin account is below the minimum margin
requirement,thebrokerorexchangeissuesamargincall. Theinvestorsnoweitherhas
to increase themargin thattheyhavedeposited,ortheycancloseout theirposition.
They can do this by selling the securities, options or futures if they are long and by
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buyingthemback iftheyareshort. Iftheydon'tdoanyofthisthebrokercansellhis
securitiestomeetthemargincall.
The minimum margin requirement, sometimes called the maintenance margin
requirement,istheratiosetfor:
(StockEquity
Leveraged
Amount)
to
Stock
Equity
were
60%:
StockEquity:Rs.50x1000=Rs.50,000
LeveragedAmountoramountborrowed:(Rs.50x1000)x(160%)=Rs.20,000
Sothemaintenancemarginrequirementusestheabovevariablestoformaratiothat
investorhastoabidebyinordertokeeptheaccountactive.
Let's say the maintenancemargin requirement is reduced from60% to25%. At what
pricewould the investorbegettingamargincall?LetPbe theprice,so1000P inour
caseistheStockEquity.
(StockEquity
Leveraged
Amount)
divided
by
Stock
Equity
=25%
(1000PRs.20,000) = 0.25
1000P
(1000PRs.20,000) = 250P
P = Rs.26.67
So if the stock price drops from Rs.50 to Rs.26.67, investors will be called to add
additionalfundstotheaccounttomakeupforthelossinstockequity.
Oncompletion,thecandidateshould:
5.5 knowtheroleandfunctionsofDepository,thebookentrysystemanditsadvantagestothecapitalmarket
Once the transaction of purchase or sale of security is executed, the same gets
completionondeliveryandsettlementthereof. Ifacompanyhasnotyetbeenentered
intheCentralDepositorySystem(CDS),thedeliveryofitssharesisperformedmanually
inphysicalform,otherwisethesameisdoneelectronicallythroughCDSasoperatedby
aseparatecompanynamelyCentralDepositoryCompanyofPakistanLimited(CDC).
Thesystemofelectronicbookentryofsecurities i.e.CDShasbeensetuptoeliminate
physical maintenance and transfer of securities. This system is in line with the
international practice and has replaced the manual system of physical handling and
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settlementofsharesatstockexchanges. WithintheCDS,transferofsharesfromone
accounttoanotheraccounttakesplaceelectronically.
The CDS is managed by the Central Depository Company of Pakistan Limited (CDC),
which has been sponsored by the stock exchanges and leading local and foreign
financial
institutions.
Established
under
the
Central
Depositories
Act,
1997,
CDC
has
emergedfromanelementarysettlementagencytoafullfledgeddepository. CDChas
madethetradingandsettlementofsecuritiesinthestockmarketstransparent,reliable
efficientandsecureineliminatingrisks.
FollowingarethecoreadvantagesoftheCDS:
Electronicbookentrysystem Recordsandtransferssecuritieselectronically. Nophysicalchangeofhandsofsecurities. Strictconfidentiality Noriskofdamaged,lost,forgedandduplicatesecurities. Simpleprocedureinvolvedinpledgingofsecurities. Nodelaysindelivery,settlementandtransferofsecuritiesduetospeed. Instantaneous credit of entitlements (Bonus, dividend Paid, Rights, etc) to
investors.
Significantlyreducesthecostofinvestors.
Oncompletion,thecandidateshould:
5.6
knowthe
different
services
offered
by
aDepository
and
Types
of
Accounts
An investor can use any of the three types of CDC accounts, which are described as
belowwiththeirfeatures:
SUB ACCOUNT
Abrokermayopen,maintainandoperateanynumberofsubaccountsherequireson
behalf of his clients. A specific subaccount is used for keeping securities belonging
individuallytothatparticularclientofthebroker.
GROUPCLIENTACCOUNT
Thisaccountisusedforkeepingsecuritieswhicharebeneficiallyownedbythebrokers
clientswhoarenotwillingtoutilizethe facilityofopeningseparatesub account.The
broker groups all such clients in their group accounts. The detailed break up of the
securitiesheldbyeachclientofagroupaccountismaintainedbythebrokerinhisback
office.
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Issuers/Registrars
The issuersofcapitalwhosesecuritiesareconverted fromphysical toelectronicbook
entrysystemplayasignificantroleinCentralDepositorySystem. Theywillalsohave
directaccesstotheCDS. AfterasecurityisdeclaredeligibleforthepurposeofCentral
Depository
System,
necessary
software
and
CDS
connection
is
provided
to
that
particularissueruponsigningtheIssuersAgreementwithCDC. Thesharesareentered
intoCDSonlyafterproperverificationbythese issuersortheirregistrar. Thisprocess
eliminates the problem of fake/duplicate/lost/stolen share certificates as issuers
thoroughlycheckthembeforeapprovingforCDS.
EligiblePledgee
Any person, company, corporation or institution on the Board from time to time,
determines in this behalf, may apply to the CDC for recognition by the CDC for the
purposeofadmissiontotheCDSasanEligiblePledgeebyanapplicationwhich;isonthe
mostcurrentversionoftherelevantAdmissionForm;andcomplieswiththeadditionalrequirementsforapplicationforadmissiontotheCDS.
UponadmittingapersonasanEligiblePledgeewhopursue theabove regulation, the
CDCshallopenanEligiblePledgeeAccountonbehalfoftheEligiblePledgee.TheCDC
possesses the right to establish additional Eligible Pledgee Accounts on the behalf of
suchEligiblePledgeeonrequest.
AnAccountHolderoraParticipant,actingeitheronhisownbehalforonbehalfofhis
client,canplacesecuritiesunderpledgetoanEligiblePledgee.Incaseofpledgethrough
subaccount
prior
written
authorization
from
sub
Account
Holders/clients
is
required.
Placing those securities under pledge will result in the securities being flagged as no
longeravailableforhandlinguntiltheyarereleasedfrompledge.
CDS ACCOUNTSTRUCTURE
TheAccountHoldersofCDCareabletosettletheirtransactionswithintheCDSthrough
fivetypesofaccounts,namely:
MainAccount:EachAccountHolderinthesystemisallocatedamainaccountbyvirtue
ofbeinganAccountHolderintheCDS.Thisaccountismainlyusedasatransitaccount
formovementofsecurities.Anysecuritycominginormovingoutofanaccountholder'sfamilyofaccountspassthroughthisaccount.
HouseAccount:UsedforsecuritiesownedbeneficiallybyAccountHolders.
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Theregistrarafterverificationofthebalanceeitherapprovesorrejectsthetransaction
withinfivedaysfromthereceiptofthedocuments.
UpdateCDCnomineeshareholdingintheMember'sRegister. Preparesharecertificate(Jumbocertificate). Returntherelevantdocumentsandsharecertificatestotheapplicant.
FreeTransfer Bookentrytransferofsecuritieswithoutanyassociatedcashmovement.
ThisisaunilateraltransactioninwhichanAccountHoldercandeliversecuritiestoany
otherAccountHolder inCentralDepositorySystem.Althoughthebeneficialownership
ofsecuritieschangesassecuritiesmovefromoneaccounttoanother,thereisnostamp
dutyinvolvedandthetransferisinstantaneous.
Pledge/ Release/ Call Pledging securities in favour of a lender, which can only be
Released/Calledbythelender.Thisfunctiongreatlybenefitsthefinancialinstitutionsby
reducingriskoffakesharecertificatesandpaperwork.
Stock Borrowing or Lending through the mechanism of transfer with or without
associatedmoneymovementthroughtheDepositorySystem.
Corporate Action In case of Bonus Issues, Rights Entitlements, SubDivision,
Consolidation and any other action that changes the number of securities held in a
participant'saccountorinvolvesthedeterminationofentitlementtobeneficialowners,
CDCprovidesrelevantdetailsofaccountholdersandsubaccountholderstotheissuer.
TheCDCalsoprovidesdetailsforthepurposeofNoticeofGeneralMeetingsandOther
Notices/Communications.
DeliveryVersusPayment Bookentrytransferofownershipofasecurityinexchangefor
paymenttosettleatransaction.
DVP(DeliveryVersusPayment)isabilateraltransaction.
ThedelivererofthesecuritiesinitiatestheDVPrequestonCDSspecifyingthedetailsof
securitiesandpayment.
Upon acceptance of the receiver CDS debits deliverer's securities account and credit
receiver'ssecuritiesaccount;CDSdebits receiver'scashaccountandcreditdeliverer's
cashaccount.
Cash only Movement: Movement of cash from one account to another with out any
associatedsecuritiesmovement
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Annexure:
(i) BoardResolution
(ii) StandardAccountOpeningForm
GuidelinesforOpening/UpdatingSubAccountsinCDS
Asmentioned
above,
each
Sub
Account
bears
the
account
opening
details
as
provided
by theSubAccountholderat the timeofopeningtheSubAccount.Participant,while
enteringtheaccountopeningdetails(registrationdetail)inCDS,shouldensurethatthe
details being entered are correct and complete in every respect. In the event where
such details are inaccurate or incomplete, the Participant should not enter such
informationintheCDSandinformtheclientaccordingly.
AParticipantbeing suppliedwithachange in theaccountopeningdetailsby theSub
Account Holder, shall ensure that such a change is reflected in the respective Sub
Account,whereallowed. Hence, it istheresponsibilityofthe Participanttoensure
that the account opening details of SubAccount holders are updated and no
discrepanciesexist. AnyupdatingrequirespriorapprovalfromCDC.
For the convenience of the Participants, there is a four fold Account Setup screen in
CDS:
1. AccountDetails2. AccountHolderDetails3. JointAccountHolderDetails4. NomineeDetails1) AccountDetails:
ShareHolderCategoryshouldbeproperlyselected:o Iftheaccounttitleisofanindividualthencategoryshouldbeselected
asindividual
o If the account is corporate then shareholder category should becorrectlyusedinrelationwiththecorporateentity
o Iftheshareholdercategoryis,Othersthenitistobeensuredthatadescriptionofotherisproperlyentered
o OtherCategoryshouldnotbeenteredforindividualo CategoryofMutualFundshouldbeMutualFundo Shareholder Category of Public Limited Company or Private Limited
CompanyshouldbeJointStockCompany.
ItisworthmentioningthataftertheintroductionofWithholdingTax,theimportanceof
correctly inserting the Share Holder Category ID has become more significant and
thereforerequiresspecialattentionfromtheParticipant.
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AccountTitleshouldbeproperlyenteredasperCNIC;upto60characterscanbeenteredinthetextbox(forindividuals).
o Usingadditionalidentificationsymbols/prefix/suffixtoA/cTitleisnotallowed.There isanadditionalfieldtobeused forenteringallback
officecodesorotherdetailsinstead.
o Title account is not allowed to be amended once entered. For anynecessary correction Participant are required to open a new Sub
Accountoringenuinecasespriorwrittenapprovalforupdateshould
besoughtfromCDCsubjecttoprovisionofsupportingdocumentsas
evidence.
Father/Husbandname fieldshouldbeproperlyselected.(Bydefault, it isHusbandsname), incaseofchange inmaritalstatuspriorwrittenapproval
to update should be sought from CDC subject to provision of supporting
documentsasevidence.
ContactNameshouldbeproperlyentered.o Contactpersoncanonlybetheaccountholderhim/herself(oranyof
thejointaccountholder(s),except for aperson inwhosename the
PowerofAttorneyisissuedbytheaccountholder(s).
Zakatstatusshouldbeproperlyselected,especially in individualaccountsetup,e.g.
o TitleofindividualA/cshouldmatchwithappropriateZakatStatus.Incaseofmismatch,theParticipantshouldaskforclarification.
Forexample
an
individual
account
by
the
title
of
Justin
Dean
shouldnothave MuslimZakatPayablestatus. ItwillbeNon
Musliminsuchcases. DividendMandatefieldshouldbecorrectlyfilled(ifopted):
o Bankaccountno.iscorrectlyfilled.o BankName,Branch&Cityiscorrectlyfilled.o Only Common acronyms of Bank(s) are acceptable (e.g. MCB, HBL
etc.)
2) AccountHolderDetails: Mailing Address is properly filled: Every address has essential components
like:
o HouseNumbero StreetNumbero BlockNumbero PhaseNumbero MohallahName
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o AreaNameo CityNameo CountryName(Otherthan Pakistan)o PostCode/Office
Telephone
No.
correct
telephone
number
should
be
entered.
FaxNo.shouldbeproperlyentered. Emailaddressshouldbeproperlyenteredandprovidedinappropriatesyntax,
(ifoptbyclient).
OccupationCodeshouldbeproperlyentered:o In case of individual, ensure that the occupation code applicable to
individualsischosen.
o Pleasecheck forLogical Errors likeOccupation Code HouseWife forMale
individual
account.
ResidentStatusshouldbecorrectlyfilled:Change inResidentialStatus isnotallowed.Foranycorrection/change,openingofanewaccountisrequired.
Passportdetailsshouldbeproperlyentered:o PassportNo.shouldbeproperlyfilled.o Dateofissueshouldbeproperlyfilled.o Placeofissueshouldbeproperlyfilled.o Dateofexpiryshouldalsobeentered.
ForanynecessarycorrectionParticipantarerequiredtoopenanewSubAccountorin
genuinecasespriorwrittenapprovalforupdateshouldbesoughtfromCDCsubjectto
provisionofsupportingdocumentsasevidence.
CNICNo./UINshouldbeproperlyenteredinnewformat.AnyupdateinCNIC/PassportNo./NICOP/registrationno.isnotallowed.Incaseofanychange,prior
intimation to CDC is required along with certified true copy of relevant
documents.Also,pleasenotethataccountsalreadyopenedwitholdNICmustbe
regularized.
NTN
Number
should
be
correctly
entered
(if
opted).
3) JointHolderDetails: EnsurethatfieldofJointAccountHolder(s)isproperlyentered(ifapplicable).
Subsequent to opening sub account addition, deletion and updation ofjoint
accountholderisnotallowed.Incaseofanychange,anewaccountisrequired
tobeopened.
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Accountholdercannotbeajointholderofhis/heraccount. Only3JointHoldersareallowedinoneaccount.4) NomineeDetails(Nottobeenteredincaseofjointaccount): EnsurethatNamefieldofNomineeisproperlyentered. EnsurethatfieldofCNICisproperlyfilledwithCNICnumber. Ensurethatincaseofforeigner,fieldofPassportNumberisproperlyentered. EnsurethatfieldofPlaceofIssueisproperlyentered. EnsurethatfieldofPassportIssueDateisproperlyentered.
IVR,WEBandSMSActivation
Participantsareadvisedtooffer freeofcost IVR/WebandSMSservicesto theirsub
accountholders.
Whiledoing
so,
following
fields
should
be
correctly
filled
out:
Mother'sMaidenName(mandatoryforIVRactivation) DateofBirth(mandatoryforIVRactivation) MobileNumber(mandatoryforSMSactivation) EmailAddress(mandatoryforwebactivation)
Theaboveinformationisnecessaryforactivationoftheseservicestobeavailedbysub
accountholderson24/7basis.Itisthereforeimportantthattheduecareistakenwhile
enteringinformationagainstsaidfields.
Impactof
Incorrect
Account
Opening
Details
Incorrect or incomplete account opening details can have serious consequences with
respecttorightsandobligationsofsubaccountholdersaswellasissuersparticularlyin
thefollowingmatters:
Establishmentofownershipofsecurities Distributionofentitlement(otheroffersfromtheIssuer) DeductionofTaxandZakat ReceiptofStatutorynoticesfromtheIssuer Attendanceinmeeting,personallyorbyproxy ReportingtotheStateBankofPakistanforthepurposeofdeclaringthedetails
ofnonresidentshareholdersonreparablebasis
Directors'ReportonPatternofShareholding Righttosuccessionortransfer/transmission Receiptofaccountsandothernotices/informationfromtheIssuer
MaintenanceofRelevantAuthoritiesfromSubAccountHolders
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Participantsshouldguidetheirclientatthetimeofopeningofsubaccountforproviding
nominee relationship tobeentered in their registrationdetails.Nominee shallnotbe
acceptedincaseofajointaccount.Undersection80oftheCompaniesOrdinance1984,
nominee can be a spouse, father, mother, sister, brother and off springs (including a
step or an adopted child). Where no nomination has been made, a succession
certification
issued
by
the
court
shall
decide
as
to
the
distribution
of
assets
of
the
deceasedamongstthelegalheirs.
GuidelineforPledgingofSecurities
Where required, participants shall only pledge securities owned by their subaccount
holders directly from the sub accounts in favour of eligible pledge through a pledge
transaction inCDS,provided that proper authorization in this regard hasbeen obtain
from concerned subaccount holders by the Participants. Movements of securities
fromSubaccountstothehouseaccountofaParticipant forpledgepurpose isstrictly
prohibited. Pledgeofbookentrysecurities in favourofanEligiblePledgeedoesnot
resultin
change
of
title,
which
remain
vested
in
the
name
of
the
pledger
who
enjoy
all
rightsandbene