.: MCDR :.

Clearing & Settlement

Clearing and Settlement Systems of Material Securities

Definition
The clearing and settlement system means identifying rights and obligations resulting from securities trading, covering the financial positions resulting from these transactions and effecting the relevant discount and addition as required.

Objectives of settlement and clearing system
1-   Reducing risks associated with receipt and delivery of securities as well as the cash values for transactions executed by securities intermediaries.
2-   Executing the clearing and settlement transactions and transfer of securities ownership within a specified time frame:

T+0   for securities intermediaries licensed by the CMA to do same day trading and for securities eligible for trading through the system according to the provisions of the Capital Market Authority and the stock exchange.
T+1   for Egyptian Treasury bonds listed at the Central Registry.
T+2   for active securities
T+4   for securities not registered at the Central Depository System
T means the trading day
.
3-   Speed up securities turnover as a result of guaranteeing settlement within a specified timeframe.
4-   Attracting foreign investors through adopting the international standards and applying the Delivery Versus Payment system (DVP).

Procedures followed for clearing and settlement of material securities:

First: Receiving securities (sale transaction)
After executing the transaction at the stock exchange, the broker delivers the securities to MCSD no later than the end of the third day of trading (T+3)

Second: Reviewing Securities
Ensuring that the client’s name is written at   the back of the security or on the ownership transfer certificate.
Examining the stamps and signatures on the security.
Ensuring that the security is valid for trading.
Ensuring that   the attached coupon, currency, issue, and other relevant data are valid.

Third: Registry Phase
Categories and serial numbers for received securities are entered into the MCDR’s computer system.

Fourth: Reviewing and Checking phase
Entered data is reviewed and matched with the previous phase.

Fifth: Settlement Phase
The buying broker feeds its cash account at one of the clearing banks where money is debited from his account and credited to the selling broker account. Then, certificate of ownership transfer is issued for the buyer.

Owner verification test
This test is run during settling financial positions of securities intermediaries. It is a test of the data of sold shares where the data of sold securities are matched with the MCDR’s data. If any error is found in the relevant data, financial settlement will be disregarded.
In T+4, the disregarded settlement transactions report will be printed, a solution will be sought for the problem or the sold securities will be returned back to the selling broker if necessary.

Sixth: Delivering Securities
The purchased securities are delivered along with a certificate of ownership transfer for the buyer to the buying broker.

Procedures of purchasing securities through the central depository system:
First: Brokerage companies:
The client signs a purchase order at the brokerage firm or issues an order by phone or through the electronic trading system.
The securities broker registers the purchase order on the related automated system in order to ensure that the client has a contract with a custodian.
The transaction shall be executed at the stock exchange through matching selling and buying offers.
The custodian accepts the securities purchased by the client (provided that there is a contractual relation between the client and the custodian).

Second: Custodians
When the transaction is executed, the custodian receives the daily trading transactions through the custodian program.
Upon receiving the transaction, the custodian verifies purchase orders with the executed transactions, issues transfer orders and sends them to the MCDR after ensuring that there is a contractual relation with the client.
At the settlement date, statements of account indicating automatic addition to the brokerage companies will be delivered.
The Custodian will print a statement of account for the client upon his request.
Documents supporting the transaction will be filed (purchase order – client ID).

Third: MCDR
Receiving daily trading transactions from the stock exchange
Sending trading transactions, whenever received, to the custodians, brokerage companies and some of the clients using the MCDR services.
Undertaking clearing and settlement of executed trades at the specified settlement date after ensuring the sufficiency of securities and cash settlement.

Procedures of selling securities through the central depository system
First: brokerage companies

The client signs a sale order at the brokerage firm or issue an order by phone or through the electronic trading system.
The securities broker registers the sale order on the related automated system where a custodian makes an on-line approval if the securities balance is sufficient for the requested trade. The system will also reject the trade if the balance of securities is not enough.
The transaction shall then be executed at the stock exchange through matching selling and buying offers.
The brokerage firm shall undertake the remaining procedures as agreed upon with the custodian to transfer the balance.

Second: Custodians
Receive the sale order directly from the client or manually from the brokerage company or by fax.
Ensure the sufficiency of the client’s balance before executing the sale transaction through registering the sale order at the custodian system.
If the balance is sufficient to execute the sale order, an automated reply will be sent to the brokerage company indicating the sufficiency of the client’s balance and indicating the client’s unified code to execute the sale.
After executing the sale transaction, the custodian receives the daily trades through the custodian system then allocates the sale transactions.
The custodian issues transfer orders for the allocated sale transactions indicating that the number of securities is added to the selling broker’s account and sends on-line transfer orders to MCDR .
At the settlement date, and after making the settlement, the custodian prints out clients account statement that indicates the deduction of the securities from the available balance. The custodian will also file the documents supporting the transaction, these are:
Copy of the client’s sale order
Copy of reply to the broker (sufficiency of balance)
Account statement received from clearing

Third: MCDR
Receive the transfer order related to transfer of securities from the custodian’s account to the broker’s account.
Settlement of transfer order
Receiving daily trading transactions of the execution day from the stock exchange.
Undertake clearing and settlement (after verifying the sufficiency of both securities and cash balances).