'CDC might be listed in a year's time,' CEO, Central Depository Company of Pakistan

BR Research: Brief us about the history of Central Depository Company of Pakistan Limited (CDC)! Hanif Jakhura: Against the backdrop of growth in market volumes, and realising that it is cumbersome to settle transactions physically, CDC started its operation in 1997 after USAID carried out a study and recommended setting up a depository company in Pakistan.
Although initial market response was lukewarm, even then CDC managed to take all securities under its domain within the first two years of our operations as people started preferring those companies which were with CDC.
BRR: How has the CDC coped with the growth in market size and what is its role in facilitation of capital markets?
HJ: CDC has facilitated brokers, issuers, investors and bankers by reducing the hassle and workload and providing efficiency.
Investors have direct accounts with us; we called it investors' account. We have about 100 billion shares in the system worth Rs.1.8 trillion. And they are growing in numbers as people have shown immense confidence in us. Our advice to investors is that they should take care of their own securities rather than depending on others. CDC is a participant-driven system, where the custodian is the participant and not the CDC.
We diversified our business in 2002, when we started to act as a trustee for the mutual fund industry. Today, we control 85 percent of the market.
We have also found a separate company by the name of IT minds in partnership with IBM, Microsoft and Oracle. The venture offers Enterprise Information Technology-based consultancy and implementation services. Now, we are eyeing foreign countries, where we can sell depository and custody softwares.
Moreover, we have reduced the tariff considerably. We have managed to reduce the transaction and custodian fee by more than 80 percent since the start of our operations. Our motive is not to churn out higher profits but to facilitate the capital market.
We have also developed the clearing and settlement system, which we ran from 2002 to 2005. We passed on that business to National Clearing Company in 2005. The development of clearing and settlement system has paved the way for automation in the capital markets.
BR Research: Tell us about the corporate environment at the CDC and its financial health.
HJ: The board comprises of representatives from all major shareholders such as Karachi Stock Exchange, Citi bank, Habib Bank and MCB Bank, etc. We have been continuously monitoring our performance, both operational as well financial. When we see the profit increasing beyond a certain level, we pass it on to the market. The profitability level is maintained enough to pay dividends and invest in technology.
We believe in the best practices. CDC is certified with the prestigious ISO 27001 standards, which is the specification for Information Security Management. We are the first Company in Pakistan to get BS 25999 certification - the British Standard for Business Continuity Management. And there are very few depository companies around the world who have managed to get this certification.
Besides, the Company has installed two sets of servers: one on the back side and other on the front. This helps restore our system immediately in the case of any glitch.
We have installed another system in place which is called Tivoli, an IBM product. The system proactively manages the functioning of IT infrastructure. This robust system helps rectify the problem in the infrastructure before they impact customer.
BRR: What is the trend around the globe regarding the number of depository companies in each country?
HJ: Globally, there is one depository company in every country; India is the only exception to this rule. In the case of depository companies, the infrastructure is viable only if there is just one company.
BRR: Do you have any plans of listing CDC at the bourses?
HJ: Stock exchanges are listed in various parts of the world. And since many depository companies are part of the exchanges, therefore they are indirectly listed. But standalone depository companies, like us, are not listed.
However, our board has decided to list this Company and we are working on it. The CDC might be listed in a year's time.
BRR: What is your view on the demutualisation of stock exchange?
HJ: It is good for the capital market as it will separate the roles of brokers and operators.
BRR: What is your view on the structure of debt market in Pakistan?
HJ: In Pakistan, corporate bonds' (TFCs) market didn't go very well, due to religious constraints and lack of market interest in debt securities. We need to create a culture; otherwise, I am not hopeful under current circumstances.
BRR: What should the capital market participants do to bolster development of the debt market?
HJ: The utmost important thing is awareness. We have a very aggressive plan in place to run an awareness campaign. Recently, SECP, along with other market participants, has launched an investors' awareness programme. This will yield positive impact on the development of capital market.
BR Research: Don't you think that businesses are not eyeing debt market because of their smaller size and low reputation?
HJ: We have big corporations, but they don't want to raise money from the debt market. They either invest their own money or borrow from banks.
BRR: Why are the investors shy of getting listed?
HJ: There are misconceptions in the market regarding the incentives of listing. In Pakistan, issuers are reluctant to list. There is not a single particular reason as businesses are encountering numerous issues in Pakistan.