CDC: THE ULTIMATE CUSTODIAN
Excerpts from an exclusive interview with Ejaz Ali Shah, Head of Marketing & Customer Support Services, Central Depository Company
By SHABBIR H. KAZMI
June 28 - July 04, 2004
Established under Central Depositories Act 1997, the Central Depository Company of Pakistan Limited (CDC) has emerged from an elementary settlement agency to a full-fledged depository. Over the years it has revolutionized the financial market by making it transparent, reliable, efficient and secure in eliminating risks. Its success is based on integration of state-of-the-art technology and human resource and it can be rightly called a company that places security and custody of your investment in the capital market at its very core.
The GoP's divestment policy, public offering of shares of state-owned enterprises through stock exchanges has been made possible in an efficient manner mainly due to the infrastructure provided by CDC. The unmatchable benefits of getting direct credit into the Central Depository System (CDS — electronic book entry) have made these public offerings not only highly efficient, but also cost effective for both Issuers as well as Investors. These benefits include instant credit of shares, greater marketability/liquidity, stamp duty and postage cost savings, reduced workload and costs for issuers, no time delays for investors, convenient accommodation of huge volume issues in the capital market, etc.
The investors very well responded to the largest divestment of government holdings in Oil & Gas Development Company (OGDCL). CDC feels proud that nearly 61% of the Initial Public Offering (IPO) was subscribed in electronic form directly into 30,662 CDS accounts. CDC can rightly take pride in saying that such smooth and convenient handling of this voluminous issue would have not been possible without electronic book entry system. The same is also true about the public offerings of Sui Southern Gas Company (SSGC). Out of a total of over 67 million shares more than 24.5 million shares were directly credited to 24,538 CDS accounts.
Investor Account Services has also blossomed since it was launched in August, 1999. CDC has been making constant efforts to offer its customers convenient, accessible, reliable and quality services at all times. Keeping up this tradition and realizing the growing demand for Investor Account Services, CDC is planning to offer this service from all major cities of Pakistan as well as from some Middle Eastern countries through selected banks. These banks would function as an agent of CDC and provide identical services being offered by CDC under Investor Account Services umbrella.
The CDC Trustee Business has also been growing at a very fast pace. These services are being provided to both open-end and closed-end mutual funds. The total number of mutual funds in its portfolio was 27 on March 31, 2004. The number and size of mutual funds is expected to grow further as more funds are expected to make debut with the beginning of the new financial year.
The success story of CDC is incomplete without acknowledging the active participation of all the constituents, i.e. Issuers, Participants and Pledgees. At the end of first quarter of year 2004 there were 407 participants, 543 live securities and 72 eligible pledgees. As on March 31, 2004 there were 689 companies listed at Karachi Stock Exchange with a total paid up capital of over Rs 363 billion. The market capitalization was about Rs 1.4 trillion. Out of this, the market capitalization of securities (shares and TFCs) in CDS was nearly Rs 462 billion.
Successful implementation of the CDS has enabled the depository to diversify its operations. CDC has launched the National Clearing and Settlement System (NCSS) on behalf of National Clearing Company of Pakistan (NCCPL). NCSS is an electronic system that has replaced the traditional clearing houses of Pakistan's three stock exchanges by a single entity. NCSS provides the much required stability to the market by capping the systemic risk to a large extent. It has also improved efficiency of the settlement process by introducing a consolidated and geographically neutral clearing and settlement system.
Recently, the Institutional Delivery System (IDS) and Broker to Broker (BTB) functionality was introduced in NCSS to support non-exchange transactions and induction of all CDS live securities has also been completed in NCSS for settlement. To further facilitate the market participants in handling the settlement of Future Contracts, NCCPL has started facilitating settlement of future contracts through NCSS under a special arrangement.
CDC is not just capital and technology. At the core it stands a team with the broadest, deepest and innovative perspective of the financial environment in Pakistan. CDC has made the capital market grow bigger at a faster pace and in many ways better by giving it pep, perk and zest. Investors simply cannot ignore CDC because it gives customers a taste of safe and convenient custody services found in global markets.