CENTRAL DEPOSITORY

SYSTEM
Central Depository System (CDS), an electronic book-entry system used to
record and maintain securities.
“Electronic book entry system” means that securities do not require
physical movements, which effectively means eliminate all the issues
related to the physical handling of the securities such as delay in transfer,
duplicate certificates etc.
• The ownership of the securities take place immediately in the book entry
system in CDS.
• Things started to change when the procedure was computerized.
• CDS is implemented primarily to give support to the market participants
.i.e. brokers, investors and issuers.
Elements Of Central Depository System are :
• Account holder
• Participant
• Issuer
• Eligible pledgee
These elements being the primary driver of the system has direct access to
CDS.
Account holders:
They are only allowed to keep their beneficially owned securities in CDS.
For example Cooperate Bodies such as Leasing companies Modarabas and
Insurance Companies and Qualified Private investors can open their account
as a account holder.
Participants:
They are allowed to keep their beneficially owned securities in CDS and
provide custody services to their clients as well.
All the members of Stock Exchanges, Banks (Both Commercial and
Investment), and DFIs can open their account as a Participant.
Issuer/Registrar:
• The companies or Issuers of capital whose securities (both equity & debt) are converted
from physical to electronic securities play a significant role in CDS.
• The physical securities are converted into electronic book entry securities only after
proper verification and approval by these Issuers in CDS.
• This process eliminates the problem of fake certificates as securities are thoroughly
checked by the Issuers before executing deposit of securities transaction in CDS.
Eligible pledgee:
• An Account Holder or a Participant can place their electronic book entry securities under
pledge in favor of an eligible pledgee.
• Any Company, Corporation or Institution such as Banks / Financial Institutions /
Development Financial Institutions that are authorized to provide financing against
securities can become the eligible pledgee.
• Placing securities under pledge means these securities are no longer available for delivery
until released from pledge.
• The beneficial owner however continues to get the corporate benefits (dividends, etc.) on
securities.
• Only eligible pledgees can release securities, with whom such securities are pledged.
• Eligible pledgees can call pledged securities in their own account.
• As soon as securities are released from pledge, they become available to the Pledger /
Beneficial Owner for further transactions such as a delivery, withdrawal or another
pledge.
• Securities can be withdrawn in the form of physical certificates from CDS through
withdrawal transaction.
Accounts in Central Depository Company
• Sub account
• Investors account
Sub account:
• It is opened through broker.
• All the transactions in this account is done through broker.
• It’s fee is less than investors account.
• It is maintained by the brokers on the behalf of it’s client(investor).
Investors account:
• It is directly open with CDC without any broker.
• It’s fee is more than CDC sub account.
• "Investor Account" allows investors to directly open and maintain account with
CDC for safe custody and settlements of securities.
• Big investors shift their investments/holdings from CDC sub account to CDC
investors account. They keep their investments for a very long time.
Transactions:
Transaction is a series of actions through which physical certificates are
converted into electronic book entry securities in CDS.
Transactions handled by CDS
• Deposit of Securities
• Transfer of Securities
• Pledging of Securities
• Pledge Release
• Pledge Call
• Withdrawal of Securities
 Deposit of securities:
• The Account Holder will initiate the Deposit Request by entering the details of share
certificates into the system, and Securities Deposit Form.
• CDS will generate computer printouts of the transaction.
• Account Holder will then send the relevant share certificates, transfer deeds, Securities
Deposit Form and the computer printouts to the relevant registrar.
• The registrar after verification will either approve or reject the transaction within five
days from the receipt of the documents.
Withdrawal of securities:
For investors who prefer to have physical possession of certificates. Following is the
procedure to withdraw securities from the CDS:
• The Account Holder will initiate the Withdrawal Request by entering the relevant details
into the system, and Securities Withdrawal Form.
• CDS will generate computer printouts of the transaction.
• Account Holder will then send the Securities Withdrawal Form. and the computer
printouts to the relevant registrar.
• The registrar after verification of the balance will either approve or reject the transaction
within five days from the receipt of the documents.