Presentation on theme: "Dubai Financial Market"— Presentation transcript:
1 Dubai Financial Market Presentation to AMEDA:Role of DFM CSD in Managing Corporate ActionsDFM’s Settlement ModelApril 2012
2 1 Role of DFM CSD in Managing Corporate Actions 1Role of DFM CSD in Managing Corporate ActionsDFM operates a central securities depository for equities & listed bonds in dematerialized formDFM 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 booksDFM is also an outsource service provider [OSP] to issuers/share registrars for management of cash-type of Corporate Action [CA]DFM manages 2 types of CAs: Cash and SharesOptional for issuers/registrars to appoint DFM as Outsource Service Provider [OSP] to manage cash type of CANon – OSP roleDFM as an OSPGenerate share book,Generate share book, manages cash payments as follows:Bank transfers to investor bank accounts; and/orCheque payment [if requested for by investor]; and/orDirect credit to DFM i-Vestor card product Note 1Note 1The 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 ATMsCASHSHARESRole of DFM CSD:Generate share bookCrediting CA shares directly into investor depository accounts
3 2 DFM’s Settlement Model DFM’s Settlement ModelDFM’s settlement model is linked to its depository account structureHow 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]The following is how DFM maintains its depository account structure:Investor X CSDAccountDFM settles with Custodian Clearing MemberAgreementBroker indemnity to settle rejected custodian tradesLodge collateral with DFMCustodian for Investor X NINAgentAccountTrading/ Clearing Member Investor X Trading AccountOption 2DFM CSDInvestor NIN(Investor X)Option 1Investor X CSDAccountDFM settles with Broker Trading Clearing MemberAgreementLodge collateral with DFMInvestor XNINTrading/ Clearing Member Investor XTrading Account
4 3 DFM’s Settlement Model Key Features of DFM’s Settlement Model 3DFM’s Settlement ModelDFM CLEARING & SETT. MODEL FOR CUSTODIAN INVESTORSKey Features of DFM’s Settlement ModelSellerSelling CustodianSell TM/CMDFMBuy TM/CMBuy CustodianBuyerTT+1T+2BIS DVP Model 2 – gross securities settlement, net financial settlementT+2 settlement cycleAll brokers & custodians are Clearing MembersDFM completes financial settlement by 10.00AM UAE time & commences securities settlement from AM UAE time to ensure that DVP between DFM and DFM Clearing Members [CM]. Securities are delivered only if full payment is madeDFM does not require a guarantee fund now because it does not face market risk; exposures are mitigated as follows: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 settlementSell trades - sell orders are pre-validated real- time on-line against securities availability before a sell order becomes a valid orderTrades 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 settle3.00PM19.00PM9.00AM10.00AM10.15AMSell instructionNon-Custodian investorsSettlement instructionY/NNCust. Agent accountReject settlement?Receive payment from DFMDeliver securitiesYSell Order(Sett Cap validation)CM has securities?Receive payment from DFMDeliver securitiesYNOrder Matching & Execution/Novation for settlement1. Adjust cash obligations2. Late confirmationSett BankReceive payts/make payts.Settle securitiesDr. Seller’s account for securitiesCr. Buyer’s accountTrade file to all participantsFinal Cash Net Obligation. Send settlent instn to sett banksDefault Action-restrict securities deliveredNBuy Trades(Sett cap validation)Pay DFM?Receive securitiesYYCust. Agent accountReject settlement?NPay DFMReceive securitiesNon-Custodian investorsY/NBuy instructionSettlement instruction
5 Settlement Rejection of Buy Trades by Custodian 4con’t. DFM’s Settlement ModelLocal broker CM acceptslate confirmationYesNoLocal broker CM holds unpaid purchased securitiesLocal Custodian receive Settlement Instructionby T+1?Local Custodian pays DFM by 10 am T+2DFM credits the securities to the client’s account by am T+2Local Custodian accepts purchase trade settlement obligation; DFM settles purchase trade as follows:Local Custodian rejects the trade by 7.00 pm on T+1T am : DFM rejects trade to Local Broker CM Client Buy Rejection House AccountT am : Local Broker CM pays for rejected tradeT am : DFM credits securities to Local Broker CM Client Buy Rejection AccountLate Confirmation by ClientA. Late confirmation by Client [between T+2 to 1.00pm T+4]Client sends matched settlement instruction to Local CustodianLocal Custodian pays Local Broker CMLocal 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]No transfers after T+4Settlement Rejection of Buy Trades by CustodianCM = Clearing Member
6 Settlement Rejection of Sell Trades by Custodian 5con’t. DFM’s Settlement ModelSettlement Rejection of Sell Trades by CustodianLocal Custodian receive Settlement Instructionby T+1?Local Custodian receives payment from DFM by 10 am T+2DFM debits securities from the client’s Agent Account by am T+2Local Custodian accepts sell trade settlement obligation; DFM settles sell trade DVP as follows:Local Custodian rejects the trade by 7.00 pm on T+1On T+2 DFM rejects trade to Local Broker Sell Rejection House AccountIf Local Broker has securities, sell trade rejection settled.If Local Broker has insufficient securities:Selling client securities in Agent Account kept under Pending status – client cannot sell and not entitled to corporate actionsSale proceeds to Local Broker CM retained by DFM until final resolution of the rejected tradeBuyer is settledYesNoOptions available forLocal Broker CM to settle rejection:A. Late confirmation by Client [between T+2 to 1.00pm T+4)Client sends matched settlement instruction to Local CustodianLocal Custodian request DFM to reverse rejection [provided Local Broker has agreed to a late confirmation period for client]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+2C. Buy-in MechanismBroker risk eliminated for settlementClient asset released only after receipt of cashD. If buyin fails, mandatory Sellout by Seller [to be replaced by buyer cash compensation soon]CM = Clearing Member
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