FREQUENTLY ASKED QUESTIONS

FREQUENTLY ASKED QUESTIONS
What is a depository?

A depository is like a bank for shares instead of money. Instead of holding shares in the form of certificates, investors have accounts in the depository and are able to move securities and settle stock exchange transactions by an electronic update of their accounts. Virtually all established markets have depositories including India, Japan, Malaysia, Pakistan, Sri Lanka, Thailand, UK and USA. The core service of a depository is the efficient delivery, settlement and transfer of securities through a computerised book entry system. The Central Depository Bangladesh Limited (CDBL) is a company set up by  the banks,  stock exchanges and other institutions to operate the central securities depository in Bangladesh.

Why is a depository needed?

The need for a depository arose from shortcomings in the present settlement system, resulting in:

  • lengthy delays in delivery, settlement and transfer of securities;
  • tedious procedures for verification of securities and transfer deeds;
  • considerable time involved in despatching cash dividends and bonus shares;
  • serious problems associated with physical custody;
  • tedious procedure involved in pledging of physical securities to raise capital.

CDBL, by converting physical certificates into electronic form, will eliminate the risks of damaged, lost, forged and duplicate share certificates. The instantaneous delivery through electronic book entry will result in immediate transfer of ownership, which presently can take over a month. CDBL, in the long term, will also reduce the costs of the investing public.
Investors will enjoy many benefits in buying and selling shares in the depository mode, such as: 

  • Instantaneous transfer: no delays in delivery, settlement or transfer
  • Elimination of risks associated with physical certificates such as fake, duplicate shares, protection against loss, mutilation or theft of share certificates etc.
  • Reduced hassle of paper work
  • Faster settlement cycles
  • Convenient method of consolidation of folios / accounts;
  • Holding investments in equity, debt instruments and Government Securities in a single account
  • Speedy disbursement of non-cash corporate action benefits like bonus and rights into investors' accounts
  • Electronic credit of new issues (IPO) into investors' accounts
  • Regular account status updates available to investors at any point of time
What are the benefits and voting rights?

The Law requires issuers to treat depository account holders as full members of the company.

When a record date for a benefit arrives the company will take details of all account holders from CDBL and create a unified register, which will be used to distribute dividends, rights and bonus shares.

Investors who hold shares in the depository will be eligible to vote exactly as though they held share certificates. The advantage, however, of holding shares in the depository is that shares are credited to the account on settlement date and the investor is the registered owner of those shares from that date. This avoids the delay that occurs, with physical certificates, between market settlement and registration.

Companies, when they issue new shares, will be able to make arrangements so that the new shares can be issued directly into depository accounts so saving the need for the company to issue share certificates and for investors to subsequently dematerialise them.

How does CDBL affect us?

How does it affect Investors?

  • Investors are able to hold their securities in dematerialised form in a CDBL account; this removes the problems associated with physical certificates.
  • Investors must have dematerialised securities in their account before they instruct a stock broker to sell.
  • Securities resulting from a stock exchange bought trade will automatically be added to the investor's account.
  • Investors may rematerialise their securities or they may instruct their stock broker to transfer them to their account with another participant or to a direct depository account.
  • Securities in the account may be pledged to a bank or other financial institution without the need to withdraw them from the depository system.
  • Investors, who have accounts in their own name, may request CDBL to issue them with a statement (to confirm the information given to them by their participant).

How does it affect Issuers?
Issuers will need to:

  • establish communication links with CDBL;
  • partition their registers into a certificated portion and a depository portion; no certificates may be issued for balances on the depository portion;
  • process valid demat requests by moving the securities from the certificated portion of the register to the depository portion of the register, confirming the demat to CDBL (through the communication link), and reconciling the balance shown on the depository portion of his register with the figure available from CDBL;
  • process valid remat requests by moving securities from the depository portion of the register to the certificated portion, confirming the remat to CDBL and reconciling, and issuing a certificate in respect of the holding on the certificated portion of the register;
  • treat investors who are account holders at the record date for benefits (or for eligibility for voting) as members of the company (as required by the Law).

How does it affect stock brokers?
Stock brokers will need to become direct or indirect depository participants. Direct depository participants will need to establish communication links with CDBL. They will also need to:

  • sign agreements with clients who wish to hold securities in CDBL accounts;
  • ensure that securities are dematerialised before they accept a sell order from a client and move securities from the client account to their settlement (clearing) account if the client holds their account through them; or receive securities (in dematerialised form) from a direct depository account or a third party account; or match a transaction with the client's custodian to ensure that securities are moved on or prior to the relevant settlement day to their clearing account;
  • move securities to the account of a client (or rematerialise them) following settlement of a bought trade;

CDBL does not handle funds and therefore payment arrangements between stock brokers and their clients are not changed by the introduction of the depository.

How do I open an account?

Investors may open an account with any CDBL participant (for an up to date list of participants, see Listed Participants).
The participant will request the investor to sign an agreement which will set out the rights and duties of both the investor and the participant. The participant will then open an account for the investor at CDBL. Normally the account will be in the name of the investor. If the participant is going to mix one investors securities with another in an omnibus account then this must be specifically stated on the agreement. Where the account is in the name of the investor then the Law provides that the account holder is a member of the company even though his securities are dematerialised. The participant is required (under the regulations) to provide statements on at least a monthly basis if there are movements on the account. Even if there are no movements, the participant must provide a quarterly statement.Please refer to the Forms Download Page for a list of forms related to account opening.

Does CDBL affect buying & selling?

The introduction of CDBL does not make any difference to the process of buying and selling although it does make a difference to the settlement of such trades.
Where investors have a CDBL account through their broker then the act of giving a sell order to the broker also authorises him to move securities from the account to settle the sale. The broker will move the securities when he enters the order into the market. If the order is executed then the securities are used to settle the sale. If the order is not executed then the broker will move the securities back to the investor's account.
Where investors have a CDBL account through a custodian (who is not a broker) then they must advise their custodian that they have sold as they do for physical securities. However, the securities must be in a CDBL account before they are sold and the broker may wish to check this fact with the custodian before executing the order.
On the settlement date of a bought trade the broker will move securities to the account of the buying investor (provided the investor has paid). Investors may leave the securities in their account (ready for when they wish to sell or to avoid the need to hold certificates) or they may request the participant to rematerialise the securities. Please refer to the Forms Download Page for a list of forms related to buying and selling. 

Which Securities are eligible?

The following types of securities may be made eligible securities:

  • securities listed on a stock exchange;
  • securities issued by the government and other debt instruments
  • other securities such as mutual fund units, commercial papers, etc.

For a list of eligible securities currently on the market, please refer to this list of Issuers.

CDBL agree with issuers when their securities are to be made eligible and The Securities And Exchange Comission (SEC) publish this information to the market. Once a listed security has been declared an eligible security by the SEC such then securities that are traded on an exchange:

  • must be in an account in the depository before they may be sold
  • will be added to an account in the depository after they have been bought.
Will all brokers be participants?

All brokers must have access to the system (either directly or indirectly) to settle stock exchange transactions. However, only some brokers will become full service participants and will be able to manage accounts on behalf of customers. Please contact CDBL for an up to date list of full service participants. 

Except brokers, who will be participants?

Financial institutions may become participants to manage the securities they hold. In addition banks, who offer domestic, regional and global custody services may also become participants. Please contact CDBL for an up to date list of custody participants.

Are all listed securities eligible for holding and settlement in CDBL? 

In the long term all listed securities should become eligible securities. However, when the depository starts its operations it will make securities eligible one by one (or in groups) to ensure that the system is not overloaded and that all issuers receive proper training in the operation of the system. Please contact CDBL for an up to date list of securities.

Is it safe to hold my securities in CDBL? 

CDBL will not be permitted to operate until it has satisfied the Securities and Exchange Commission that it has implemented a system that is safe and secure. In addition the Commission has ongoing regulatory responsibility for CDBL.
All messages between CDBL and the participants will be encrypted and CDBL will have a hot standby site so that all data is duplicated.
The Law makes CDBL responsible for compensating investors if they suffer loss as a result of the negligent actions of CDBL staff or management.

Will all shareholders need to have CDBL accounts?

A shareholder who does not trade will not be forced to have a CDBL account. However, the use of a CDBL account (either Direct or through a Participant) would remove the need to keep paper share certificates in a safe place. Quarterly statements would ensure that these investors always have an up to date record of their investments.

If I hold my shares in CDBL, can I vote at company meetings?

Yes. The Law requires companies to treat account holders as members of the company for all purposes.

If I hold my shares in CDBL, will I receive my dividends?

Yes. The Law requires companies to treat account holders as members of the company for all purposes. In most cases you will receive your dividend from the company in the same way as you do today. However, the regulations permit companies to use facilities offered by CDBL to distribute dividends if they wish to do so.

What will it cost me?

This will depend on which participant you use. The amount the participant will charge you is not fixed by the Law or the Regulations.

Can I rematerialise at any time? 

Yes. However, CDBL will charge your participant a fee for rematerialisation, which may be passed on to you.

What happens if I die?

Your securities will be transferred to your heirs or rematerialised in accordance with normal legal procedures.

Can I open a joint account with another person?

Yes, but you will need to agree with your participant whether both signatures or only one are required on any instructions affecting the account.

Should I wait until I want to sell to dematerialise my securities?

You may do this if you wish. However, in this case, you will need to wait until the issuer has confirmed that the securities have been dematerialised before the broker can enter the sell order into the market. This will take at least 48 Hours.