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Securities Pledge
Definitions
Pledge means: registering the pledge interests on securities deposited at the Central Depository System and owned by the client (pledgor debtor) for the benefit of pledgee creditor (Bank)
Release of the pledge:
Release of a pledge is made upon the pledgee creditor’s request (Bank) as a result of the elapse of the reason of pledge through repayment of the debt or for any legally specified reason.
Retain the pledge:
Enable the pledge creditor (Bank) to sell the pledged securities for his interest in case that the client fails to pay or for any legally specified reason or as agreed upon by the pledgor debtor (client) and pledgee creditor the (bank).
Transfer of Pledged portfolio
Transfer of the client’s pledged balance from one custodian to another custodian upon the client’s request.
Change of the pledgor bank
Change the pledging agency (pledgee creditor) in accordance with the agreement signed between the pledgor manager and each of the old and new pledgee.
Pledging of securities registered at the Central Depository System
The client signs a contract with the bank to borrow money, putting his centrally deposited securities up as collateral. To guarantee the bank’s right, certain procedures should be followed:
1) The bank sends an approved and stamped letter to the pledging department at MCDR requesting the pledge of the client’s balance for the bank (The bank should be coded in stock exchange as a pledgee creditor)
The letter should indicate the following:
• The client’s name as written on his account statement
• Name and quantity of securities to be pledged (written in numbers and letters)
• The name of the Custodian managing the client’s account
2) A certified true copy of the contract between the client and the pledging bank shall be delivered and accompanied by the following:
• Contract date and maturity date.
• The client’s name as written on his account statement.
• Name and quantity of securities to be pledged.
• Specify the person to receive the proceeds of the shares.
• The bank’s right to sell any debts in case of the client’s default.
• Signature validity on the contract (external) and not a verified signature.
3) Fill out the securities pledge form received from MCDR’s Pledge Department and submit it at the pledgee banks
4) Submit a recent account statement for the client
• On receipt of written instructions from a bank, the Pledge Department checks the client’s balance in its database.
• if there is enough balance, the Pledge Department shall pledge the securities in accordance with instructions contained on the bank’s letter.
• MCDR sends a letter to the bank indicating the pledge of securities and that the pledge should not be released except upon a request from the pledgor bank according to the legal procedures stipulated in article 105 of law 88 of 2003.
• In case of insufficient balance, the pledge department shall send a relevant notification to the bank.
Note:
The bank doesn’t grant a loan to a client before receiving a letter from the Pledge Department at MCDR stating the execution of the pledge transaction to make sure that the client has an available balance to be appropriated.
Releasing of pledge on securities registered at the Central Depository System
1) The bank sends an official stamped letter to the Pledge Department at MCDR requesting the release of the client’s securities. The letter should indicate the following:
• The client’s name as written on his statement.
• Name and quantity of securities to be pledged (written in numbers and letters).
• The name of the Custodian managing the client’s account.
2) Securities release form received from securities release department –creditor pledge (banks).
3) Recent account statement for the client.
Note: the creditor pledgee (bank) that registered the pledge is the only entity entitled to release the pledge (no other branch or even the headquarters will be entitled to release the pledge).
• As soon as the letter is received, the Pledge Department checks the client’s pledged balance in its database and makes securities available at the client’s account
• The Pledge Department notifies the pledgee and the Custodian of releasing the securities.
Sale of securities pledged at the Central Depository System
In case of the client’s failure to repay the loan he received from the pledgor bank, the bank shall follow the procedures stipulated in the new Banks’ Law # 88 of 2003. The bank may sell these securities according to the legal procedures stipulated in article 105 of banks law no 88 of year 2003.
The documents required to retain the securities for the bank’s benefit
3- A true copy from the notification to the client indicating the type and quantity of securities to be blocked for sale for the bank’s benefit.
4- A true copy of the pledge contract signed between the bank and the client
5- A copy of the client ID
6- A letter from the bank to the Pledge Department at MCDR requesting to retain the pledged securities in his own name due to the payment default. The letter should include the following:
• The client’s name as indicated in his statement
• The client’s unique code
• Name and quantity of securities to be retained
• The name of the Custodian managing the client’s account
Transfer of the pledged portfolio from one Custodian to another
1- The client’s request to transfer the pledged securities to the new Custodian with signature validity from the bank indicating the quantity and type of securities and the transferring and transferee entities.
2- The pledgee creditor approval (pledging bank) to transfer pledged securities to a new custodian, including the following data:
• The client’s name as indicated in his statement of account
• Type and quantity of transferred securities (in letters and digits)
• Old and new custodians
• Client’s statement of account.
• The pledge department at MCDR shall execute the transfer of the pledged portfolio from the old custodian to the new one.
• MCDR shall notify the bank of the execution of the transfer transaction.
Changing the pledging bank
1- The client’s request to transfer the pledged securities to a new bank with signature validity from the bank.
2- The creditor pledgee (the pledgor bank) sends an official and stamped letter to the Pledge Department requesting the transfer of the pledged securities from the old bank to a new bank. The letter should include the following:
• The client’s name as indicated in his statement of account
• Type and quantity of transferred securities
• Quantity of transferred securities (in letters and digits)
• Name of the transferee Creditor (pledging bank)
• Name of the Custodian of maintaining the securities.
3- A statement of the client
4- Approval of the new pledgee creditor on the transfer (a true copy of the pledge contract signed between the client and the new bank including the terms of registering the pledge should be attached).
5- MCDR shall notify the transferee bank of the completion of the transaction.
Depositing pledged securities
The pledgee creditor may have pledged securities that have not been deposited yet into the Central Depository. After getting them registered, the creditor pledgee will receive a statement of account to be able to deal with the debtor client. The deposit transaction shall be done as follows:
The pledgee creditor submits the pledged material securities to any custodian bank to be deposited for the benefit of the (creditor pledgee). The pledging documents shall also be delivered to the Pledge Department at MCDR and no statement of account shall be required except after completion of the transaction.
• The custodian shall deposit the securities according to MCDR procedures.
• After settling of the deposit, the Pledge Department shall notify the pledgee creditor of the completion of the pledge transaction on the deposited securities.
Note:
The benefit behind depositing pledged securities is to deposit them for the benefit of the creditor pledgee. The securities is included into the client’s account with a pledge notation and will not be settled unless they pass by the Pledge Department to guarantee the creditor pledgee right in pledged securities noting that the creditor pledge submits the same documents for pledge registering. |
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