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National Clearing Company of Pakistan Limited

National Clearing Company of Pakistan Limited. Revised Features Securities Lending & Borrowing (“SLB”). Securities Lending and Borrowing (SLB). Introduction

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National Clearing Company of Pakistan Limited

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  1. National Clearing Company of Pakistan Limited Revised Features Securities Lending & Borrowing (“SLB”)

  2. Securities Lending and Borrowing (SLB) Introduction • 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 potential lenders and borrowers can be the brokers, banking companies, financial institutions, investment finance companies and other person approved by NCCPL and SECP. • All potential lenders/borrowers have to be the Clearing Members of NCCPL.

  3. Securities Lending and Borrowing (SLB) Why SLB? • The motivation for lenders is: • To earn income/return on their idle Securities. • To utilize 100% amount of lent Securities. • The motivation for borrowers is: • To avoid delivery failure in ready/future market ; and • To borrow SLB Eligible Security before affecting the short sale

  4. Revised Features (SLB) • Revision in Cash Retention Methodology: 100% amount of SLB Transaction shall be paid to the lenders on Settlement Date • Additional Mode of Collateral: Margin Eligible Securities, Bank Guarantee, T-Bill, IUT can be deposited for the purpose of Exposure Margin • Risk Management from Lenders:

  5. Brief Overview Securities Lending & Borrowing (“SLB”)

  6. Brief Overview- SLB To Manage Delivery Failure of Ready/Future Market • SLB facility provides effective solution for managing delivery failures as per the following process: • Clearing Member (“CM”) may borrow securities on Trade Day from SLB market; • NCCPL may also borrow securities upon receiving written request from CM on the settlement date from SLB Spot Market.

  7. Brief Overview- SLB To Facilitate the Market Participants Affecting Short Sales • In case of short sale, CMs shall be required to borrow securities from SLB Market before affecting short sale. • Short sale and corresponding borrowing transactions shall be settled on net basis on T+2, through NCSS whereby delivery obligation becomes zero on settlement date.

  8. SLB-Modus Operandi • SLB market is available in parallel to the Regular Market. • SLB is operating through an automated platform provided by NCCPL as an Authorised Intermediary, to SLB Participants (lenders and borrowers) for placing offers and bids for SLB Eligible Securities to be lent and/or borrowed. • The Premium of lending and borrowing is determined by the market forces on demand & supply basis. However, such Premium is capped to KIBOR+8%. • The SLB transactions are carried out on an undisclosed basis in the SLB Market.

  9. SLB-ModusOperandi • The valuation of SLB transactions are done at the immediate preceding price of the SLB Eligible Securities exist in Ready market at the time of execution. • SLB Contract period is 22 working days. On 23rd day SLB Contract shall be forced released. • Only borrower may release SLB contract at any given point of time during 22 working days. • SLB Contracts shall be force released on a day before the start of Spot Period of a particular SLB Eligible Security • The settlement of the SLB transactions shall be on T+2. Conti…

  10. SLB-ModusOperandi • On Settlement Day of SLB Transaction, the lender is required to deliver lended securities and borrower is required to pay the total amount of borrowed securities. However, in case of corresponding sale, the money obligation of such borrower will be netted-off in NCSS; • Accordingly, 100% value of the lent securities paid to the lender; • At the time of release of SLB Transaction (SLB-R), the lender is required to pay 100% amount of the lent securities (after adjustment of Premium, if any) and receive the lent securities.

  11. SLB-ModusOperandi • At the time of release of SLB-R Transaction the borrower is required to deliver the borrowed securities. • Accordingly, NCCPL will pay 100% amount to the borrower, after the adjustment of premium.

  12. SLB-Risk Management • The borrower and lender shall pay VaR based exposure margins in the form of Margin Eligible Securities, Cash, Bank Guarantee, IUT and T-Bills to NCCPL against SLB Transactions on pre-trade basis. • The marked-to-market losses shall be collected from the borrower and lender on daily basis in the form of Cash only. • Special Margins shall be collected from borrowers in the form of Cash, Bank Guarantee, IUT and T-Bills only.

  13. Thank you ! NATIONAL CLEARING COMPANY OF PAKISTAN LIMITED 8th Floor, Karachi Stock Exchange Building, Stock Exchange Road, Karachi – 74000 Pakistan TEL : (92-21) 3246 0811-19 FAX: (92-21) 3246 0827 E-Mail : rehansaif@nccpl.com.pk Website : http://www.nccpl.com.pk

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