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to
Islamabad Stock
Exchange
Prosperity Through Transparent Market
Topics to be discussed
History of Stock Exchanges
1
Functions of Stock Exchange
2
Basic Concepts
3
Regulatory Structure & Governing Laws
4
Operational & Trading Activities
5
Stock Exchanges History
Unofficial share markets existed across
Europe where brokers would meet outside
or in coffee houses to make trades
11
th
Century
13
th
Century
Till 1600
1602
In France, courtiers de change
(first Brokers) traded in debt
and government securities
In Bruges (Belgium) commodity traders
gathered in house of Van der Burse.
That meeting was called Bruges Bourse.
That idea spread in neighboring countries
and bourses were formed in various places
Amsterdam Stock Exchange (first
Stock exchange) was created and
it began official trading shares of
Dutch East India Company
Stock Exchanges History
Europe & Others
By early 1700s there
were fully operational
stock exchanges in
France and England.
America followed in the
later part of the century
by signing Buttonwood
Agreement. Other parts
of the world followed later
in 19
th
century. There are
now a large number of
stock exchanges in the
world.
Title
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Sub-continent of
India
Before Independence
there were many stock
exchanges established
in sub-continent during
1800s. In 1934 Lahore
Stock Exchange was
formed but it was closed
after partition and later
on merged with Delhi
Stock Exchange.
Karachi Stock exchange
was founded in 1947.
Functions of Stock Exchanges
Raising
Capital for
business
Redistribution
of wealth
Barometer of
the economy
Mobilizing
saving for
investment
Facilitating
company
growth
Creating
investment
opportunities
for small
investors
Corporate
governance
Bought
&
sold
Efficiently
&
fairly
vetting
companies
Stock Exchange & Economy
Expansion /
New Project
Attracts
Foreign
Investment
Employment
Generation
Tax
Contributions
Money circulation
Sensitivity of Stock Market
Emotions
News
Economy & Politics
Earnings of Companies
Rumors
Demand & Supply
Stock
Market
Investor Vs. Speculators
Those who investors knows the company or at
least the industry and were often involves the
growth.
Investors have reasonable ways to quantify risk.
There has been another type of investor.
The investor does not have a deep knowledge about
the company or industry he invests in.
He invests based on trends, or charts, or tips, or
generally guesses about the Market.
Basic Concepts
Bull & Bear
Blue Chip
Carry-Over Trades
Dividends
Right Issue
Book closure
Buy Stop Order
Inside trading
Portfolio
Public Limited Company
Short selling
Ex-Dividend Dates: When a company
declares a dividend, it sets a record
date when you must be on the
company's books as a shareholder to
receive the dividend.
Earning per share (EPS): A
profitability indicator calculated by
dividing the net after-tax earnings
(earnings available to common
shareholders) during a period by the
average number of shares outstanding
at the end of that period.
Stop-Loss Order: An order placed
with a broker to sell a security when it
reaches a certain price. It is designed
to limit an investor's loss on a security
position. Also known as a "stop order"
or "stop-market order".
Regulatory Structure
Parliament
Ministry of
Finance
Securities &
Exchange
Commission
of Pakistan
State Bank of
Pakistan
Federal Board
of Revenue
ISE
CDC NCCPL
Governing Laws
The Securities and Exchange Commission of Pakistan (SECP) is
the main regulator of the stock market. It regulates the stock
market through following major statutory laws/rules:
Securities and Exchange Ordinance 1969
Securities and Exchange Rules 1971
Securities and Exchange Commission of Pakistan Act 1997
Specific Purpose Legislations for Conduct of Trade
Stock Exchanges Regulations:
Memorandum& Articles of Association
Listing Regulations
General Regulations
2009
2006 ~ 2007
2002 ~ 2003
1996 ~ 1997
ISE Towers were inaugurated in 2009
Logo of ISE was redesigned in 2009
UTS was established with LSE in 2007
T+2 cycle was introduced in 2007
UIN system was established in 2006
New RMS was introduced in 2006
Remote Trading was implemented in 2003
System Audit of Brokers was introduced in 2003
ULTRA TRADE trading system was adopted in 2002
ISE 10 Index was launched in 2002
Computerized Trading called ISE-CTS started in 1997
ISE Network Index was launched in 1996
Brief History of ISE
Corporate Structure of the Stock Exchanges
The affairs of the Exchanges are run by the Board of
Directors.
Composition of the Board:
Elected from Members of the Exchange 5
Nominated by SECP 4
The Managing Director 1
Total 10
Managing Director is a member of the Board by
virtue of his office. The Chairman of the Board is
elected out of the non-member directors.
Organizational Structure
GM (Operations)
Company
Secretary
Managing Director
CEO
Department
of
Companies
Affairs
Department
of
Internal
Control
Department
of
Investors
Relations
Department of
General
Administration/
Finance
Department
of
New
Building
IT Wing
Customers
of ISE
Members
ISE has a very small
base of investors as
compare to other
Exchanges
Investors
261 Companies are
listed in ISE
Rs. 200 million
paid-up capital
public offer should
be Rs.100 million or
20% of the capital
whichever is higher
500 applicants
Issuers
ISE has 119 Members/
Brokers
26 individual
93 corporate
Pakistani Citizen
Having certain
taxable income
Graduate
Not defaulter of any
public institution
Not penalized for any
moral guilt
Membership Fee
Stakeholders of ISE
Operations of ISE
Companies
Affairs
Provide listings to Companies
Monitor listed companies
Provide quotations to media
Ensure listing requirements and code of
corporate governance by companies
Internal
Control
Grant membership to brokers
Control members
Monitor computerized trading
Perform market surveillance
Manage Risk Management System
Investors
Relations
Provide Information to Investors
Deal with Complaints of Investors
Educate Investors
Handle Default & Legal Cases
Keep Media Relations
Trading Systems
The stock exchanges have fully computerized trading systems and
out-cry systems no more exist.
Bids (buy orders) and offers (sale orders) are placed in the trading
software and then executed accordingly.
Types of Trading:
Regular
Future
Trade Orders:
Market Order
Limit Order
Custodial Functions
Central Depository Company of Pakistan Limited (CDC) provides
custodial services for shares.
It ensures efficient handling and transfer of shares.
Types of CDC Accounts:
Main Account for Brokers ( a gateway account)
House Account (a family account of the Broker)
Sub-Account (An investor account with CDC through
Broker)
Investor Account Services. (Facilitating the Investors to open their
independent CDC Accounts)
Initial Account Opening Fee: Rs.500/-.
Annual renewal Fee Rs.500/-.
Broker
Broker
Buying Investor
Shares
Selling Investor
Broker
Buying Investor
NCCPL
Broker
Selling Investor
Proceeds
Amount
Shares
Shares
Proceeds
Activity Chart
Trader at Member Office
Placing buy/sell orders in TWS for its clients
Trading Server @ ISE
Order matching/execution
Trader at Member Office
Placing buy/sell orders in TWS for its clients
Connected to Server through Network or Internet
Investor
Terminal provided by Member.
Placing orders directly.
NCCPL CDC
Investor
Terminal provided by Member.
Placing orders directly.
SECP
Step 1
Step 2
Step 3
Selecting Stock Broker
Opening Account with Stock-Broker
Placing Orders
Commission/Brokerage Fee
Delivery
Clearing & Settlement
Procedure for Trading in ISE
Stock Market Index
KSE-100 INDEX
LSE-25 INDEX
ISE-10 INDEX
ISE-10 INDEX: Date of launching: Jan 1, 2004
The main objective for the construction of an index is to track the
performance of the various listed stocks according to their market
capitalization. A capital weighted index is composed of a basket of
securities, which captures the change in market capitalization due to
the variation in prices. Mathematically this can be represented by:
Index Value = Total market capitalization * 1000
Index divisor
Trading Fees and Levies
% of Traded
Value
Exchange Transaction Fee .00415
Appropriation:
SECP levy .00065
Investor Protection Fund .00100
Members Protection Fund .00100
ISE Income .00150
Sources of Revenue of ISE
Listing Fees
Initial listing fee @.1% of total paid-up capital maximum
upto Rs.1.00 million
Annual Listing Fee
Paid-up Capital
Upto Rs. 50 mn Rs. 10,000/- P.A.
Above Rs. 50 mn to Rs. 200 mn Rs. 15,000/- P.A.
Above Rs. 200 mn Rs. 25,000/- P.A.
Additional Listing Fee @ 0.1% of the increased capital
Trading Fee @ 0.0015% - Rs.1.50 per Rs.100,000 value of
transaction
Any Other Income Source
Assessing Securities
Fundamental
Analysis
Technical
Analysis
Economic
Factors
Industrial
Sectors
Companies
Analysis
Charts
Graphs
Technical
Indicators
Word of Advice
1. Understand the nature of Stock Investment
before making any investment decision.
2. Always Invest Through a Registered Broker of
the exchange.
3. Diversify your investment to a possible
extent.
4. Keep Complete record of your Investments.
5. Maintain your own CDC account for the safe
custody of your shares.
6. The key to making money in stocks is not to
get scared out of them.
Quotes by Market Gurus
Warren Buffett
Only buy something that you'd be perfectly happy to
hold if the market shut down for 10 years
John Templeton
Diversify your investments.
Warren Buffett
Wide diversification is only required when investors do
not understand what they are doing.
Market Summary Report