The Central Depository Company was established aimed to introduce paperless settlement of securities through an electronic system at time when the existing mechanism for settlement for physical certificates quivered under the burden of spiralling trade volumes.
The former system for settlement had been in place since the establishment of the first stock exchange in 1947.
The mechanism ingrained in the system for so long were difficult to replace, especially with an electronic system to dematerialise securities when investors were inclined to keep hold of physical certificates, which gave them a sense of security.
Today the company has over 17 billion shares and over 11 million units of terms finance certificates and Wapda bonds in its custody, which shows the confidence of investors in its services.
The team today takes pride in its golden legacy of exceptional care and enjoys a position of prestige as "The Ultimate Custodian" in the market; as it is still adhering its tradition. A Silent Revolution seems to be a fitting description of this achievement.
When we started most of the people thought that this system will not work as people will not trust CDC for their securities.
Initially, trading in a security used to dry up upon its induction into the Central Depository System (CDS) as market participants, due to fear of unknown, were not comfortable with the system as they were used to handling and dealing in physical securities, said Muhammad Hanif Jakhura, chief executive officer of Central Depository Company. Once the market participants realised the benefits of electronic settlement, they switched swiftly to the electronic system and the tables were turned."
Jakhura says that today, market participants do not want to trade in a security, which cannot be settled electronically on CDS. "Even though most of the listed securities have joined us and over 98 per cent of settlement is being done on CDS, clients still approach us for induction of the remaining securities into CDS so that they can trade with complete peace of mind," he added.
The company was in its embryonic stage and heavy instruments had been made to build a state-of-art system, leaving little to afford an aggressive marketing campaign.
"Every member became a goodwill ambassador in an effort to instate market's confidence in the company by promoting transparency, efficiency, security and reliability as our core values", he said.
After establishing its core operations, CDC started diversification in 1999 by starting Investors Account Services, which is designed for the retail investors of the capital market. "Initially retail investors had to open their accounts with CDS Participants meaning the stock brokers and banks but considering the demand of investors, CDC decided to offer this service and the investors can now open their direct accounts with CDC," he said.
"Since we are offering this service to facilitate small investors, we have reduced our annual charges to Rs 500.
This measure along with recent upsurge in the market, privatisation through stock exchanges and restriction on Group Accounts by SECP from April this year has really accelerated the pace of account opening this year," said Jakhura, adding "This is a great facility and is very popular with the investors."
Over a period of five years the number of investor accounts has grown to over 29,000, around 98 percent of which are individual investors. The company has planned to extend this popular range of services to investors located in the cities across Pakistan through selected branches of Habib Bank Ltd, which would further facilitate our investors all over the country and prop up the drive for capital market investment felt in the recent investors.
The company is also planning to open branches in major cities of the country to enhance the country's investor base by reaching out to potential investors.
Recently, the CDC's office at the Karachi Stock Exchange has become the branch office, while the head office is shifted to Shahra-e-Faisal, once again aimed to get closer to investors' community. Full-furnished and well-organised office, with clear window pans, showing inherent transparency of the company has started to function where the staff strength including the branch office worked to be 235 up from 130 some five years ago.
Taking the diversification of services a step further, CDC started trustee operations in 2002 providing trustee and custodial services to open and closed-end mutual funds respectively. "Today we are virtually the only trustee and custodial service provider in the private sector. We are the trustee for most of the funds in the market, which in my opinion is a big achievement for CDC," Jakhura said.
Trustee and Custodial Service for open-end and closed-end mutual funds was another avenue for diversification of services that again made a success rendering us the largest provider of Trustee and Custodial Services in the country's private sector. The service has 25 open-end and closed end funds under its umbrella with a net assets value of Rs 56.16 billion.
Regarding company's performance the chief executive officer said that after taking a slow start and ending with a declining revenue trend the year 2004-05 turned out to be the best year in the history of the company in all respect. The upsurge in the capital market, which started in the second quarter of the fiscal year 2004-05 and continued till the March 2005 debacle proved as a windfall for the company breaking all previous record.
The company achieved all time high revenue of Rs 704.47 million up from Rs 547.77 million previous year and consequently posted its highest profit after tax of Rs 302.31 million, as compared with Rs 231.43 of the preceding year. Shareholders equity closed at Rs 588.53 million and earning per share jumped to 30.23 rupees, depicting an increase of 7.09 rupees from last year.
Jahukara said that the company has initiated several new projects with view to expand and diversify its business activities. In this regard eCDS would play a vital role in achieving these tasks as its technologically strengthens the company in advancing its services to new business ventures and meeting marketing demands.
The plans to introduce several new mechanism have chalked down which includes, outsourcing of investors account services, induction of units of open-end mutual funds, unique client identification numbers, share registrar function, customer relationship management, investment facilitation services, securities lending and borrowing through CDS and acquisition and implementation of fund management system.
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