CDC temporarily restricts access of Elixir Securities

Brokerage complies with regulations after being told to rectify breach

KARACHI: The Central Depository Company (CDC) temporarily restricted the access of Elixir Securities to the Central Depository System (CDS) over its noncompliance with share custody regulations in the post-trading hours on Wednesday.

As the only securities depository in Pakistan, the CDC is responsible for handling the electronic settlement of capital market transactions.

The CDC imposed restrictions on the admission of Elixir Securities into the CDS for breaching its maximum custody limit.

The custody position of a brokerage house represents the cumulative value of its holding balances at any given time. Under current CDC regulations, the maximum custody limit of a brokerage is 25 times of its capital adequacy level, which is determined by subtracting total liabilities and revaluation reserves from its total assets.

The custody position of Elixir Securities was in excess of its maximum custody limit, which led to the CDC’s action against it. The restrictions that remained in place for a few hours resulted in the CDC rejecting valid deposit request transactions transmitted by Elixir Securities with respect to any of its investor sub-accounts. In addition, the CDC rejected valid inter-account delivery transactions and intra-account delivery transactions transmitted by, or to, Elixir Securities.

The CDC notice asked Elixir Securities to rectify the breach within two months in order to avoid suspension of its admission into the CDS.

However, the brokerage complied with the regulations on the same day, which was followed by the removal of restrictions imposed by the CDC with immediate effect.

According to a spokesman for Elixir Securities, the action of the CDC was not a consequence of any adverse financial condition. “The issue arose only because of the unprecedented growth in Elixir’s business and delay on the part of some clients to shift their shares from the sub-accounts held with Elixir to their investor accounts,” he said.

Clients of Elixir Securities shifted their shares to their own investor accounts subsequently and that led to the removal of CDC restrictions on the same day, he said.

“Such action had no impact on our clients’ shares already held under our custody,” he added.

Published in The Express Tribune, February 26^th, 2016.

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