National Clearing Company of Pakistan Limited
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Back Ground
 The Securities and Exchange Commission of Pakistan
(“SECP”) formed Consultative Group on Capital Market
comprises of market experts from Stock Exchanges, NCCPL,
CDC, Financial Institutions and SBP.
 Besides various other mandates, the Group was requested to
prepare a working paper on Margin Financing in line with the
best international practices.
 The Committee conducted detailed analysis and forwarded its
recommendations and detailed Concept Paper, for the provision
of ‘Margin Financing System’ to SECP.
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Back Ground
 Accordingly, such Concept Paper was circulated by SECP to all
market participants for their feedback and comments.
 The Rules, called “Securities (Leveraged Market and Pledging)
Rules, 2011” have been circulated by SECP on February 18,
2011
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Introduction
 Margin Financing (MF) facility will be made available to all brokers from
financial institutions (Banks and DFIs) against net ready market purchases of
their clients and proprietary positions. However, such ready market purchases
shall not be included that are financed in MT Market.
 MF may be obtained as per agreed Financier Participation Ratio (FPR).
However, minimum of 25% or VaR whichever is higher should be
contributed by financee.
 MF may be provided by a broker through its own fund to its own client and
to the broker of other stock exchange as its client.
 MF Participants (Margin Financee and Margin Financier) will pre-define all
terms and conditions pertaining to MF Transactions in accordance with the
NCCPL Regulations.
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Introduction
 National Clearing Company of Pakistan Limited (“NCCPL”) will
provide 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 Authorised
Intermediately.
 Reversal of MF Transactions (MFR) will also be recorded on such MF
System. However, only MFR based on ready market sell shall only be
settled through NCSS.
 All MF Transactions will be based on counterparty risk.
 Marked-to-market, Mark-up Rate and Corporate Entitlements will be
managed by the MF Participants outside MF System.
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Eligibility Criteria
Margin Financee
All Broker Clearing Members shall be Margin Financees in the Margin Financing
System of NCSS.
Margin Financiers
 A member of a Stock Exchange fulfills the net capital requirements (for Member of KSE Rs.
20 million, for Member of LSE Rs. 8 million and for Member of ISE Rs. 5 million);
 A banking company within the meaning of the Banking Companies Ordinance, 1962 (LVII of
1962) and which has been allocated minimum short-term credit rating of A3;
 A company, corporation or institution to which Section 3A of the Banking Companies
Ordinance, 1962 (LVII of 1962) is applicable and which has been allocated minimum short-
term credit rating of A3;
 An investment finance company licensed by SECP and which has been allocated minimum
management quality rating of AM3 minus; and
 Any other corporate entity admitted by NCCPL Board and approved by SECP.
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MF Agreement
 MF Agreement shall be executed between MF Participants before entering into MF
Transaction.
 Following matters shall be 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
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Financing. Any exclusion will require advance notice of at least two weeks.
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.
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Recording of Margin Financing
Transactions on MF Module in NCSS
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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).
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MF Initiation and Affirmation Process
 MF System shall calculate member-wise, security-wise, UIN-wise and
client code 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 will be
reflected to the counter Margin Financier for its affirmation. Such,
affirmation shall be restricted upto FPR.
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MF Initiation and Affirmation Process
 Affirming Margin Financier shall not be allowed to edit the
details of an initiated transaction and shall 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 shall be automatically
dropped from MF System.
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Settlement of MF Transactions
 Upon affirmation of
MF Transaction by the counterparty Margin Financier, such
transactions shall be settled under Balance Order of NCSS.
 Settlement Date of each MF Transaction shall be the same of the underlying net
purchases of MF Eligible Securities in ready market.
 The Margin Financee will settle MF Transactions through its Regular CDC Account in
NCSS on net basis.
 The Margin Financier will settle MF Transactions through its separate Margin Financier
Account in NCSS without netting with its Regular Account . For this purpose, Margin
Financier shall be required to open a separate CDC MF Blocked Account.
 Margin Financier shall be obliged to pay affirmed MF Transaction Value on the
Settlement Date upto FPR whereas, remaining amount of the ready market purchases
shall be paid by the Margin Financee accordingly.
 Upon settlement, all MF Securities shall be moved to the CDC MF Blocked Account of
the Margin Financier.
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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.
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MFR Initiation and Affirmation Process
1. 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 initiation, the same details will be reflected to the counter
Margin Financier for its affirmation. Affirming Margin Financier shall
not be allowed to edit the details of the initiated transaction and shall
have an option to affirm and/or reject any number of such initiated
transactions.
 If an initiated MFR Transaction neither affirmed nor rejected within
the DTS, it will be automatically dropped from the MF System.
Continued…..
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MFR Initiation and Affirmation Process
 Settlement Date of each MFR Transaction shall be the same of the underlying Sell of MF
Eligible Securities in ready market.
 Upon affirmation by the Margin Financier, such MFR Transaction shall be settled under
Balance Order of NCSS.
 Accordingly, the Margin Financier will receive 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 shall be handled between MF Participants out side
NCSS.
 Corporate actions of the MF Financed Securities shall be handled by the MF Participants as
per their mutual agreement out side the MF Module. However, corporate entitlements of MF
Financed Securities shall be credited in the regular CDC Account of Margin Financier.
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MFR Initiation and Affirmation Process
2. MFR Without Having Ready Market Sell
 MFR Transactions without having sell position, may also be released. However, such
MFR Transactions shall be settled directly between MF Participants outside the MF
Module.
 Such MFR Transactions shall be settled directly between Margin Financing
Participants outside the NCSS.
 However, upon affirmation, MF Financed Securities shall be moved from the CDC
MF Blocked Account of respective Margin Financier to the counterparty Margin
Financee Regular CDC Account.
 If an initiated MFR Transaction neither affirmed nor rejected within the DTS, it will
be automatically dropped from the MF System.
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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.
 Such MFR Transaction shall be treated as auto-affirmed and
MF
Securities of the defaulted Margin Financee shall be delivered into the
Regular CDC Account of the Margin Financier.
Note: Margin Financier shall indemnify and hold the Company harmless against any
claims made by the Margin Financee on the ground that the Margin Financed
Securities should not have been unblocked for any reason whatsoever.
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Risk Management
1. Exposure Margins
Margin Requirements from Financee
Margins will initially be applied on Margin Financee on its ready
market purchase as per the risk management requirements of the
respective Stock Exchanges. However, Margin Financee will pay
margins to counterparty Margin Financer in accordance with the terms
and conditions set out in their MF Agreement.
Margin Requirements from Financier
Margin Financer will pay exposure margins on MF Transaction to
NCCPL till the settlement date. No margins shall be collected from the
Margin Financier after settlement of MF Transactions.
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Risk Management
2. Position Limits
Position limit of Margin Financee shall not exceed the following:
Market wide position limit
40% of free-float for each security
Member wide position limit
1% of the free-float for each security
Client wide position limit
0.5% of the free-float for each security.
Client position will be universal and
determined on UIN basis.
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Risk Management
3. Capital Adequacy Limits for Margin Financee
 The aggregate Exposure of
Margin Financee in all markets
including MF Transactions shall not exceed 25 times of its net
capital balance.
 The aggregate Exposure of Margin Financee in respect of MF
Transactions shall not exceed 5 times of its net capital balance.
 Exposure to a single client shall not exceed 5% and Exposure in
single MF Eligible Security shall not exceed 20% of the total
permissible exposure (5 times of net capital balance).
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Default Management
 Since the MF Transactions will be executed on the basis of disclosed manner
and carry counter-party risk, any default on MF and/or MFR Transaction will
result in cancellation of all MF and/or MFR Transactions as the case may be.
 In such cases respective counter-party Margin Financees shall be hold
responsible for the settlement of their entire ready market purchases and/or
sells, as the case may be. However, in case of non-fulfillment of obligation of
affirmed MF Transaction by counterparty Margin Financier, penalties shall
be imposed on such Margin Financier as per NCCPL Regulations.
 In case of non-fulfillment of resultant ready market settlement obligation by
the respective Margin Financee, normal default procedures in accordance
with the NCCPL Regulations shall be applied.
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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 0811-19 FAX: (92-21) 3246 0827
E-Mail : rehansaif@nccpl.com.pk
Website : http://www.nccpl.com.pk
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