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.
The need for a depository arose from shortcomings in the present settlement system, resulting in:
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:
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 it affect Investors?
How does it affect Issuers?
Issuers will need to:
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:
CDBL does not handle funds and therefore payment arrangements between stock brokers and their clients are not changed by the introduction of the depository.
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.
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.
The following types of securities may be made eligible securities:
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:
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.
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.
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.
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
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.
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.
Yes. The Law requires companies to treat account holders as members of the company for all purposes.
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.
This will depend on which participant you use. The amount the participant will charge you is not fixed by the Law or the Regulations.
Yes. However, CDBL will charge your participant a fee for rematerialisation, which may be passed on to you.
Your securities will be transferred to your heirs or rematerialised in accordance with normal legal procedures.
Yes, but you will need to agree with your participant whether both signatures or only one are required on any instructions affecting the account.
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.