1. KARACHI STOCK EXCHANGE Base Minimum Capital: New Requirement
Need for Reforms
Shafqat Ali
Acting Chief Regulatory Officer
Karachi Stock Exchange Limited
May 14, 2013

2. What is Base Minimum Capital (BMC)?
Base Minimum Capital is the collateral deposited and maintained by every TRE Certificate Holder, who is registered with the Commission as a Broker under the Brokers and Agents Registration Rules, 2001, with the Exchange for its eligibility to trade through the Exchange Trading Systems
It is mandatory for every Broker who desires to trade in any market on the Exchange
Failure by a Broker to maintain Base Minimum Capital or submit the related prescribed documents within the specified time is considered a violation of Regulation 2.1 of the RMS Regulations 02

3. The Role of Base Minimum Capital (BMC)
Base Minimum Capital limits losses for investors in case of default of a Broker and allows the Exchange to manage risk more effectively
Base Minimum Capital (BMC)
Brokers’ access to Exchange Trading Systems
Investor Protection against default of Brokers
Effective Risk Management by the Exchange 03

4. How is the Collateral for BMC determined and deposited?
Transferable TRE Certificate
40% of Exchange Shares allotted to a Broker
Collateral required under BMC
Base Minimum Capital can be deposited in the following manner: 1 + 2
Transferable TRE Certificate lien marked with irrevocable authority in favor of the Exchange
And / Or
Cash and/or Bank Guarantee to be deposited with the Exchange
Shares of Exchange pledged in favor of the Exchange in accordance with the terms and conditions specified in the letter of pledge 04

5. Legal Documents and Amount required to be deposited to comply with the current BMC requirement
Documents Required
Collateral Amount Required
Original Trading Rights Entitlement (TRE) Certificate
Letter of Hypothecation, Lien and Authority for TRE Certificate
Letter of Pledge, Lien and Authority for KSE Shares
Irrevocable General Power of Attorney for TRE Certificate
No Objection Certificate from Charge Holder, if already exist with third party
Certified copy of the Board resolution authorizing officials of TRE Certificate Holder with list of signatories and their specimen signatures
Total BMC Requirement
Rs. 31 million approx.
Breakup Value of 40% of total KSE Shares (1,602,953 x 9.95)
Rs. 16 million
Notional Value of Transferable TRE Certificate
Rs. 15 million 05

6. What happens if the deposited collateral falls short of the required BMC?
Where a TRE Certificate Holder does not hold 1.6 million KSE shares for pledging and/or transferable TRE Certificate, then such TRE Certificate Holder can fulfill the shortfall by either depositing Cash or submitting Bank Guarantee in favor of the Exchange
In case the Base Minimum Capital is maintained in form of shares of the Exchange and/or transferable TRE Certificate by a Broker and if:
In case the Base Minimum Capital is maintained in form of Cash and/or Bank Guarantee by a Broker and if:
Maintained BMC in KSE Shares + Transferable TRE Certificate
Required Amount of Base Minimum Capital
Deposit additional Cash and/or Bank Guarantee
Maintained BMC in Cash and/or Bank Guarantee full or partial
Value of Shares + Notional Value of TRE Certificate
Deposit additional Cash and/or Bank Guarantee 06

7. Revisions to the amount of collateral under BMC
The Exchange shall determine the Notional Value of TRE Certificate for the purpose of calculation of Base Minimum Capital, which will be reviewed once in six months and disseminated to the market participants
The Exchange shall determine the Breakup Value per share of the Exchange, which will be reviewed every six months based on audited or reviewed accounts of the Exchange and disseminated to the market participants 07

8. Information required for BMC related documents
The Exchange has decided to provide Brokers with duly filled in legal documents in order for Brokers to comply with the BMC requirement by May 20, 2013.
Brokers are requested to provide the following information on their company’s letterhead
Full Name of TRE Certificate Holder
Registered Office Address
TRE Certificate Number
Names and Designations of Authorized Signatories
Type of Eligible Collateral to Meet BMC Requirement 08

9. Type of Eligible Collateral to Meet BMC Requirement
To meet BMC requirement, any combination of the following types of collateral is acceptable by the Exchange
Transferable TRE notional value Rs. 15 million
KSE Shares (Shall Be Valued
@ Rs )
Bank Guarantee issued by Eligible Banks in terms of the definition specified in Regulations Governing Risk Management of the Exchange
Cash
Total to be not less than
Please Tick Box for Depositing Original TRE Certificate
No. of Shares Pledged with KSE Pledgee ID: B00107
____________
Amount in
Rs. __________________
Rs. ____________
Rs. 30,955,796 09

10. Serving Investors & Industry
THANK YOU
Serving Investors & Industry
Stock Exchange Building, Stock Exchange Road, Karachi-74000, Pakistan. Tel: Website: