1. National Clearing Company of Pakistan Limited
Corporate Deck

2. The Company Mission Vision
The Mission of National Clearing Company is to inculcate exemplary Corporate Governance based on high levels of integrity, confidentiality and availability of automated business systems for all the stake holders in the Capital Market of Pakistan. NCCPL is committed to develop state-of-the-art business and technology infrastructure for efficient and cost effective integration of capital and financial markets. The Company endeavors to achieve its goals by striving for excellence in personnel and technical resources.
Vision
To be the Leading Institution of Pakistan providing Efficient, Effective and Reliable Clearing & Settlement Services at par with the best business practices and international standards, and eventually act as a Central Counter Party ensuring growth and prosperity of the Capital Market.

3. An Outline
National Clearing Company of Pakistan Limited (“NCCPL”) was incorporated on July 03, to manage and operate the National Clearing & Settlement System (“NCSS”) in a fully automated electronic settlement system.
All Book-entry Listed Securities inducted in NCSS for clearing & settlement in January
Since its inception, NCCPL is focused on providing continuous support to the development of capital market and implementing effective projects plans by applying maximum available resources in a most efficient manner.
NCCPL in a very short span of time has achieved various milestones and provides significant relief to the market participants in performing their business activities.

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NCCPL, being the leading post trade service provider in the country, was proving Clearing and Settlement Services to the three Stock Exchanges namely Karachi, Lahore and Islamabad Stock Exchanges through fully automated and centralized National Clearing and Settlement System (NCSS).
After successful Integration of these stock exchanges into single stock exchange “Pakistan Stock Exchange (PSX)”, NCCPL provides Clearing and Settlement Services for all trades/transactions executed at PSX trading systems.
All three core systems namely Trading Systems, Clearing system (NCSS) and the Depository system (CDS) are linked in such a manner that UIN is serving as the “Primary Key”.

5. Regulatory Structure
The operations of NCCPL are governed by the following legislations:
Clearing House Companies (Registration and Regulations) Rules 2005;
Securities (Leverage Markets and Pledging) Rules 2011;
NCCPL Regulations;
NCSS Procedures;
Companies Ordinance, 1984; and
Income Tax Ordinance 2001
Securities Act, 2015

6. Governance
The Board of Directors comprises of 13 Directors of which 10 are appointed by the shareholders, 1 is nominated by the SECP, 1 is nominated by the FBR and the CEO by virtue of his office.
NCCPL has voluntarily adopted code of corporate governance, which is reviewed by the statutory auditors and included as part of Financial Statements that are placed on the website of the Company.
The Board has also constituted various committees to focus on areas requiring specific expertise and experience.
An independent internal audit function has been established which reports directly to the Audit Committee of the Board. Furthermore, an independent Chief Compliance and Risk Officer has also been appointed to ensure all compliance and regulatory matters.

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NCCPL is also required by its regulations to carry out system audits. Board has constituted a Technical Committee to ensure that all IT related operational matters are properly addressed.
To ensure compliance of regulations by the market participants including by NCCPL, a joint Inspection team including members from NCCPL, PSX and CDC has been constituted, which conducts independent investigation of all market participants.
SECP is the regulator of NCCPL and being an independent statutory regulatory authority is responsible for regulation, supervision and oversight of capital market.
SECP has powers to ask for any details and information at any time from NCCPL and also enforce any disciplinary actions .SECP’s powers to regulate and supervise NCCPL have been provided in Securities Act 2015.

8. Clearing & Settlement Services

9. Clearing & Settlement Services
NCCPL provides Clearing and Settlement Services for the following market segments of Pakistan Stock Exchange Limited through fully automated National Clearing & Settlement System (“NCSS”):
Regular/Cash Market;
Odd-lot Market;
Derivative Markets (Futures and Stock Index);
Negotiated Deal Market; and
Debt Market
NCCPL also provides Clearing and Settlement Services for the following Leveraged Products:
Margin Trading System (“MTS”);
Margin Financing System (“MFS”);and
Securities Lending and Borrowing System (“SLB”)

10. Continue… Key features of NCSS:
Integration of Systems provided by Pakistan Stock Exchange Limited, Central Depository Company (CDC) and NCCPL.
Automated Pay & Collect settlement mechanism without any involvement of physical instruments.
Straight-through-Process in the Securities Settlement process, without involving of any manual intervention.
Automated Settlement process on Delivery Vs Payment (DvP) Basis. 10

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12. Unique Identification Number (“UIN”)

13. Overview of UIN Information System (UIS)
What is UIN Information System (UIS)
NCCPL has introduced UIN Information System (UIS) to provide the highest level of security and transparency in the Capital Market
UIS is a state-of-the-art online system that provides unique ID number to investors to track their trading, settlement and Capital Gain tax (CGT) related information
How to Apply for UIS Account
The Application Form of UIS is available on the NCCPL’s website and can also be obtained directly from NCCPL’s Offices located at Karachi, Lahore and Islamabad.
UIS Application Form can be submitted by the Investors to NCCPL through:
Broker Clearing Members;
Custodian Clearing Members; and
Directly.

14. Functionality Types of UIN:
To maintain a traceable link for each trade and transaction executed in the stock market, Unique Identification Number (UIN) is mandatory. For this purposes, NCCPL provides a centralized mechanism for the registration of all investors in NCSS.
Types of UIN:
Individual Pakistani Citizen.
Individual Foreigner/overseas Pakistani citizens/Non-Pakistani residing in Pakistan.
Corporate;
Corporate/individual – Broker.
Companies
Corporate – Fund/Other Organization

15. Continue… Benefits of UIN Implementation:
Enable Brokers to register their clients by assigning Unique code to manage their business efficiently and effectively.
Provide Traceable Links for all Trades and Transactions executed in the Capital Market of Pakistan.
Provide great relief and facilitation in monitoring compliance and surveillance of relevant Rules and Regulations by the Apex and Front Line Regulators.
Provides facilitation to the Pakistan Stock Exchange Limited to implement effective risk management measures.
Provides great relief to the market participants to synchronize their Back Office records.

16. Continue… Benefits of UIN Implementation:
Provides facilitation to the Central Depository Company (“CDC”) to create a logical linkage between CDS Account Holders and Investors.
Provides facilitation to the Mercantile Exchange for the registration of Commodities Investors.
Brings very useful information for the Capital Market of Pakistan by disclosing Foreign and Local Investors Portfolio on a daily basis, commonly known as “FIPI” and “LIPI”.
Without having UIN Functionality “Automation of Securities Settlement” mechanism could not be implemented
Without having UIN Functionality “Client Level Margining System” could not be implemented at the Pakistan Stock Exchange Limited.

17. Brief Overview of Leveraged Products

18. Leveraged Products
In order to generate liquidity in the capital markets of Pakistan, following new leveraged products have been introduced under the Securities (Leveraged Market and Pledging) Rules, 2011:
Margin Trading System (“MTS”) effective from March 14, 2011;
Margin Financing System (“MFS”) effective from March 14, 2011; and
Securities Lending and Borrowing System (“SLB”) effective from March 21, 2011.

19. Continue… Prominent features of Margin Trading System (“MTS”)
Financing in MTS is only be made available on pre-identified ready market purchases termed as ‘Leverage Buy’.
MTS is an undisclosed market for Financees and Financiers.
The maximum mark-up rate in MTS Market is KIBOR+8%.
All transactions executed in MTS Market are based on Financing Participation Ratio (“FPR”) i.e. equity participation by Financees.
Equity participation to be paid by the Financee for the settlement of each MT Transaction is 15% of MT Transaction Value. Whereas, Trading Financier is required to settle 85% of MT Transaction Value on respective settlement date.

20. Continue… Salient features of Margin Trading System (“MTS”)
Financees are required to pay Marked-to-Market (MtM) losses to NCCPL on daily basis in Cash only till the settlement of the entire MT Contract.
Such MtM losses will be paid to the respective Financiers on daily basis.
Financiers are required to open a separate MT Blocked Account in CDS for movement of MT Financed Securities.
Each MT Contract shall not exceed from sixty (60) calendar days. However, on every fifteenth (15th) calendar day, MTS will automatically release one fourth quantity of the MT Contract Value.

21. Continue… Salient features of Margin Trading System (“MTS”)
Rollover of MT Contract is allowed in MTS.
Risk management measures such as exposure margins, concentration margins, and MTM are applied on all MT Contract.
Capital adequacy limits and position limits are also applicable on Financiers and Financees in accordance with the Regulations.

22. Continue… Salient features of Margin Financing System (“MFS”)
Margin Financing (MF) facility is made available to all brokers against net ready market purchases of their clients and proprietary positions.
MF can be obtained as per agreed Financier Participation Ratio (FPR). However, minimum of 10% of in cash should be contributed by Financee.
Financing terms and conditions are pre-determined by Margin Financee and Margin Financier.
NCCPL provides a system to MF Participants for recording and settlement of MF Transactions.
All MF Transactions are based on counterparty risk in a disclosed manner.

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Salient features of Securities Lending and Borrowing System (“SLB”)
SLB is defined as the temporary exchange of securities with an obligation to redeliver the same securities in the same number and at an agreed premium on a future date.
The motivation for lenders is to earn income/return on their Idle Securities.
The borrowers may utilize SLB functionality to avoid delivery failure in ready market or to make a short sale.
SLB is done through an automated platform provided by NCCPL to lenders and borrowers for placing offers and bids on un-disclosed manner.

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Salient features of Securities Lending and Borrowing System (“SLB”)
The Premium of SLB is capped to KIBOR+8%.
SLB Contract period is maximum for 22 working days.
On Settlement Day, the lender delivers the lended securities and borrower pays the total amount of borrowed securities.

25. Brief Overview- Capital Gain Tax (CGT) Regime

26. CGT Regime
Capital Market Investors are required to pay Capital Gain Tax (CGT) on disposal of listed securities in accordance with the Income Tax Ordinance, 2001 and the Income Tax Rules, 2002.
NCCPL has developed automated CGT System for the Computation, Determination and Collection of CGT on listed securities.
CGT of Investors is determined by NCCPL and collected from their respective Clearing Member(s) on monthly basis.
For the determination and computation of CGT, First In First Out (FIFO) Inventory Accounting Method is used.
Capital Loss in any Financial Year is Set Off against Capital Gain of that Financial Year.

27. Continue… Rates of CGT:
For Holding Period more than 48-Months no CGT will be computed.
NCCPL issues Annual Certificates showing computation of Capital Gains and Tax thereon, if any, to each eligible Person/Investor at the end of the Financial Year.
From July 2014, NCCPL has started computation, determination and collection of CGT from corporate foreigner clients through designated Custodian Banks
Holding Period
Tax Rate
Tax Rate
Less than 12 months
15%
12.5%
12 months to less than 24 months
10%
24 months to less than 48 months
7.5% 0%
More than 48 months

28. Brief Overview-National Custodial Services (NCS)

29. National Custodial Services (NCS)
Introduction to NCS:
NCS – an optional product, is an efficient trade management solution to offer the capital market investors with easy & advanced clearing, settlement and custodial services which makes trading easier and transparent.
The capital market investors opting to avail NCS services will continue to trade in the capital market through their Trading Right Entitlement Certificate (TREC) Holders. However, they will be able to directly settle their trades with NCCPL. Further, custody of cash and securities will also be maintained with NCCPL.

30. Continue… Deposit of Funds by Client Credit of Funds to Client
Funds can be deposited by NCS Clients directly in the on-line bank accounts of NCCPL maintained with all Settling Banks.
Credit of Funds to Client
For Clients maintaining bank account in the on-line Branch of a Settling Bank, NCCPL shall credit sale proceeds on-line in such bank account.
For Clients maintaining bank account in the Branch of a non-Settling Bank, NCCPL shall issue cheque in favor of such client.

31. Continue… Trade Execution Process
Broker will open a trading account for NCS Client for trading in the stock market.
NCS Client will allocate their cash and securities balances, maintained with NCCPL to the respective Broker through UIS.
NCCPL will disseminate such balances to the respective Broker.
Accordingly, Broker will place orders in the market according to the allocated balances and as per the instruction of NCS Client.

32. Continue… Clearing and Settlement
Once a trade is executed by Broker on behalf of NCS Client, such trade(s) are received in NCSS from Pakistan Stock Exchange Limited.
NCCPL will settle such trade(s) on the basis of allocated securities and cash balances.
If Broker executes trades over and above the allocated balances, such trade(s) shall be settled by such Broker with NCCPL.

33. Continue… Key Benefits: Ease of access through UIS
Safekeeping of securities & deposits
Deposit & Collection of funds through online banking channel
Competitive Returns on cash balances
Direct collection of Capital Gain Tax (CGT)

34. Brief Overview – Risk Management and Role of NCCPL as CCP

35. Risk Management
With the promulgation of Securities Act, 2015 “the Act”, the NCCPL has taken over the entire risk management functions of the capital market trades that are executed and settled by the Clearing Members.
NCCPL manages risk of all trades/transactions executed by the Broker and Non-Broker Clearing Members .
Accordingly, risk management functions, previously performed by the PSX has now transferred to the NCCPL.
The SECP has directed NCCPL and PSX to complete certain tasks with respect to transfer of risk management to NCCPL.

36. Risk Management Following are the Risk Management Components :
EXPOSURE MARGINS & MTM LOSSES MANAGEMENT
CLIENT LEVEL MARGINING REGIME
MONITORING & MAINTENANCE OF CAPITAL ADEQUACY REQUIREMENT
MONITORING OF POSITION LIMITS
COLLETERAL MANAGEMENT

37. Risk Management
Value-at-Risk (VaR) based margins are stipulated for each security based on liquidity and volatility
Marked-to-Market (MTM) is determined by taking difference of trade price and closing price
Margin Eligible Securities are defined as per criteria and haircuts are applied on each security.
Concentration Margins and Liquidity Margins are also applied on the open positions

38. Central Counter Party (CCP)
All transactions are settled at NCCPL on DVP Model which eliminates the risk that securities may be delivered without receiving funds or funds may be paid without receiving securities (credit risk in exchange for value systems).
NCCPL is implementing its role as Central Counter Party (CCP) whereby it interposes itself between transacting counter-parties – a seller vis-à-vis the original buyer and a buyer vis-à-vis the original seller – to guarantee execution of the transactions by acting as CCP.

39. Establishment of SGF
Establishment of a stable and well funded Settlement Guarantee Fund (“SGF”) is considered essential to step forward for NCCPL role as CCP. To take this concept forward, actuarial valuation was conducted by NCCPL that suggests an initial SGF size of Rs. 2.1 billion.
The SGF shall comprise of the following:
Contribution to the SGF by NCCPL
Contribution to the SGF by the Stock Exchange
Contribution to the SGF by the Clearing Members
Accretion in the SGF due to income arising from investments of the SGF

40. SMS & E-mail Alerts System
Objective:
Provision of Information to the Investors through SMS and s
Registration of Addresses and Mobile Numbers

41. Additional fields “ Address” and “Mobile Number” have been added in the UIN Registration Screen of NCSS.
Such fields shall be mandatory to complete the Registration of new investors in the NCSS effective from Monday July 25, 2016.
For the Registration of “local individual client” BCMs shall be required to provide mobile numbers. Such mobile number should be in the name of such client.
For the Registration of “foreigner and corporate clients” BCMs shall be required to provide address.

42. BCM shall ensure that mobile number and/or address of a particular investor should not be used for any other investor(s).
Mobile Number and Address of a Broker or its agent, trader or other employee should not be used for any client.
BCM shall be required to obtain authorization from its client for the purposes of providing mobile number and address to the NCCPL.
Mobile number and address shall be required for principal UIN of an account. Accordingly, SMS/ shall be send on the principal UIN.

44. The BCM shall be responsible for the correctness and completeness of the mobile number and address of their clients entered in NCSS.
After necessary system development, the NCCPL shall verify that the mobile number entered by the BCM for registration is in the name of the respective client.
If such mobile number is not in the name of such client, the respective UIN shall not be activated for trading.
BCM shall also be required to update the mobile numbers and addresses of their existing clients at the earliest, however, reasonable time shall be provided to the BCMs for this process .

45. Trading Alert through SMS and Email

46. Effective from Tuesday July 18, 2016, the NCCPL shall provide set of trading information to the Investors based on their UINs at day end.
For “local individual clients”, trading information shall be send through SMS on their mobile number and through on their address (if provided in NCSS).
For “foreigner and corporate clients”, trading information shall end through on their address.
For details of their trading information, all clients of BCMs can avail free of cost UIN Information System (UIS) access from NCCPL.

48. Other Products & Services

49. Continue…
Introduction of Trade-for-Trade Settlement for Debt Market along with Risk Management
Inter-Bank Fund Transfer Facility (“IBFT”)
Registration of Employees of Brokerage Houses through NCSS UIN Functionality
Pre-Settlement Delivery Mechanism
Implementation of Reporting Platform for Un-Listed TFCs

50. Future Outlook CGT Computation for PMEX and Mutual Funds.
Implementation of Islamic Financing Model.
Central KYC Organization (CKO).
Development in Leveraged Products

51. “Thank You”