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Dubai Financial Market Presentation to AMEDA: I.Role of DFM CSD in Managing Corporate Actions II.DFMs Settlement Model April 2012.

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Presentation on theme: "Dubai Financial Market Presentation to AMEDA: I.Role of DFM CSD in Managing Corporate Actions II.DFMs Settlement Model April 2012."— Presentation transcript:

1 Dubai Financial Market Presentation to AMEDA: I.Role of DFM CSD in Managing Corporate Actions II.DFMs Settlement Model April 2012

2 1 Role of DFM CSD in Managing Corporate Actions 1.DFM operates a central securities depository for equities & listed bonds in dematerialized form 2.DFM is mandated by law to manage the share book of all public companies listed on the DFM exchange; DFM is not the issuer or share registrar – issuers/share registrars may request for electronic link with DFM CSD to access their respective share books 3.DFM is also an outsource service provider [OSP] to issuers/share registrars for management of cash-type of Corporate Action [CA] 4.DFM manages 2 types of CAs: Cash and Shares CASH Optional for issuers/registrars to appoint DFM as Outsource Service Provider [OSP] to manage cash type of CA Non – OSP roleDFM as an OSP Generate share book,Generate share book, manages cash payments as follows: i.Bank transfers to investor bank accounts; and/or ii.Cheque payment [if requested for by investor]; and/or iii.Direct credit to DFM i-Vestor card product Note 1 Note 1 The i-Vestor card is a DFM product in collaboration with a commercial bank to issue debit /ATM cards to all retail investors. Dividends are credited directly into the debit card thereby minimizing issues of lost/unclaimed cheques. Investors withdraw dividends via ATMs SHARES Role of DFM CSD: i.Generate share book ii.Crediting CA shares directly into investor depository accounts

3 2 DFMs Settlement Model 1.DFMs settlement model is linked to its depository account structure 2.How DFM settles trades with Clearing Members depends on whether Clearing member-clients are direct investors or custodian investors [ie. investors using a custodian to custodize securities & settle trades] 3.The following is how DFM maintains its depository account structure: DFM settles with Broker Trading Clearing Member 1.Agreement 2.Lodge collateral with DFM DFM settles with Custodian Clearing Member 1.Agreement 2.Broker indemnity to settle rejected custodian trades 3.Lodge collateral with DFM DFM CSD Investor X NIN Custodian for Investor X NIN Investor X CSD Account Agent Account Investor X CSD Account Trading/ Clearing Member Investor X Trading Account Trading/ Clearing Member Investor X Trading Account Investor NIN (Investor X) Option 1 Option 2

4 3 DFMs Settlement Model Seller Selling Custodia n Sell TM/CM DFM Buy TM/CM Buy Custodia n Buyer Final Cash Net Obligation. Send settlent instn to sett banks Pay DFM Settlement instruction Receive payment from DFM Receive securities Settle securities Dr. Sellers account for securities Cr. Buyers account Deliver securities Receive securities Pay DFM? Buy instruction Buy Trades (Sett cap validation) Sell instruction Sell Order (Sett Cap validation) Deliver securities Cust. Agent account T T PM 19.00PM Order Matching & Execution/ Novation for settlement Trade file to all participants Reject settlement? CM has securities? Receive payment from DFM Reject settlement? 9.00AM T AM Sett Bank Receive payts/make payts. Y/N Y Y N 10.15AM Y N Y/N Default Action -restrict securities delivered 1. Adjust cash obligations 2. Late confirmation N Y N DFM CLEARING & SETT. MODEL FOR CUSTODIAN INVESTORS 1.BIS DVP Model 2 – gross securities settlement, net financial settlement 2.T+2 settlement cycle 3.All brokers & custodians are Clearing Members 4.DFM completes financial settlement by 10.00AM UAE time & commences securities settlement from 10.15AM UAE time to ensure that DVP between DFM and DFM Clearing Members [CM]. Securities are delivered only if full payment is made 5.DFM does not require a guarantee fund now because it does not face market risk; exposures are mitigated as follows: a.Buy trades - full purchase values of buy trades collaterized 100% by Clearing Member via a real-time on-line collateral adequacy checking process before a buy order can becomes a valid order & DVP settlement b.Sell trades - sell orders are pre-validated real- time on-line against securities availability before a sell order becomes a valid order 6.Trades are settled on T+2 but in order to accommodate settlement by institutional investors using services of Custodians, DFM implemented a Settlement Rejection Process for Custodian investors. This means that the broker clearing member will settle the rejected trade first until the Custodian receives matched settlement instructions from its clients to settle Non- Custodian investors Cust. Agent account Non- Custodian investors Key Features of DFMs Settlement Model

5 4 cont. DFMs Settlement Model Local broker CM accepts late confirmation Yes No Local broker CM holds unpaid purchased securities Local Custodian receive Settlement Instruction by T+1? Local Custodian pays DFM by 10 am T+2 DFM credits the securities to the clients account by am T+2 Local Custodian accepts purchase trade settlement obligation; DFM settles purchase trade as follows: Yes No 1.Local Custodian rejects the trade by 7.00 pm on T+1 2.T am : DFM rejects trade to Local Broker CM Client Buy Rejection House Account 3.T am : Local Broker CM pays for rejected trade 4.T am : DFM credits securities to Local Broker CM Client Buy Rejection Account Late Confirmation by Client A. Late confirmation by Client [between T+2 to 1.00pm T+4] 1.Client sends matched settlement instruction to Local Custodian 2.Local Custodian pays Local Broker CM 3.Local Broker CM request DFM to transfer purchased securities to Client Agent Account with Local Custodian [provided Local Broker CM has agreed to a late confirmation period for client] 4.No transfers after T+4 Yes No Settlement Rejection of Buy Trades by Custodian CM = Clearing Member

6 5 cont. DFMs Settlement Model Settlement Rejection of Sell Trades by Custodian Local Custodian receive Settlement Instruction by T+1? Local Custodian receives payment from DFM by 10 am T+2 DFM debits securities from the clients Agent Account by am T+2 Local Custodian accepts sell trade settlement obligation; DFM settles sell trade DVP as follows: 1.Local Custodian rejects the trade by 7.00 pm on T+1 2.On T+2 DFM rejects trade to Local Broker Sell Rejection House Account 3.If Local Broker has securities, sell trade rejection settled. 4.If Local Broker has insufficient securities: i.Selling client securities in Agent Account kept under Pending status – client cannot sell and not entitled to corporate actions ii.Sale proceeds to Local Broker CM retained by DFM until final resolution of the rejected trade iii.Buyer is settled Yes No Options available for Local Broker CM to settle rejection: A. Late confirmation by Client [between T+2 to 1.00pm T+4) 1.Client sends matched settlement instruction to Local Custodian 2.Local Custodian request DFM to reverse rejection [provided Local Broker has agreed to a late confirmation period for client] 3.DFM removes Pending status in Client Agent Account on day of rejection reversal & pays sale proceeds to Local Custodian. B. Local Broker CM purchases securities from market on T+2 C. Buy-in Mechanism 1.Broker risk eliminated for settlement 2.Client asset released only after receipt of cash D. If buyin fails, mandatory Sellout by Seller [to be replaced by buyer cash compensation soon] CM = Clearing Member


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