KARACHI, Feb 24: A major impediment that discouraged the companies to join Central Depository System (CDS), despite being declared ‘eligible’, was removed by the Securities and Exchange Commission of Pakistan (SECP) by reducing the security deposit levied on issuers of securities by 50 per cent.

An announcement by the Central Depository Company (CDC) on Monday stated that the security deposit had been reduced in pursuance to the Order passed by the SECP. The action, CDC said, was taken to encourage the issuers of securities to reap the benefits of CDS—the electronic stock settlement system managed by the CDC—as it was not only in the interest of issuers but also in the overall interest of the capital market including small investors.

“In line with this, companies joining after the issuance of Order are now required to pay only 50 per cent of the security deposit for joining the CDS,” the announcement said, adding that as far as security deposit already taken by CDC from issuers (who have already joined the CDS) was concerned, the (SECP) order had asked CDC to make an appropriate plan to refund 50 per cent of the security deposit levied on such issuers.

CDC Board in a meeting held on Monday, February 24, had decided to refund the security deposit charges from issuers already live in CDS with immediate effect, the CDC announcement said.

It said that since the benefits under CDS clearly outweigh the fee/charges/deposit imposed under CDC Regulation, the SECP’s order had directed all listed companies who have not joined so far to join CDS by July 31, 2003.

“In this regard, CDC plans to approach these companies (which were already declared eligible by CDC for CDS purposes) for completion of induction formalities enabling smooth transition of their physical securities into the electronic book entry form,” the CDC announcement concluded.

It is a little over five years since CDC had started live operations and the company is responsible for settlement of over 97 per cent of the total settlement, representing a market capitalization of shares equivalent to Rs455.77 billion. Up until end-September 2002, CDC had declared a total of 816 securities as eligible, but 398 had gone live, representing 48.77 per centage of live vs. eligible securities. Textile sector was the most reluctant, with just 8 of the 52 eligible securities going live in textile composite; 26 of 150 securities in spinning and 6 of the 27 in the weaving sector.

It has to be seen whether the companies now seize the initiative and join the system before the cut-off date of July 31, 2003.