CHAPTER 7
CLEARING
AND
SETTLEMENT
Prepared by Suhaily Maizan Abdul Manaf
BM Securities Clearing Sdn. Bhd.
Central Depository System
Fixed Delivery and Settlement System
Institutional Settlement Services
LEARNING OUTCOMES
1. Describe Central Depository System.
2. Describe Fixed Delivery & Settlement System.
3. Describe Institutional Settlement Services.
Clearing is the process of determining
accountability for the exchange of money
and securities between counterparties to a
trade whereby it creates statements of
obligations for securities and/or funds due.
Settlement means the completion of a
Introduction
transaction, wherein securities and
corresponding funds are delivered and
credited to the appropriate accounts.
Settlement modes
Clearing and settlement of contracts
executed on Bursa Malaysia
The clearing and settlement of contracts executed on the two Exchanges are based on the Fixed
Delivery and Settlement System (FDSS), whereby the settlement is on T+3. The financial settlement
of securities is done on a “net basis”.
Settlement modes
Institutional Settlement Service
(ISS)
ISS is an optional service whereby Non-Trading Clearing Participants are able to clear and settle
directly with Bursa Malaysia Securities Clearing Sdn. Bhd. Settlement of ISS transaction is on T+3
and on “Delivery versus Payment (DvP)” basis whereby the transfer and settlement of securities
transactions are completed on the same day.
Rational of Reducing Settlement Period
To generate liquidity
To reduce time taken To standardize the
market where buyer
between execution settlement system in
will receive shares
of trades and line with other major
and seller receive the
settlement stock exchange
cash earlier
BURSA MALAYSIA SECURITIES
CLEARING SDN. BHD. (BMSC)
Formerly known as Securities Clearing Automated Network Services
Sdn. Bhd. (SCANS) was incorporated on November 12, 1983 and
commenced operations in March 1984 as the Clearing House
appointed by Bursa Malaysia. BMSC provides clearing and settlement
services to Trading Clearing Participants and Non-Trading Clearing
Participants. Only domestic contracts of all securities listed by the
Exchange are cleared by BMSC. All trades transacted on the
Exchange under a “ready basis” are settled by BMSC under a T+3
Settlement Cycle.
Providing clearing and
settlement services
Delivering stocks and
with facilities for
securities to each other.
clearing contracts done
between them.
Objectives Receiving or paying any
amounts payable to or
Receiving stocks and
payable by such
securities from each
Clearing Participants
other.
about any stockbroking
transactions.
CENTRAL
DEPOSITORY
SYSTEM In 1993, CDS has been introduced
to replace the practice of holding
and moving physical script of
quoted shares with a safe and
dependable computerized book
entry system.
The CDS is based on the fundamental principle of
book-entry as a means of representing ownership
and movement of securities. CDS account holders
enjoy the convenience of electronic securities
transfer and trade settlement besides being able to
obtain up-to-date information on their
shareholdings. They also reap the benefits of
reduces cost and risks previously associated with
physical scrip-settlement environment.
The principal activity of
BMD is the operation and
It provides an efficient maintenance of a CDS in
clearing and settlement respect of shares, stock,
bonds, debentures, or
of securities.
other securities of any
corporation.
Bursa Malaysia
Depository
Sdn. Bhd. (BMD)
Practices computerized depository system that
makes the delivery and clearing of shares more
efficient and convenient.
CDS Facilities
Stock broking companies in Malaysia which have been
appointed by BMD as ADAs are authorized under Section 13 CDS Account
of the Securities Industry (Central Depositories) Act 1991 to Individual investors can open only one (1) CDS
account per ADA, but he/she can do so with as
provide CDS facilities and services to the investing public. All
many ADA as he likes. A corporate investor
investors who intend to trade in any type of securities listed can open multiple accounts with the same ADA.
on the Bursa Malaysia must open a CDS account with an
ADA of their choice.
Deposit
• Opening, updating, suspending, or closing a CDS
Effective on November 1, 1998, it is mandatory to deposit
account;
shares of companies listed or propose to be listed on the Bursa
• Processing a deposit of scripts; Malaysia to be deposited with the Central Depository. Deposit is
• Book entry delivery of deposited securities, whether a facility to convert the shareholdings held in physical form to
in respect of a trade or dealing in securities; script less. Depositors having physical certificates are required to
deposit their shares into their CDS account held with the
• Enquiry into status of depositor’s CDS account;
relevant ADA/ADM within the period determined under the
• Request for additional statement of accounts.
Rules of BMD.
Transfer of Securities
Effective on December 30, 2002, a more user-
friendly transfer procedure was introduced. The
facility to transfer securities from one CDS
account to another was renamed as Transfer of
Securities instead of Ordinary Transfer.
Withdrawal ▪ To facilitate share buyback;
Withdrawal is a facility that enables ▪ To facilitate conversion of debt securities;
depositors to convert their shareholding
▪ To facilitate company restructuring process;
▪ To facilitate rectification of error;
held in script less to physical form. Under
this facility, the depositors can withdraw
securities from their CDS account and in ▪ Where a body corporate is removed from the official list of a
turn receive a physical certificate. Effective
Stock Exchange (effective August 2001);
on September 1, 1998, deposited
securities are no longer allowed to be
▪ In any other circumstances determined by the Central Depository
withdrawn from the system except in the from time to time subject to the approval of the Securities
following circumstances: Commission.
Homework
Inter Branch Transaction (IBT) Trade Settlement
The main objective of this facility is to allow Under the CDS, all securities settlement processes
depositors to perform CDS transaction requests done at the investor level. For a contract done on a
such as deposits, transfers, updating and closure of ready basis, the book-entry crediting and debiting
accounts, account balance enquiries, and printing of of shares from the clients’ CDS accounts is done
ad-hoc statements at the ADA branch office other on T+3 by 9.00am. The CDS account will only
than the branch at which the relevant account is reflect the share quantities in the account and not
maintained.
the value of those shares.
Dormant Account
A CDS account, which has no deposited
securities i.e. nil balance, and has not
have any credit or debit entry for 36
months from the date of nil balance,
will be designated as dormant. Once a
CDS account is designated as dormant,
the account holder will not be able to
Inactive Account perform any CDS transactions as stated
in the Rules of Bursa Malaysia
A CDS account, which has deposited securities, will be
Depository. Thus, to perform any trade
designated as inactive when there has not been any credit or activities or outward transfers on or
debit for 36 months from the date of last entry. However, the after the Date of Dormancy, the
account holder may continue to perform all CDS transactions account holder must first apply to his
ADA to reactive the CDS account. A
except for outward transfers and trade. To perform any trade reactivation fee will be charged.
activities or outward transfers on or after the Date of
Inactivation, the account holder must first apply to his ADA to
reactive the CDS account. The reactivation is free of charge.
FIXED DELIVERY AND
SETTLEMENT SYSTEM (FDSS)
Four types of clearing and
settlement using FDSS:
➢ Contracts Done on Ready Basis ➢ Payment for Buying-In Contracts
➢ Contract Done on Immediate Basis ➢ Direct Business Transaction (DBT)
Institutional Settlement Service is a service
offered by Bursa Malaysia through BMSC to
institutional investors. The ISS is aimed at
achieving an enhanced Delivery versus Payment
(DvP) environment that is consistent with most
jurisdictions.
INSTITUTIONAL
The objectives of ISS are: SETTLEMENT
❖ To reduce the settlement risk exposure of
SERVICES (ISS)
institutional investors.
❖ To enable BMSC to make payment directly to the
institutional investor’s settlement agent upon delivery
of securities on the settlement date.
END OF
CHAPTER 7
Thank you!
