debt market presentation for lse1

8/3/2019 Debt Market Presentation for LSE1

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Clearing, Settlement and Risk Management Functions


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Features Issuer:An entity such as listed company that borrows

the money.

Principal:The par value or the face value of the debtsecurity payable at maturity.

Coupon rate: The stated annual rate of interest thatthe issuer pays on the principal to the holder of the debt

security.


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FeaturesTerm:The period of time, usually stated in years, over

which the issuer of a debt security has promised to meetits obligations.

Premium Price: When the price of a debt securityincreases above its face value, it is said to be selling at apremium.

Discount Price: When a debt security sells below itsface value, it is said to be selling at a discount.


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FeaturesAccrued Interest: The interest earned by the seller from

holding the bond from the last interest payment date until thedisposal date is called Accrued Interest.

Determining Accrued Interest:The bonds in secondary market are traded in between couponpayment dates. Therefore, the bond seller must be compensatedfor the portion of the coupon payment earns for holding thebond since the last payment. The concept will be cleared withthe following example:


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FeaturesExample:On March 1, 2009, ABC Fund sells a corporate bond with a face value of Rs1,000 and a 7%coupon paid semi-annually. The next coupon payment after March 1, 2009, is expected on June30, 2009. The accrued interest on the bond will be calculated as follows:

The coupon rate will be divided in half, which gives a rate of 3.5% (7% / 2) and couponpayment will then be Rs. 35 (1,000 X 0.035).

There are 120 days remaining before the next coupon payment, but because the coupons arepaid semi-annually, the regular payment period if the bond is 180 days. The seller, therefore,has accumulated 60 days worth of interest (180-120).

Accordingly, the buyer will pay to seller on the settlement date the following:

Purchase Price = Rs. 1,000 (Principal outstanding)

Interest accrued = Rs. 11.67

Total = Rs 1,011.67


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Clearing & Settlement


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Admission Requirements Broker Clearing Members (BCMs) and Non-Broker

Clearing Members (NBCMs) who meet the eligibility

criteria may become Debt Market Clearing Members

(DMCM) by fulfilling the following requirements:

Admission Form

Board Resolution (for corporates)

Agreement between NCCPL and DMCM

Agreement between NCCPL, DMCM and Settling Bank

Trust Deed (applicable where trustee has appointed)

Security Deposit


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Trade Details All trades executed by BCMs on Bonds Automated Trading

System (BATS) established by the Exchange shall be

transmitted to National Clearing & Settlement System

(NCSS) for further processing.

Debt Market Trades shall be settled through a separate account

opened in NCSS on T+1

The BCMs shall be responsible for Clearing and Settlement of

trades executed for their clients and proprietary account

The trades executed by NBCMs shall be processed through the

Institutional Delivery System (IDS) Module established in

NCSS


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Institutional Delivery System (IDS) IDS module of NCSS facilitates NBCMs to settle their Debt

Market Trades directly through NCSS. Once a transaction is

affirmed by NBCM, the settlement obligation of the initiating

BCM is transferred to such affirming Non-Broker CM.

In Exchange, NBCMs may directly be trade through brokers

terminal in the capacity of its Agent. Therefore, in order to

automate the entire process, following mechanism will be usedfor the Auto-Initiation and Auto-Affirmation Process

simultaneously:


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Institutional Delivery System (IDS)Auto-Initiation and Auto-Affirmation Process

NBMCs desirous to trade in the Debt Market will be required

to acquire a status of Agent of particular Broker(s) as per the

relevant Regulations of the Stock Exchange.

The Stock Exchange will provide necessary information of

such Agent ship relation of BCMs and NBCMs to NCCPL.

BCMs will be required to create a Client Code of such

NBCM(s) in NCSS as per the existing Unique Identification

Number (UIN) Module


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Institutional Delivery System (IDS)Auto-Initiation and Auto-Affirmation Process

Once Client Code is created by BCM in NCSS and confirmationfrom the Stock Exchange received regarding Agent-ship, suchUIN(s) of NBCMs will be marked in NCSS for auto-initiation andauto-affirmation.

Upon execution of trade by such NBCMs through the tradingterminal provided by BCM, such executed trade once transmitted in

NCSS by the Stock Exchanges shall be auto-initiated and auto-affirmed in NCSS simultaneously.

Such affirmed trades shall be settled by the respective NBCMsdirectly with NCCPL


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Institutional Delivery System (IDS)Auto-Initiation and Manual Affirmation Process

WhereasNBCMs desirous to trade as a Client of BCM, their respectiveUINs will not be marked for auto-affirmation, however, such trades willbe auto-initiated for manual affirmation by respective NBCMs in NCSS.

Initiation Process

IDS Transactions shall automatically be initiated by NCSS based on the UINs

and available on real time basis to NBCM(s) for affirmation.

Affirmation Process

Upon affirmation of such Trades, the settlement obligation of the InitiatingBCM will be transferred to the affirming Non-Broker CM.


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Major Benefits of NCSS Cross Exchange Netting for both cash & securities.

Automated Pay & Collect.

No physical receipt / issuance of instruments.

Automated process of securities settlement directly between CMs.


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Major Benefits of NCSS Settlement of non-broker institutions for Regular/Debt Market

Trades directly with NCSS.

Cross Exchange Netting for both cash & securities for CMs who aremembers of more than one Stock Exchange.

Settlement of net obligations directly between CMs as perundisclosed Balance Orders.


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Advantages of NCSS Pay & Collect:

Automated money settlements.

Same day credits to CMs.

Settlement of amount net of clearing obligations, squaring-upobligations and Tariff etc.

Single net settlement for CMs who are members of more than oneStock Exchange.


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T

T

SD -1

Execution of Trades at the

Stock Exchange (BATS)

Selling BrokerBuying Broker

Online trade feed to NCSS

Netting of trades

Buying Broker Selling Broker

Payment to NCSSRelease PaymentCollect Payment

Payment orders and Delivery Receiveorders

Money Receive orders and Deliveryorder

Delivery of securities (with

blocked status)

Unblocking of securities on PaymentConfirmation

Generation of IDSTransactions

Settlement Flow in NCSS

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SD


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Delivery Default Management CMs who fail to deliver securities till 4:15 PM to be considered as

delivery defaulter.

Failed deliveries are reported to respective Exchange for squaring-up.

Respective Exchange to square-up failed deliveries by 12:00 AMnext Trading Day.

Buying CMs who have already made the payments will get failed

deliveries by 2:00 PM, on next Trade Day subject to Square-Up.

In case of non-square up such failed delivery shall be closed-out onSD+1 whereby buyer will get market value on the basis of highestsystem price i.e. SD-1 to SD+1.


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NCSS Pay & Collect

CMs having payable, to pay by 12:00 noon on Settlement Date.

CMs having receivable, to receive by 1:30 PM, provided theydischarged all their delivery obligations.

CMs becoming liable due to short delivery reverses to pay by 4:10PM.

In case of money default, NCCPL shall apply money defaultprocedures.

Remaining CMs having to receive payments by 4:30 PM.

Settling Banks to online confirm payments & collections throughNCSS by the Designated Time.


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Risk Management for

Debt Market Clearing Member


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Risk Management NCCPL shall manage the risk of its BCMs and NBCMs admitted as

DMCMs in respect of Debt market trades executed and / or affirmed IDStransactions.

NBCMs having Agent Ship arrangement with BCMs shall pay margins toNCCPL directly instead of BCMs.

Where NBCMs trade as a Client of BCMs, in such case, BCMs will haveto pay margins till affirmation of such auto-initiated trades by respective

NBCMs.

Once NBCMs affirm auto-initiated trades, the margins will be collectedfrom such affirming NBCMs.


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Exposure and NettingNCCPL shall determine the Exposure of DMCMs by applying the following netting

mechanism:

Netting shall be allowed between buy and sell positions in the same Security on thesame day for the same client;

Netting shall not be allowed across all the three Stock Exchanges;

Netting shall not be allowed between buy and sell positions of different Securitieson the same day even for the same client; and

Netting shall not be allowed across settlement periods even for the same client

NCCPL shall hold such margins till the satisfaction of his settlement obligation onthe relevant Settlement Date.


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Margin Slabs

Margin requirements shall be calculated on the following

rule based margin slabs and collected on post-trade basis:

Description Exposure Margin Par Premium MarginTotal Margin

TFC (having credit rating of A) >

par premium

2.5% of the Exposure

amount

50% amount of the

excess market value

2.5% of the Exposure amount

+ 50% amount of the excess

market value

TFC (having credit rating of A) par premium

5% of the Exposure

amount

100% amount of the

excess market value

5% of the Exposure amount +100% amount of the excess

market value

TFC (having credit rating below of

A) < par (discount)

5% of the Exposure

amount25%

5% of the Exposure amount +

25% amount of the discounted

value


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Mark-To-Market Losses NCCPL shall calculate the Mark-To-Market Losses of

DMCMs on the basis of the Closing Price in the Debt

market.

Netting shall be permissible across Debt Market Trades in

different Securities for the same client in the same

Settlement Date.

NCCPL shall hold such margins till the satisfaction of his

settlement obligation on the relevant Settlement Date.


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Mode of CollateralDMCMs may deposit the following mode of collateral

against Exposure Margin and Mark-to-Market Losses:

Cash;

Bank guarantees and/or

Irrevocable undertakings (where applicable)


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Collection of CollateralNCCPL will calculate Exposure Margins and MTM Losses of BCMs and NBCMs

based on their Debt Market Trades on real time basis and collect the demand as per

the following Designated Time Schedule (DTS).

NCCPL will generate first demand for the collection of Exposure Margin and MTM

Losses tentatively at 11:30 a.m. in the Settling Bank Accounts of respective BCMs

and NBCMs

NCCPL will update the collateral positions of BCMs & NBCMs and generate

second demand for the collection of Exposure Margin and MTM Losses (if any)

tentatively at 01:30 p.m. in the Settling Bank Accounts of respective BCMs andNBCMs.

NCCPL will update the collateral positions of BCMs & NBCMs accordingly and

generate final demand for the collection of Exposure Margin and MTM Losses (if

any) after the close of trading session in the Settling Bank Accounts of respective

BCMs and NBCMs.


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Deposit of Collateral as Cash

The role of Settling Banks (SBs) becomes more important when DMCMs optto make payment of Collateral in the form of Cash.

NCCPL shall collect Cash against Exposure Margins and MTM demandsthrough Pay & Collect module of NCSS by providing exclusive automatedcollection window to the respective Designated Settling Bank branch of therelevant DMCMs

Cash may also be deposited in the Bank account of NCCPL, maintained in thedesignated branches of Settling Banks, as per the DTS by respectiveDMCMs.

For the confirmation of Cash deposited by the DMCMs, deposit slip should

have the POSTED stamp over leaf, duly signed by the authorized staff of theSettling Banks.

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Process of Releasing Cash DepositedAgainst Margins

DMCMs may initiate request (on the prescribed format duly signed byauthorized person) to NCCPL for release of Cash deposited against ExposureMargins & MTM losses.

Upon receipt of release request, NCCPL shall validate the current Collateral ofsuch DMCM against Exposure Margins & MTM losses.

In case of excessive Collateral:

NCCPL shall release cash on the same settlement date by issuing the cheque in the name of DMCM.

In case of deficiency in the required Collateral:

NCCPL shall reject the release request of cash. Such rejected request shall not be re-processedand DMCMs shall submit new release request, if required.

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Prescribed Format for Releasing CashDeposited Against Margins

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(To be typed on letterhead of DMCM)

The Head of OperationsNational Clearing Company of Pakistan Limited8th Floor, Karachi Stock Exchange BuildingKarachi Stock Exchange Road,Karachi.

Subject: Release of Cash Deposited Against Exposure Margin and MTM Losses

Dear Sir,You are requested to release Rs.____________ deposited against Exposure Margins and MTM Losses by(Name of DMCM) holding CM Id _________.

Regards,__________________Authorized signatory(ies)

Name


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Deposit of Collateral as Bank Guarantee

DMCM may also deposit Bank Guarantee as Collateral, on the NCCPLsprescribed format.

DMCM shall notify NCCPL fifteen Business Days prior to the expiry of thesubmitted Bank Guarantee.

Bank Guarantee submitted by DMCM shall be retained by NCCPL till itsexpiry date. However, DMCM may withdraw their Bank Guarantee beforethe expiry date by giving seven Business Days prior notice to theCompany.

In case of withdrawal of Bank Guarantee, DMCM should make necessaryarrangements for the provision of other means of Collaterals.

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Deposit of Collateral as IrrevocableUndertaking

DMCMs may also deposit Irrevocable Undertaking as Collateral, on the NCCPLsprescribed format.

Irrevocable Undertaking is only applicable for Commercial Banks/DevelopmentFinancial Institutions (DFIs) having credit rating of AA and higher.

Upon receipt of Irrevocable Undertaking, the Company shall make deposit entry,to the extent of amount of Irrevocable Undertaking in the respective DMCMsaccount in the system.

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Process of Releasing IrrevocableUndertaking Deposited Against Margins

The DMCM may withdraw their Irrevocable Undertaking by giving sevenBusiness Days prior notice to NCCPL.

In case of withdrawal of Irrevocable Undertaking, the DMCM should makenecessary arrangements for the provision of other means of Collateral.

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Risk Management Related Reports on NCSS

Following are the Reports and Downloads that will be available toDMCMs on NCSS:

Reports Exposure Brief Report

Exposure Summary Report

Demand of Payment Report

System Price Report

Participant Collateral Position Report

Capital Adequacy ReportDownload:Download RMS Exposure Brief Report

Download RMS System Price Report

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Exposure Brief Report

Following information's will be available to DMCMs in ExposureBrief Report on trade to trade basis:

Exchange ID

Symbol Exposure Date

Client

Buy/Sell Quantity

Buy/Sell Amount

Excess/Below Par Value Loss/Profit

Exposure

Exposure Demand

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Exposure Summary Report

Following information's will be available to DMCMs in ExposureSummary Report:

Exchange ID

Symbol

Exposure Date

Market Type

Exposure

Exposure Demand Loss Demand

Total Demand

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Demand Payment Report

Following information's will be available to DMCMs in ExposureDemand Summary Report:

Net Outstanding Purchase/Sale Value Total Exposure

Exposure Demand

Mark to Market Losses Demand

Total Demand

Already Deposited Collateral

Net Payable

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Participant Collateral Position Report

Following information's will be available to DMCMs in ParticipantCollateral Position Report:

CM ID Name

Bank

Collateral Type

Amount

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System Price Report

Following information's will be available to DMCMs in System PriceReport:

Symbol Name

Face Value

Previous Day Closing Price

Last Traded Price

Calculated Price

High/Low/Average/System Price

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Capital Adequacy Report

Following information's will be available to BCMs admitted asDMCMs in Capital Adequacy Report:

CM ID/Name

Trader ID/Location

Exposure

Net Capital Balance

Position Limit Balance

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NCSS Operating Screens

LOGIN INTO NCSS


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LOGIN INTO NCSS


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MAIN MENU SCREEN


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User Change Password


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Change Password


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Menu for Affirmation/Rejection


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IDS CONFIRMATION SEARCH SCREEN


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IDS CONFIRMATION SAVE MODE SCREEN


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IDS CONFIRMATION GO SAVE MODE SCREEN


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IDS CONFIRMATION GO POST MODE SCREEN


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Non-Exchange Report


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Download for NE Transactions


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BALANCE ORDER BOOK ENTRY

DELIVERY SCREEN


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Reports Trades

Reports Balance Order


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Reports Balance Order


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Thank You !NATIONAL CLEARING COMPANY OF PAKISTAN LIMITED

8th Floor, Karachi Stock Exchange Building,

Stock Exchange Road, Karachi 74000 Pakistan

TEL : (92-21) 3246 0820-23 FAX: (92-21) 3246 0827E-Mail : [email protected]

Website : http://www.nccpl.com.pk
http://www.nccpl.com.pk/http://www.nccpl.com.pk/

debt market presentation for lse1

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