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The 8th ACG Cross Training Seminar Merits & De-Merits of Direct & In-Direct Accounts in the Pakistan Capital Market. by: Shabnam Fahim Syed Faisal Hashmi Shariq Naseem. Agenda. Pakistan Capital Markets. Central Depository Company of Pakistan

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The 8th ACG Cross Training SeminarMerits & De-Merits ofDirect & In-Direct Accountsin the Pakistan Capital Market


Shabnam Fahim

Syed Faisal Hashmi

Shariq Naseem

  • Pakistan Capital Markets.
  • Central Depository Company of Pakistan
  • Merits and Demerits of Direct and Indirect account Method
pakistani capital markets
Pakistani Capital Markets
  • Market regulators
  • Stock Exchanges
  • Instruments Traded
  • Trading Environment
  • Clearing and Settlement
  • Past Brief and Current Situation
market regulators
Market Regulators
  • Securities & Exchange Commission of Pakistan (SECP)
    • Regulating stock exchanges, NBFCs, CDC and Corporate Sector
    • Functional Responsibility: framing of rules and regulations
    • Recent developments, REIT, VPS, NBFC rules, debt market
  • State Bank of Pakistan (SBP)
    • Regulating banking institutions
    • Policy measures
        • Monetary
        • Credit
        • Foreign exchange mechanism
Stock Exchanges

Three Stock Exchanges in Pakistan:

The Karachi Stock Exchange

Lahore Stock Exchange

Islamabad Stock Exchange

The Stock Exchanges:

Most active and Liquid- KSE

Self regulatory body

instruments traded
Instruments Traded
  • Equity
    • Ordinary Shares
    • Preference Shares
  • Bonds
    • TFCs
    • Other Debt Instruments- TBs, PIBs
  • Derivatives
    • Stock Exchange offers equity futures
    • Monthly contract- overlap of at least 2 trading days b/w contracts
the trading environment
The Trading Environment
  • Equities
      • All Stock exchanges have own trading platforms
      • Automated Trading System:
        • Processing based on bids & offers and
        • Intimation of trades executed
      • Circuit Breakers- 5%
  • Bond Market
    • Primary Market
      • PIBs Auctioned monthly & TBs fortnightly
      • TFCs by Pakistani Companies
    • Secondary Market
      • PIBs and TBs traded freely
      • Investors hold TFCs until maturity- low liquidity
clearing and settlement
Clearing and Settlement
  • Clearing
      • Government bonds through SBP
      • Others through National Clearing Corporation
  • Scrip less
      • Settlement System T+3
      • Payment released-broker ascertains stock transfer- CDC A/c
  • OTC
      • No formal organized market
  • Physical
      • Less than 1% Settlement
KSE Current Situation
  • Pakistan Included in MSCI Emerging Market index- May 2005
  • World Bank-Investment report 2005- one of top ten reformer countries
  • Market capitalization- $ 57 billion with 663 securities (April 17, 06)
  • 4th year- one of the best performing markets- Business Week- US newspaper, USA today
  • Past four years compound annual growth rate-56%
  • KSE100 share index- increased 53.6% July 05 - May 06 - 3rd highest
  • Capital markets exceptional performance– Reasons
    • Pakistan Economic Revival- GDP growth- 2002 onwards
    • Consistent and transparent economic policies
    • Successful privatisation process-PTCL/National refinery etc
    • Impressive Corporate Results
    • Sound Monetary Polices- SBP, & Capital Market reforms- SECP
CDC ...

… the Country’s only Securities’ Depository


Central Depository Company (CDC)

  • Incorporated in 1993
  • To manage and operate the Central Depository System (CDS)
  • Live Operations in 1997
our services
Our services
  • Depository Services
  • Trustee and Custodial Services
  • Registrar & Transfer Agent (in near future)
legal framework
Legal Framework
  • Companies Ordinance
  • Central Depository Company Regulations
  • Central Depositories Act
  • Listing Regulations


  • Implementation of National Clearing & Settlement System
  • Launch of trustee and custodial services
  • Launch of Investor Account Services
  • Launch of enhanced version of CDS (eCDS)
  • Induction of Open-end Mutual Funds in CDS
  • Launch of CDC call centre
  • CDC Access
securities handled through cds
Securities handled through CDS
  • Ordinary Shares
  • Preference shares
  • Term Finance Certificates

Certificates of Open-ended mutual Funds

  • Certificates of Closed-end Funds
  • Modaraba Certificates
transactions supported through cds
Transactions Supported through CDS
  • Deposit of Securities
  • Delivery (Transfer) of Securities
  • Withdrawal of Securities
  • Pledge
  • Corporate Action
    • Merger / De-merger
    • Consolidation /Split
    • Conversion
  • IPO
  • Issuance and Redemption of Open End Mutual Fund Units

Account Holders

  • Account Holders
      • Account holders have direct access to the CDS & are allowed to keep their beneficially owned securities in CDS.
  • Participants
    • Participants also have direct access to CDS and are allowed to provide custody services to their clients in addition to keeping their beneficially owned securities.
account categories
Account Categories
  • Main Account – Transitory Account
  • House Account – Account Holder’s own account
  • Sub Account – Client Account
  • IAS Account – Client Account

Account Structure

Central Depository System (CDS)

Account Holder

Account Holder


Main A/C

Main A/C

Investor A/C.

House A/C

House A/C


admission criteria
Direct Account

Member Stock Exchanges

Financial Institutions

Qualified investors that meet:

Technical requirements

Business Integrity requirements

Capacity requirements

having Data Processing & Operational Capabilities

Indirect Account

Any person or corporate entity.

Admission Criteria
Merits & De-Merits


Direct & In-Direct Accounts

  • Forthcoming slides would provide you the behavior of Direct & In-direct Accounts, taking different important parameters of Capital Markets as the Yardstick.
  • We would analyze the merits & de-merits of both the type of accounts, by placing each of them individually, in different dynamic Capital Market motions.
  • This exercise would allow us to determine the effectiveness of each type of account in a more practical & realistic milieu.


In the dynamic Capital Markets, dependency Is always treated as a Shortcoming. No matter how efficient your Custodian is, you remain dependent on them and dependency is not advisable.

Thank You!