To become a custodian, an institution must sign a custodianship agreement with Dubai Financial Market.

Transcription

1 Custody Services

2 Custody Services The market has the complete freedom to approve giving qualified banks and financial institutions the capacity of foreign or local custodians in Dubai Financial Market. To become a custodian, an institution must sign a custodianship agreement with Dubai Financial Market. The custodians may act on behalf of their clients who invest in securities listed in the market. The client, but not the custodian, is the legal owner of securities. This ownership is reflected in the records of listed securities. Any disposition by the custodians in the market will be considered on behalf of the clients and in accordance with heir instructions. The custodian is fully responsible for this. The custodian is allowed to open a special account for himself with the Clearing, Settlement and Depository Division (CSD), and use it on behalf of his clients, provided he holds a power of attorney from the client to deal in the market on his behalf. The market will give the custodian the right to transfer securities from the CSD to the agent s account for trading. This account will be used for executing the transactions pertaining to custodians in the market. Securities may not be transferred to a trading account with a broker. When there is an intention to trade, the broker receives the orders directly from his client, and the trade shall be affected using the agent s account. For every number of investor having to do with a custodianship account, there is one agent s account to be observed for execution of trading in the market. To Become a Custodian at DFM Potential custodians should co-ordinate with the Depository Department for the following: Sign the custody agreement with DFM. Pay the custodian licensing fees of AED 7,000/annum. Sign the non-disclosure agreement. Sign the investor number operation agreement (optional). Provide DFM with the custodians authorized signatories list. A Formal letter from the custodian addressed to DFM specifies the member code in DFM s system (limited to four digits only). A Formal Letter from the custodian addressed to DFM to request an electronic connection with AS400. Investor Number Model A: If the custodian agrees on the NIN Number Operation Agreement The custodian undertakes to perform on behalf of their clients the following services. In case that the client is an individual, the custodian should keep a copy of the following: A valid client s passport. A client family ID (for UAE nationals). A client s national ID number. In case that the client is a company the custodians shall keep copy of the following: A valid commercial license. A valid commercial register certificate. Company s article of association. Chamber of commerce certificate. Any other documents, which the DFM may request concerning the issuance of a client investor number. All the documents mentioned shall be certified by UAE embassy and Ministry of foreign affairs for non UAE licensed companies, for countries that does not have these government bodies then the documents have to be authenticated by any other institution that represent the government of that country. The NIN opening request will be sent to DFM electronically via e mail, the excel sheet should specify the following details only: NIN Number. Investor Name. Global Custodian Name. Citizenship. Address. And there should be attachments for the passport copies in case of individual clients or trade license in case of corporate clients. Attachments sent should carry sub custodian stamp only. Note: The custodians undertake to keep in safe all the above documentations and submit them to DFM as soon as requested (refer to agreement) Model B: In case of not signing the NIN Number Operation Agreement, or choosing to send the request of issuing the IN along with

3 identification documents to the market directly, the sub custodian should fulfill the below requirements for clients who wish to move under custody: An authenticated copy of the agreement signed between the custodian and the client. A letter from the custodians with full instructions, and should specify the followings: NIN number (max of 10 characters). Investor Name (max of 40 characters). Clients citizenship. The letter should carry the signature of the authorized signatory of custodians. Client s instructions letter to DFM. For individual clients passport copy is required, for companies a trade license and central bank license in case of a fund (or a license from any government related institution of the country). We require such documents to ensure that the custodian client does not have an existing NIN number with DFM. Notes: All correspondence related to the client will go directly to the custodians address. Such correspondence may be the quarter statement, invitation from listed companies to attend annual general meetings, cash distributions etc. Due to change in the type documentation issued by different countries for companies, any other legal document that identifies the aim of the company will be accepted (subject to DFM decision). For example: External ID or proof of legal existence issued by public office, government agency or regulatory authority. Certificate of existence, certificate of good standing, commercial registration, certificate of trust or certificate of residence (tax document). Governmental agency s official website screen prints. Articles of incorporation, memorandum and/ or articles of association, declaration of trust, trust agreement, partnership agreement, prospectus, offering memorandum. For certain trust types such as unit trust or group trust that are not registered or regulated in their domicile country, a declaration of trust or trust deed may be considered as a proof of legal existence. Model C: In case of not signing the NIN Number Operation Agreement, or choosing to send the request of issuing the IN along with identification documents to the market directly, the sub custodian should fulfill the below requirements when requesting an IN for one of global custodian s clients: An authenticated copy of the agreement between sub and global custodians or a power of attorney from global custodian to sub custodians. Memorandum of article of global custodians. Global custodian swift instruction to open an investor for their client at DFM. All legal documents mentioned above shall be certified by UAE embassy and Ministry of foreign affairs for non UAE licensed companies, for countries that does not have these government bodies then the documents have to be authenticated by any other institution that represent the government of that country. All requirements mentioned in model B for the client (custodian letter, copy of client identification documents as well as global custodian s instruction of account opening). Note: It is a main requirement to specify the global custodian name in the account opening request send to DFM. CSD will refer to this information in case of receiving instruction from global custodians acting on behalf of their clients when changing local or global custodians. When changing the name of global custodians internally in custodian s books they need to update the CSD in writing to adjust this information on the IN s level. No change will occur over the clients name or IN number, the only change will take place will be over the name of global custodian. When sending a request of issuing an investor number for one of the clients, custodians should investigate whether the client holds an existing investor number with DFM and ensure that the client does not hold any securities under the existing number. In case of an existing investor and holding, the local custodian should arrange to send a transfer request along with the account opening request for the shares to be transferred and the existing IN to be closed. Transfers Moving to Custody or Versa/ Changing Global Custodians/Other Transfers These kinds of transfers approved: Transfer to move under custody or vice versa. Transfer to change global custodians. External transfers approved by CSD (e.g. family transfers, Inherence etc.). Note: Before Custodians send the request of opening an Investor Number, they need to ensure that their potential client does not hold an existing investor number with DFM, and in case the client does hold an investor number with inventory positions, the custodians should send a transfer request along with the account opening request. Requirements: A written instruction from the custodian with the below details: Name and investor number for both the transferor and transferee. Name of listed security.

4 Number of securities. Global custodian name in case of shares transferring from one global custodian to another. The agent s letter should carry a clause that gives instruction to close the transferor account after the transfer is done, and that for the first two types of transfers. The agent s letter should carry a clause that state there are no change in the beneficiary owner and that for the first two types of transfers. In case of Transferring securities from an existing client s investor number with DFM to custodian NIN number, custodians should attach client s written instruction which has to be signed. The signature will be verified against the signature on the Entry of investors data form initially submitted (this only applies when the client is moving securities from private IN to custodian IN). Custodians should attach client s swift instruction or a letter from the client with same details mentioned in the custodian s letter. The fee of the first type of transfer is 10 AED/ transfer, either paid in cash, cheque or deposit in DFM account with Emirates NBD No For the second type of transfer the fee is 300 AED per transfer. Please view the fees list at DFM s website for external transfers fees. Merge double accounts In some cases the client does not hold an active IN with DFM. However, he holds some shares which he has subscribed in and wants to move under custody. The requirements of securities transfers are as the followings: A written confirmation stating that there is no change in beneficial ownership pertaining the transfer. Client s swift instruction. A copy from the allotment notice. No fees apply. Moving Clients between Local Custodians at DFM Since DFM has more than one custodian operating, the client can be moved from one to other custodian according to the following requirements: Letters required to close/ open IN: Letter from custodian A to close client IN, the letter should clearly specify the clients names and IN numbers and it should confirm that both custodian A and related brokers will remain responsible for all pending obligations resulted from trades occurred in old IN. Letter from custodian B to open a new IN on behalf of the client (all account opening requirements should be attached). In case custodian B did not manage to get legal authentication on clients documents, CSD will require the stamp and authorized signatures approval on the document and the legal documents should be attached with KYC letter stating that custodian B has fulfilled the requirement of knowing the client. Letter from client to close the IN with custodian A and to open and link the new IN to custodian B. An alternative is a letter or swift instruction from the global custodian giving the same instruction to close and open their clients IN s. In case of submitting global custodian instruction instead of clients letter custodian A should ensure that the name of global custodian were specified in the IN s request initially submitted and the global custodian name should be clearly identified and matched in both local custodian letters A & B. We require both swift instructions submitted by global custodians to local custodian A and B. Letter from each broker linked to the old IN, confirming the following: No trade on old IN will take place starting from (T+1). Authorize CSD to close broker accounts after moving all securities to New IN. Together custodian B and related brokers will be responsible for all obligations resulted in trades occurred in New IN. On T+0 brokerage accounts should not be opened till the end of trading session for IN s linked to custodian B. The letter should clearly identifies clients names, INs and account numbers. Letters to transfer positions from custodian A to custodian B: The followings can only be initiated if there are no short sells outstanding in the client s portfolio: Letter from custodian A instructing DFM to move securities from old IN with custodian A to new IN with custodian B (leaving enough shares at old IN to cover the settlement of all pending trades). Letter from custodian B instructing DFM to receive securities from old IN with custodian A to new IN with custodian B (leaving enough securities at old IN to cover the settlement of all pending trades). Swift instructions received from global custodian to both custodian A and B. Transfer fees AED 300 per symbol. Proposed Procedure: All documentations described in (A) will be fully completed and submitted officially to CSD four days (working days) before custodian B starts trading, (time limit is always subject to number of transactions). On T+0 (effective date): CSD will open new INs with custodian B and confirms the account opening via . Trading will continue on old IN with custodian A. Immediately after closing trading session, CSD will suspend old INs with custodian A. After closing trading session, brokers will open trading accounts for new INs (online via the workstation and confirm opening accounts to custodian B) custodian B will agree this with the brokers.

5 After closing of trading session both custodians will create the instructions described in (B above) and submitted them to CSD. If there were no positions to move, DFM needs to receive no instructions from any custodians and if received they won t be checked by DFM. Before close of business day, DFM will transfer the securities from old IN to new IN and confirm completion of the process to both custodians via . On T+1: Trading will no longer be active on old IN with custodian A. Trading will start on new IN with custodian B. Any pending trades will settle by custodian A in old IN. After the settlement cycle is completed, both custodians will create instructions described in (B) and submit them to CSD. As soon as the instructions are received / before the close of trading, CSD will transfer the securities from the old NIN to the new NIN and confirm the movements to both custodians. CSD will send position and trade reports to custodian B. On T+2: Old IN with custodian A remain suspended. New IN with custodian B will be active for trading. Any pending trades in old IN will be settled by custodian A. After the settlement cycle is completed, both custodians will create instructions described in (B) and submit them to CSD. As soon as the instructions are received / before close of trading, CSD will transfer the securities from the old IN to the new IN and confirm the movements to both custodians. After close of trading session both custodians will check if there are any open positions on the old IN (by now the position should be zero). If there is a residual position, instructions will be created (as described in B) to move the remaining position to the new IN. CSD will send position and trade reports to custodian B. Before close of business day, assuming the position is zero, CSD will close the old IN with custodian A. On T+3: All trading and settlement activity related to the client will be on new IN with custodian B. Moving Clients between Local & Global Custodians: The procedure of moving clients between local custodian is very similar to the procedure of moving clients between local and global custodian both at the same time, with condition of having all instructions received from the local custodian, global custodian and the brokerage firms illustrating all transfer details. The fees of moving clients between local and global custodian is AED 600 per symbol. Documents to be submitted to Clearing and Settlement Department before starting trading Formal letter from custodian addressed to Clearing and Settlement Department includes the settlement account numbers (AED & USD) with one of DFM settlement banks (Dubai Bank or Emirates National Bank of Dubai). Copy of the letter that custodian send to the settlement bank regarding the clearing & settlement account undertaking. Formal letter from custodian addressed to Clearing and Settlement Department requesting daily trading reports including the custodian addresses to which daily reports will be sent. Proxy Voting Custodians send corporate action notification for the client. On receipt of client instruction, custodians fill up the proxy form along with relevant documents of POD and submit the same to the registered office of the company or the company secretary 48 hours before the meeting. The attendance slip is filled and sent with the proxy at the time of lodging. The identification of the person attending the meeting will be verified at entry point. However some companies would send a separate attendance slip which has to be taken along for the meeting. Voting on agenda items by show of hands takes place. One share constitutes one vote. The minutes of the meeting needs to be sent to clients on agenda items whether passed of not after attending the meeting. Clearing & Settlement Department Procedures: Bank Guarantee The amount of bank guarantee fixed by DFM for the custodian is the maximum volume of trading by custodian clients, the net amount payable by the custodian should not exceed this limit. report that indicates if the maximum level of trading value exceeds the bank guarantee amount by 80% the electronic trading system in Dubai Financial Market will reject any purchase order entered by the broker. Raising the trading limit: The custodian may not be allowed to trade if he exceeded the bank guarantee limit in one trading session, therefore he will not be allowed to buy during the trading session except in one of the following cases: Increasing the maximum trading limit by submitting the following: - An official letter from the custodian to the Clearing, Settlement and Depository Division (CSD) signed by the authorized signatories requesting to increase the trading limit and it should contain the following details:

6 Trading and settlement date. Amount to be increased. Name of the broker who will execute the trades. - An official letter from the broker who will execute the trades to the CSD signed by the authorized signatories requesting to increase the Custodian trading limit and it should contains same details mentioned above in the custodian letter. Executing sale transactions which reduces the net payable. Undertaking Letter If the broker wishes to trade for custodian clients, he should sign the undertaking letter which indicates that the broker will be fully liable for settlement amounts not paid by the custodian to DFM on the settlement due date as specified by the DFM rules and regulations. An original copy of this undertaking shall be given to the Clearing and Settlement Department and copy to the custodian before executing any transaction for the custodian client. Requested Correction of Deal Request received on (T+0): If the broker desire to correct a deal which is executed by mistake for a custodian client, he should submit the (Request for Amending Trade Data) form to the Market Control Department between (02:00-02:30 p.m.) to correct the trade on (T+0) before the settlement without fees. Request received on (T+1): In case the broker discovered his trading mistake on (T+1), the trade will be corrected by CSD and the broker should submit the following documents to Clearing and Settlement Department by maximum (T+1): Formal letter from Brokerage Company requesting correction of deal stamped and signed by the authorized person. Copy of Trade Log Summary. Correction fees (0.003*number of shares*the price of the deal) minimum charge AED 100 per company. Notice: In case the custodian wishes to reverse the deal amended on (T+2), CSD will not bear the responsibility to reverses the deal again. Both broker and custodian will bear the responsibility of reversing the deal. Settlement DFM will consider the custodian as a clearing member for the settlement process as they will settle all trades executed for their clients directly with (CSD) in accordance with the applicable DFM Rules. Therefore, the custodian shall open a settlement account with one of the DFM settlement banks (Emirates National Bank of Dubai or Dubai Bank) for the purpose of settling trades at the DFM and the broker will receive his commissions pertaining to the deal, directly from the custodian. On the settlement date (T+2), Securities are transferred by DFM from the investor (seller s) account to the investor (buyer s) account by 08:00 am. On the settlement date (T+2), settlement banks of DFM debits or credits the custodian account with the net amount in addition to DFM Commission by maximum 10:00 am. The custodian should ensure that sufficient funds are available in their account with settlement bank by maximum 10:00 am on the settlement date (T+2). In case there were no funds available in the custodian account, the following actions will be taken: If the custodian didn t pay the full amount due by maximum 10:00 am, a financial penalty will be imposed on the custodian and the penalty amount is the same as for brokers fine and it s mentioned in the CSD Fees section/broker s fine (late Settlement Financial Penalty). DFM management has the right to impose any other charges that protects the market and it s investors rights. If the custodian didn t pay until (T+3), he will be penalized double value of the financial penalty for every late day until he pays the full amount. Custodian might be suspended from trading (suspend from buying and allowed to sell only) if he didn t pay his settlement obligation. Transfer of settlement obligation to the broker: Custodian should pay daily settlement obligation to DFM on (T+2) at 10:00 am. In a very special cases custodian can transfer full or part of his obligation to the broker who has executed the trades and custodian should notify Clearing and Settlement Department officially the reasons of rejecting the trades. In this case both custodian and broker must send the following documents to Clearing and Settlement Department: Formal letter from the custodian to the Clearing and Settlement Department contains the following: Rejected transactions value and its commission that the custodian is not accepting to pay. Net amount (net to collect or to pay) and total commission due for custodian before and after the amendment on the settlement report. Names of the brokers who will pay the obligation with the details of the rejected trades that will be transferred to the broker. Formal letter from the broker to the Clearing and Settlement Department contains the following: Broker s undertaking to pay the value of the transaction and its commission that is not accepted by the custodian. Notice: Custodian must inform the brokers about the rejected transactions and its commission by maximum on (T+1).

7 The broker and the custodian must send their letters to Clearing and Settlement Department on (T+1) and by maximum 10:00 a.m. on (T+2) by and fax. Forwarding the obligation to the broker is subject to CSD approval. All Custodians have the chance to open settlement account with both DFM settlement banks (Emirates National Bank of Dubai & Dubai Bank) as there are some cases where rejected trades are executed by brokers who have settlement account with one of DFM settlement bank that is different than the custodian s settlement bank. Daily Trading Reports The Clearing and settlement department shall send the custodian all daily trading reports details of custodian clients upon an official request from custodian to the CSD indicating the type of details required. These reports are sent through to custodians group mail addresses and its free of charge. Any additional report requested by the custodian will be subject to additional charges as specified by the CSD from time to time. إخالء مسئولية: المعلومات الواردة في هذه الوثيقة )»المعلومات«( تم تقديمها باعتبارها معلومات عامة وتعليقات فقط. ورغم توخي العناية المعقولة في إنتاج هذه المعلومات قد تحدث تغيرات في الظروف في أي وقت ويمكن أن تؤثر على دقة المعلومات. سوق دبي المالي ويشار إليه فيما بعد بسوق دبي المالي و/ أو الشركات التابعة له مسئوليه أو موظفيه ال يعطون أي ضمان أو زعم بدقتها وتوقيتها وموثوقيتها أو اكتمال المعلومات اآلن أو في المستقبل. لن يتحمل سوق دبي المالي أي مسئولية عن أي خسارة مباشرة أو غير مباشرة من قبل أي شخص يعمل اعتماد ا على المعلومات الواردة في هذه الوثيقة. Disclaimer: The information provided in this document ( Information ) is provided by way of general information and comment only. While reasonable care has been taken in producing this Information, changes in circumstances may occur at any time and may impact upon the accuracy of the Information. Dubai Financial Market hereinafter referred to as DFM and/or its affiliates, officers or employees, do not give any warranty or representation as to the accuracy, reliability, timeliness or completeness of the Information now or in the future. DFM shall not be liable for any loss suffered, directly or indirectly, by any person acting in reliance upon the Information contained herein. This information is subject to the DFM website Disclaimer.