1. Margin Financing System (MFS)
Brief Overview – Existing System

2. Introduction
Margin Financing (MF) facility has been made available to all brokers against net ready market purchases of their clients and proprietary positions.
MF may be provided by brokers through its own fund to its own client and/or from borrowed funds from financial institutions (Banks and DFIs) .
MF may be obtained as per agreed Financier Participation Ratio (FPR). However, minimum of 10% cash should be contributed by the Financee
MF Participants (Margin Financee and Margin Financier) will pre-define all terms and conditions pertaining to MF Transactions.

3. Introduction
National Clearing Company of Pakistan Limited (“NCCPL”) has provided a system to facilitate MF Participants for recording and settlement of MF Transactions through its National Clearing & Settlement System (“NCSS”) in the capacity of an Authorized Intermediately.
Reversal of MF Transactions (MFR) is also be recorded on such MF System.
All MF Transactions will be based on counterparty risk.
Marked-to-market and Mark-up Rate are managed by the MF Participants outside MF System.

4. MF Agreement
MF Agreement is executed between MF Participants before entering into MF Transaction.
Following matters are covered in the MF Agreement between MF Participants in accordance with the Rules and NCCPL Regulations:
List of Securities (to be selected form MF Eligible Securities) acceptable for Margin Financing.
FPR for each Security, which is acceptable to the Margin Financier;
Limit of Margin Financing Facility;
Margin Financing Mark-up Rate;
Margin Financing Contract Period;
Forms of acceptable Collateral for margin and MtM losses;
Default Management Procedures
Treatment of corporate actions; and
Any other matter as agreed upon between the MF Participant.

5. Recording of Margin Financing Transactions on MF Module in NCSS

6. Pre-checks of Initiation / Affirmation
Amount of financing facility from Margin Financier along with list of MF Eligible Security(ies) and its respective FPR for respective financees;
Availability of net purchases from ready market trades;
Position Limits (market-wide, member-wide, client-wide);
Capital adequacy; and
Affirmation by Margin Financier shall be restricted upto 5% of the free float of Eligible Security (ies).

7. MF Initiation and Affirmation Process
MF System calculates member-wise, security-wise and UIN-wise (including proprietary account) net purchases from ready market trades for Clearing Members as Margin Financee.
Margin Financee may initiate MF Transaction fully or partially.
Upon initiation, details of such initiated MF Transaction are reflected to the counter Margin Financier for its affirmation. Such, affirmation is restricted up to FPR.

8. MF Initiation and Affirmation Process
Affirming Margin Financier is not allowed to edit the details of an initiated transaction and have an option to affirm and/or reject any of number of initiated transactions on the Trade Date within Designated Time Schedule (DTS).
Margin Financee may cancel the initiated MF Transaction at any given point of time before its affirmation by the counter Margin Financier.
Where initiated MF Transaction is neither affirmed nor rejected within DTS, such MF Transactions are automatically dropped from MF System.

9. Settlement of MF Transactions
Upon affirmation of MF Transaction by the counterparty Margin Financier, such transactions shall be settled under Balance Order of NCSS.
The Margin Financee settles MF Transactions through its Regular CDC Account in NCSS on net basis.
The Margin Financier settles MF Transactions through its separate Margin Financier Blocked Account in NCSS without netting with its Regular Account .
Margin Financier is required to pay affirmed MF Transaction Value on the Settlement Date up to FPR whereas, remaining amount of the ready market purchases is paid by the Margin Financee accordingly.
Upon settlement, all MF Securities are moved to the CDC MF Blocked Account of the Margin Financier.

10. MFR Initiation and Affirmation Process
MFR Transactions can be executed on the following basis:
Ready Market Sell;
Without having Ready Market Sell; and
Direct release by Margin Financier.

11. MFR Initiation and Affirmation Process
MFR Against Ready Market Sell
MFR Transactions can be initiated by Margin Financee fully or partially based on its net ready market sell position.
Upon affirmation, the Margin Financier receives affirmed MF Transaction Value on the Settlement Date and deliver MF Financed Securities from its CDC MF Blocked Account.
The settlement of MF Mark-up Rate is handled between MF Participants out side NCSS.

12. MFR Initiation and Affirmation Process
2. MFR Without Having Ready Market Sell
MFR Transactions without having sell position, may also be released.
Such MFR Transactions are settled directly between Margin Financing Participants outside the NCSS.
However, upon affirmation, MF Financed Securities are moved from the CDC MF Blocked Account of respective Margin Financier to the counterparty Margin Financee Regular CDC Account.

13. MFR Initiation and Affirmation Process
3. Direct Release by Margin Financier
In case of any default and/or dispute occurred between MF Participants on MF Transactions and/or in case of non-fulfillment of any margin call by the Margin Financee, the Margin Financier may directly initiate MFR Transaction.
In such case, MF Securities are delivered into the Regular CDC Account of the Margin Financier.

14. Recommendations of the Committee to review
In-house Financing

15. Recommendations of the Committee
Particular
Existing
Recommendation
1. Financing Participation Ratio (FPR)
Minimum 10% of FPR is deposited by Financee and reaming FPR is deposited by Financier on the Settlement Date
Minimum requirement of 10% FPR in case to be removed and Financier to maintain complete FPR in the form of Securities
2. Tri-Partite Agreement
N/A
In case where Broker Margin Financier borrowed funds from banks/financial institution, in such case, tri-partite agreement between Broker Margin Financier, Bank/financial institution and client will be executed

16. Recommendations of the Committee
Particular
Existing
Recommendation
3. CDS Sub-Account of a Client in MF Blocked Account
Only house account of Broker Financier is maintained in the MF Blocked Account
On the basis of tri-partite agreement, CDS sub-account of a client will be opened in MF Blocked Account subject to fulfillment of necessary requirements.
Copy of such tri-partite agreement should be provided to CDC along with other necessary supporting documents. Copy of such agreement should also be provided to NCCPL
CDC Access, UIS of NCCPL (to view open and pledge position) will be mandatory for opening of this sub-account

17. Recommendations of the Committee
Particular
Existing
Recommendation
4. MF Transaction Initiation
Broker initiates MF Transaction without marking as proprietary and non-proprietary positions
At the time of initiation, MF transaction need to identified as Proprietary or non-proprietary financing.
5. Settlement of MF Transaction
All Margin Financed Securities are delivered in the Broker Margin Financiers CDS house account In Blocked Status
Proprietary MF Transaction will be settled in the Broker Margin Financiers CDS house account In Blocked Status and Non-proprietary transactions will be settled in the respective CDS sub-accounts of a client in Blocked Status

18. Recommendations of the Committee
Particular
Existing
Recommendation
6. Pledging of Margin Financed Securities
Pledging of Margin Financed Securities delivered in the Blocked Account of Financier is restricted
Broker Margin Financier will be allowed to pledge Margin Finance Securities:
From the CDS sub-account of a client maintained in the Blocked Status
Pledging shall be made through exclusive pledge ID
Pledging can only be made in favor of Bank/Financial Institution for which tri-partite agreement is executed.
Client shall be identified to Bank/Financial Institution.

19. Recommendations of the Committee
Particular
Existing
Recommendation
7. Pledging of Securities from Normal sub-account of Client
Pledging of Securities from normal sub-account of a client is permissible as pert he terms and conditions of bank
Broker Margin Financier will be allowed to securities from the normal CDS sub-account of a client:
Open Position of client should exist in MF.
Pledging shall be made through exclusive pledge ID
Pledging can only be made in favor of Bank/Financial Institution for which tri-partite agreement is executed.
Client shall be identified to Bank/Financial Institution.
Pledging should not exceed with the requirements

20. Recommendations of the Committee
Particular
Existing
Recommendation
8. Margins/MTM Losses on Pledged Position
N/A
Where Margin Financed Securities are pledged in such case:
Broker Margin Financier will be required to deposit VaR Margins and MTM Losses
Margins/MTM Losses to be deposited from the house account of Broker Margin Financier .
Such securities should be maintained in the separate blocked account of Broker Margin Financier.

21. Recommendations of the Committee
Particular
Existing
Recommendation
9. Pledge Call Reporting
Banks/Financial Institutions can make a pledge call in case of shortfall in margins
Broker Margin Financier shall be required to provide a report to bank/financial institution identifying relevant client and securities against which securities required to pledge call.
Bank/financial institution will give priority to the accounts and securities identified by the Broker Margin Financier
Bank/financial institution will pledge call shares to the extent of default
Terms and conditions should be covered in tri-partite agreement

22. Recommendations of the Committee
Particular
Existing
Recommendation
10. Corporate Entitlements
Corporate entitlements of Margin Financed Securitas are delivered to the Margin Financier who settle such entitlement with Financee as per terms and conditions on MF Agreement
Corporate entitlements of Margin Financed Securitas will be delivered to the respective client/ proprietary account as the case may be as per mechanism applicable in MTS
11. Financier Acceptable Securities (FAS)
Broker Margin Financier is required to maintain FAS (difference of total FPR and cash contribution of Financee) in the CDS Blocked Account .
The requirement to move FAS in the Blocked Account of Financier is removed and it can be maintained in the respective sub-account of a client

23. Recommendations of the Committee
Particular
Existing
Recommendation
12. Fore release of MF Transaction
N/A
In case where client has made payment directly to bank/financial institution, NCCPL may force release MF Transaction on clients request and facilitate client to get its shares released from bank/financial institution
13. Dispute resolution on MF and pledge transaction
In case of dispute over MF transaction and consequential pledge transactions, NCCPL shall be empowered to review and decide the matter.

24. Recommendations of the Committee
Particular
Existing
Recommendation
14. Marked-to-Market collection from Clients
Where market price of MF Financed Security declines to 30% of MF Transaction Value, in such case, Broker Margin Financier will be required to collect marked-to-market losses from their Margin Financee clients in the form of cash only
Where market price of MF Financed Security declines to 5% of MF Transaction Value, in such case, Broker Margin Financier will be required to collect marked-to-market losses from their Margin Financee clients in the form of cash only

25. Thank You! National Clearing Company of Pakistan Limited th Floor, Pakistan Stock Exchange Building, Stock Exchange Road, Karachi – Pakistan TEL : (92-21) FAX: (92-21) Website :