20000224

In exercise of the powers conferred under Section 41 of the Banking Companies Ordinance, 1962, the State Bank of Pakistan is pleased to make the following rules to operate the Cash Management Account (CMA) by the Investment Banks.

1. SHORT TITLE AND EXTENT

a) These rules for operating the Cash Management Account (CMA) shall be called the Cash Management Account Rules and shall apply to Investment Banks.

b) All Investment Banks operating the CMA activities shall follow the guidelines laid down by the State Bank of Pakistan from time to time.

c) An Investment Bank, which is not operating the CMA at present, shall, before undertaking operation under these rules, intimate in writing to the State Bank of Pakistan.

d) An Investment Bank already operating under the CMA shall submit information as of December 31, 1999 of the CMA's already managed by them in the format prescribed in Annexure "A" to the State Bank of Pakistan by March 7, 2000.

2. TERMS & CONDITIONS:

a) An Investment Bank shall, deploy the funds accepted, in approved activities under these rules, acting as an agent of the customer by either:

(i) exercising its own discretion on behalf of his customer, if authorised by the client in writing to do so (which shall be referred to as Discretionary Accounts), or

(ii) operate solely at the discretion of his customer (which shall be referred to as Non-Discretionary Accounts).

b) An Investment Bank shall institute procedures to obtain proper identification and introduction of prospective customers for whom accounts will be operated under these rules.

c) An Investment Bank shall execute proper agreements with its customers for availing service under the Cash Management Account. The Investment Bank shall have separate standard set of agreements for customers who wish to exercise their own discretion or who authorise an Investment Bank to exercise discretion on their behalf. The agreement should be for a fixed maturity period. This period should be agreed by the customer in advance at the time of signing the agreement.

These agreements should invariably include a clause to the effect that all investment out of the CMA funds shall be made by the Investment Bank in the permissible mode of investments entirely at customer's risk with no recourse to the Investment Bank, to the extent of losses incurred on such investments.

d) An Investment Bank shall maintain individual customer-wise records for all amounts received by it under the Cash Management Account from its customers and for all transactions entered into for them or on their behalf.

e) Total outstanding amount of the CMA funds accepted by an Investment Bank for the first 2 years of its operation should not exceed even times of its equity. In subsequent years, the outstanding CMA funds should not exceed ten times of the equity of the Investment Bank. Provided that at any given time exposure of an Investment Bank in the CMA activity should not exceed the total assets of the Investment Bank (excluding the assets acquired out of CMA).

3. MODES OF INVESTMENT:

a) All Investment Banks shall invest the CMA funds in the following activities:

 Shares of Companies listed on the Stock Exchange(s) in Pakistan.

 Debt Investments listed on the Stock Exchange(s) in Pakistan carrying a minimum rating of BBB.

 Government Securities as approved from time to time for meeting liquid assets requirement by the NBFIs as also Repo transactions with Banks/NBFIs subject to the State Bank of Pakistan's restrictions.

 Any other mode which the State Bank of Pakistan may prescribe in this regard from time to time.

b) No Investment Bank shall place any funds accepted under these rules in any activity other than those specified above. Those Investment Banks, who before the issuance of these guidelines have investment in other activities, at the maturity of all such investments divert their funds in the approved activities only.

4. GENERAL GUIDELINES:

While operating the Cash Management Account an Investment Bank shall observe the following:

a) An Investment Bank shall formulate policies duly approved by their Board of Directors for providing services of the CMA to clients.

b) An Investment Bank shall not enter into any transaction directly or indirectly with associated companies/undertakings. The words "associated companies/undertakings" shall have the same meaning as defined under Section 2(2) of the Companies Ordinance, 1984.

c) All transactions entered into by an Investment Bank for sale or purchase of securities shall be on market rate.

d) An Investment Bank shall not trade by selling short any security or enter into any transaction that results in forward buying under the CMA. However, Repo and Reverse Repo transactions will be permissible strictly in the manner and to the extent allowed by the State Bank of Pakistan from time to time.

e) The funds accepted by an Investment Bank under these rules shall not be entrusted to another Bank or NBFI for management or operation of the CMA, neither the CMA will manage the funds of the Investment Bank itself.

f) An Investment Bank shall not for the purpose of accepting any deposits under these rules, guarantee any pre-determined rate of return to its customers. They may, however, give indicative/expected rates based on past experience and future expectations.

g) The minimum period for which funds are to be accepted under the CMA shall not be less than six months.

h) An Investment Bank shall not, undertake any transaction between an investment held in the CMA and its own investment portfolio except with the permission of the State Bank of Pakistan.

i) An Investment Bank shall keep its own investment portfolio and the investment portfolio of the Cash Management Account separate from each other in all respects.

j) All reasonable expenses incurred by the Investment Bank on handling of transactions of sale or purchase of the securities under the CMA shall be permissible to be charged to the customer.

k) An Investment Bank shall fix a criteria of minimum amount below which funds will not be accepted under the Cash Management Account Scheme. However, the minimum amount acceptable to an Investment Bank will have to be clearly defined.

l) The securities purchased by an Investment Bank under these rules shall not be pledged with a third party. Likewise, no charge or encumbrance in favour of any party shall be created by the said Investment Bank on any of the investment held in the Cash Management Account against any credit facility availed by the said Investment Bank.

m) An Investment Bank shall notify in advance its fees and commission in its schedule of charges for the CMA services.

n) The acquisition of securities under the CMA shall not be made or held in the name of the Investment Bank.

o) The Investment Banks will be responsible to make deductions on behalf of the customers who place their funds with them under the CMA under the Income Tax and other relevant laws in force from time to time as is being done by the Investment Bank itself and be responsible to deposit the same in the Government Treasury in the prescribed manner and time frame.

5. NON-DISCRETIONARY ACCOUNTS:

These are accounts in which the customer has decided to exercise his own option for the operation of the Cash Management Account. In exercising his own option the customer will inform the Investment Bank in writing prior to entering into any transaction regarding sale, purchase, transfer, exercising of right etc. and the Investment Bank will act under the instructions so received from his own customer. In handling such accounts the Investment Bank may not under any circumstances make any decision on its own discretion.

Where any customer has decided to exercise his own option for the operation of the Cash Management Account, the Investment Bank shall observe the following guidelines:

a) All orders either for sale or purchase of any security shall be executed only when received in writing from the customer.

b) An Investment Bank shall strictly follow and act on the advice of its customer before entering into any transaction involving sale or purchase of any investment.