x

(PART A)

Stock exchange

Stock exchange

Introduction Role

History Listing of securities

Securities Owner ships

Types of operators Future

Trading process Types

A1. Introduction:

A stock exchange, (formerly a securities exchange) is a corporation or mutual organization which

provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchange is
a highly organized market where securities are purchased and sold.

A stock exchange is an organization of which the members are stock brokers. A stock exchange
provides facilities for the trading of securities and other financial instruments. Usually facilities are also
provided for the issue and redemption of securities as well as other capital events including the payment of
income and dividends. The securities usually traded on a stock exchange include the shares issued by
companies, unit trusts and other pooled investment products as well as corporate bonds and government bonds.

A2. History of Stock Exchanges:

In 11th century France the courtiers de change was concerned with managing and regulating the debts of
agricultural communities on behalf of the banks. As these men also traded in debts, they could be called the first
brokers.

Some stories suggest that the origins of the term "bourse" come from the Latin bursa meaning a bag because, in
13th century Bruges, the sign of a purse (or perhaps three purses), hung on the front of the house where
merchants met. However, it is more likely that in the late 13th century commodity traders in Bruges gathered
inside the house of a man called Van der Burse, and in 1309 they institutionalized this until now informal
meeting and became the "Bruges Bourse". The idea spread quickly around Flanders and neighboring counties
and "Bourses" soon opened in Ghent and Amsterdam.

In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351, the
Venetian Government outlawed spreading rumors intended to lower the price of government funds. There were
people in Pisa, Verona, Genoa and Florence who also began trading in government securities during the 14th
century. This was only possible because these were independent city states ruled by a council of influential
citizens, not by a duke.
The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share
of their profits—or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam
Stock Exchange. It was the first company to issue stocks and bonds. In 1688, the trading of stocks began on a
stock exchange in London.

On May 17, 1792, twenty-four supply brokers signed the Buttonwood Agreement outside 68 Wall Street in New
York underneath a buttonwood tree. On March 8, 1817, properties got renamed to New York Stock & Exchange
Board. In the 19th century, exchanges (generally famous as futures exchanges) got substantiated to trade futures
contracts and then choices contracts. There are now a large number of stock exchanges in the world.

A3. Trading Of Stock and Securities:

The securities traded on a stock exchange include:

 Shares issued by companies.

 Debentures.

 Bonds.

To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central
location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets
are electronics networks, which gives them advantages of speed and cost of transactions. Trade on an exchange
is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary
market and subsequent trading is done in the secondary market.

A stock exchange is often the most important component of a stock market.

Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of
stocks.

There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently
traded on the exchange. Such trading is said to be off exchange or over the counter. This is the usual way that
derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities
Shares:

The total authorized capital in the company is divided into small units and each is individually called “Share”.
You can buy large or small lots to match the amount of money you want to invest. When the company does
well, its shares can rise in value. If the company hits a bad patch, its share can fall in value. The shares are
considered as the main source to raise company’s capital.

Share Holder:

The people who provide finance to company by purchasing shares are called shareholders.

Types of shares:

a) Preference Shares:

These are shares whose holders have preferential rights in respect of the payment of dividend and repayment of
capital in the event of winding up. The rate of dividend on these shares is fixed. There are further two types of
preference shares.

 Cumulative preference shares: If the profit if company is not enough to pay dividend on any kind of
shares at the end of financial year than the right of dividend on these shares accumulates until all arrears
of unpaid dividend have been paid.

 Non-Cumulative preference shares: These are the shares on which if dividend is not paid out of current
years profit in any year then it is never paid.

b) Ordinary Shares:

These shares are the shares on which dividend is not paid at fixed rate. Ordinary shareholders receive the
dividend proportionally out of profit earned by the company after the payment of fixed dividend on preference
shares.

c) Deferred Shares:

The share issued to promoters of the company is called deferred or founders shares. The dividend on these
shares is paid after the payment of dividend on all other types of shares.
A4. Types of operators on stock exchange

The operators who buy and sell securities on stock exchange are of several types. Some of them are described
below:

a) Brokers:
A broker is a member of the stock exchange. He buys and sells the securities on the behalf of the outsiders who
are not the members. He charges brokerage for his services. He does not specialize in any particular security.
He buys sells all types of securities according to the orders placed by his clients .

b) Jobbers:
The jobber is a member of stock exchange but he buys and sells securities on his own behalf. He is a dealer in
securities. He usually specializes in one type of security. His income comes from the profit or price difference
in the purchase and sale of securities. A jobber normally deals for himself but he is not prohibited from buying
and selling securities on the behalf of others.

c)Bulls:
A bull is a speculator who expects a rise in prices. Therefore, he buys securities with a view to sell them in
future at a higher price thereby make profit. When the conditions in the stock exchange are dominated by bulls,
it is called a “bullish market”. When the prices fall and bulls have to sell at loss, it is called “bull liquidation”.

d) Bears:
A bear is a speculator expects fall in prices. Therefore, he sells securities for future delivery. He sells securities,
which he does not possess. He sells with the hope to buy the securities at lower price before the date of delivery.
The efforts of bears to bring down the prices artificially are known as “bear raids”. When bears dominate the
market, it is called a “bearish market”. When prices are rise and bears have to make purchases to meet their
commitments, it is called “bear covering”.

A5. Trading procedure on Stock Exchange

In order to purchase or sell securities on a stock exchange, the following steps have to be taken:

a) Selection of Broker:

A broker is a member of stock exchange and securities can only be purchased and sold through him. After
selecting the broker the investor has to convince the broker to buy or sell securities on his behalf. For this
purpose, the investor may have to make an advance or give references of a bank or some other persons .
 b) Placing the order:

There are three parties involved in the dealing of shares:

 The Stock Broker

 The Client

 The Jobber

The stock broker simply acts as agent and contacts the particular jobber in the stock exchange on behalf of the
client. He does not disclose to the jobber whether he is a buyer or seller of shares. He therefore, asks him to
quote two prices:

 The upper prices at which he is ready to sell the shares.

 The lower prices at which he is ready to buy the shares.

For Example, Mr. Ali wants to sell one thousand shares of a Company. He contacts a broker dealing on the
stock exchange. The broker asks a jobber to give quotations. He does not disclose the jobber whether he wants
buy or sell the shares of a company. The jobber gives two prices, one at which he is willing to sell and the other
at which he is ready to buy. For instance, the two quoted prices are Rs.21.90 and Rs.22.00 in a thousand. This
means broker is willing to purchase at Rs.21.90 and sell at Rs.22.00 per share. If the broker is not satisfied, he
can go to another jobber or ask the first one to make it closer (i.e. to reduce the margin between buying and
selling). If the broker is satisfied with the new quotation, he then contacts with his client informs him the bid of
the share. If the client agrees to the bid price, then bargain is struck

c) Preparing the contract note:

The stock broker prepares a contact note, one copy of which is given to the client; second one to the jobber and
the third remains with the broker. The contact note generally contains the following information:

 Name and the address of the stockbroker.

 The name and address of the jobber.

 The type and price of the share.

  The commission of the broker.

 The date of transaction

d) Settlement:

 In case of ready delivery contract, the buyer pays the money and the seller delivers the securities one
same day.

 In the case of forward delivery contracts settlements are done in a week or once in a month.

On the settlement day, the difference in the purchase and the sell price may be paid without any delivery of
securities. The parties may also postpone the deal to the next settlement date through mutual consent. This is
known as “carryover” or “budla”.

A6. Role of Stock Exchange in economy:

Stock exchanges have multiple roles in the economy, this may include the following:

a) Raising capital for businesses:

The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to
the investing public. It induces people to save and invest in securities. There is regular publicity of its
operations, which encourages savings and investments. People know that when they need money, they can
easily sell their securities on stock exchange. Therefore, they are more willing to invest their savings in
securities. Thus a stock exchange serves as an instrument for raising capital.

b) Mobilizing savings for investment:

When people draw their savings and invest in shares, it leads to a more rational allocation of resources because
funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to
promote business activity with benefits for several economic sectors such as agriculture, commerce and
industry, resulting in stronger economic growth and higher productivity levels and firms.

c) Facilitating company growth:

Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge
against volatility, increase its market shares, or acquire other necessary business assets. A takeover bid or a
merger agreement through the stock market is one of the simplest and most common ways for a company to
grow by acquisition or fusion.

d) Redistribution of wealth:
Stock exchanges do not exist to redistribute wealth. However, both casual and professional stock
investors through dividends and stock price increases that may result in capital gains will share in the wealth of
profitable businesses.

e) Corporate governance:
By having a wide and varied scope of owners, companies generally tend to improve on their management
standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for
public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that
public companies (companies that are owned by shareholders who are members of the general public and trade
shares on public exchanges) tend to have better management records than privately-held companies (those
companies where shares are not publicly traded, often owned by the company founders and/or their families and
heirs, or otherwise by a small group of investors). However, some well-documented cases are known where it is
alleged that there has been considerable slippage in corporate governance on the part of some public companies.
The dot-com bubbles in the early 2000s, and the subprime mortgage crisis in 2007-08, are classical examples of
corporate mismanagement. Companies like Pets.com (2000), Enron corporation (2001), One.Tel (2001),
Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), Parmlat (2003), American
International Group (2008), Lehman Brothers (2008), and Satyam Computer Services (2009) were among the
most widely scrutinized by the media.

f) Creating investment opportunities for small investors:

As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and
small stock investors because a person buys the number of shares they can afford. Therefore the Stock
Exchange provides the opportunity for small investors to own shares of the same companies as large investors.

g) Government capital-raising for development projects:

Governments at various levels may decide to borrow money in order to finance infrastructure projects such as
sewage and water treatment works or housing estates by selling another category of securities, known as bonds.
These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning
money to the government. The issuance of such bonds can obviate (to remove) the need to directly tax the
citizens in order to finance development, although by securing such bonds with the full faith and credit of the
government instead of with collateral (side by side), the result is that the government must tax the citizens or
otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds
mature.

h) Barometer of the economy:

At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise
or remain stable when companies and the economy in general show signs of stability and growth. An economic
recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement
of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.

i) Regulation of companies:
The stock exchange exercises a wholesome influence on the management of companies. A company that wants
to be listed on stock exchange must bind itself to the rules and regulations prescribed by the stock exchange.

j) Employment Opportunities:
Stock exchange provides employment opportunities to the jobbers and other members who perform there
activities in the stock exchange. So it is an important source of employment not only for investors but also for
the members and there employees.

A7. Listing of Securities on Stock Exchange:

All securities are not dealt on stock exchange. Only those securities are sold or purchased which are included in
trading list of the stock exchange. In order to get a security listed on stock exchange for trading purposes, the
company issuing such a security must make an application along with following prescribed documents.

a)Copies of memorandum, articles, prospects, directors’ report, balance sheet and agreement with
underwriters.

b) Specimen copies of shares, debentures, certificates, letter of allotment and acceptance, etc.

c)Particulars regarding capital structures.

d) A statement showing the distribution of shares.

e)Particulars of dividends and each bonus declared since its incorporation.

 f) Particulars of shares and debentures for each, permission are required.

g) A brief history of the company’s activities since its incorporation.

After the scrutiny of application, if the stock exchange authorities are satisfied, they call upon the company to
execute the ‘listing agreement’. The listing agreement contains the following conditions and obligations:

a)The company must be fair to all the applicants for shares. In the case of over subscription, no
undue preference will be shown to any particular class of applicants.

b) To notify stock exchange about the date of the board meeting at which decision of dividend is
taken.

c)To forward the copies of its annual accounts duly audited to the stock exchange.

d) To notify the stock exchange, about any material change or nature or feature of the company’s
business.

e)To notify the stock exchange any change in the capital of the company.

f) To notify the issue of any new shares including bonus shares.

g) To comply with all the requirements of the listing agreement and not to commit any breach of
any condition.

h) To notify the stock exchange of any occasion this will result in redemption or cancellation of
any listed security.
 i) To avoid, the establishment of a false market for the listed securities.

j) To supply the stock exchange any other information necessary to enable the shareholders to
know about the company’s position.

A8. Functions of stock exchange:

Function of SE

Main activities Function as

An organization

In favor of investor

The functions of stock exchange are as following In favor of companies

A8- 1. Main activities:

  To promote the savings and for them to be canalized towards of carrying through investment projects
that otherwise wouldn’t   be possible you need that the issuing institution of the securities to be
admitted for quoting. The negotiations will be done on the primary market.
 To provide liquidity to the investors. The investor can   recuperate the money invested when needed.
For it, he has to go to the stock exchange market to sell the securities previously acquired. This function
of the stock market is done on the secondary market.

A8-2. Functions as an organization are:

 To guarantee the legal and economic security of the agreed contracts.

 To provide official information about the quantities that are negotiated and of the quoted prices.
 To fix the prices of the securities according to the fundamental law of the offer and the demand.

Specifying a bit more and centering on the two main agents that intervene in the market, investors and
companies, we could do the following   classification:

A8-3. Functions in favor of the investor:

 It permits him the access to the profitable activities of the big companies.
 It offers liquidity to the security investments, through a place in which to sell or buy securities.
 It permits for the investor to have a political power in the companies in which he invests its savings due
that the acquisition of ordinary shares gives him the right (among other things) to vote in the general
shareholders meetings of the company in question.
 It offers the possibility of diversifying   your portfolio by enlarging the field of strategy of investments
due to alternative options, as could be the derived market, the money market, etc.

A8-4. Function in favor of the companies:

  It supplies them with the obtaining of long-term funds that permits the company to make profitable
activities or to do determine projects that otherwise wouldn’t be possible to develop for lack of
financing. Also, this funding signifies a less cost than if obtained at other channels.
 The securities quoted at the stock exchange market usually have more fiscal purpose advantages for the
companies.
 It offers to the company’s free publicity, which in other way would suppose considerable expenses. The
institution is objecting of attention of the media (television, radio, etc.) in case any important change in
its owners (the share holders).

A8-5. Constant following of the quotations:

Therefore we can see how the stock exchange market supposes a great advantage to the companies, but there
are also some inconveniences to have in mind:

 First of all, they need of a series of conditions to be apt to enter to the quotations, not all the companies
that apply can do it.
 The issuing of shares may suppose a loss of power for the founders of the company. Anyway, this is very
relative because it will depend on the grade of atomization on the participations of the new shareholders
and of the percentage of shares that the founders keep over the total capital of the company.
 If for example a 49% of the share capital is in hands of the founders, these could loose the control of in
case the other 51% would be in hands of one main shareholder. However, this rarely happens, due that
the share capital that usually goes to the stock market tends to be distributed between a great number of
shareholders that acquire modest participations in respect to that of the capital of the company the
founders may still keep control with share capital is distributed between a great number of participants.
 Now then, the property of these shares implies the possession of certain rights over the company in which
you participate.

These are: political rights, among which appears the possibility of participating in the general share holders
meetings and in the administration of the company by means of the execution of your rights to vote; and the
economic right, which embraces the possibility of receiving dividends, preferential rights of subscription, the
transmission of shares (selling) and the right to the liquidity value.

This last implies that at the moment in which the company is liquidated, what remains is proportionally divided
between the shareholders.
A8-6. The possession of all these rights is what reduces the power of the founders.

 The shares may pass to be property of unknown people to the founders. At the moment in which they are
object of quotations at the stock exchange market any supplier of capital may have them. If it’s a company that
previously knew all its shareholders, considering this as an asset of value to the company. The stock market
quotation may generate an important change that will not always be positive.
 The companies that are quoted at the stock market offer a better transparency, in a way that the general
public may have access to any information related to their evolution and activities.
 This makes them have a greater control and to supervise every movement done.

Major stock exchange

World major SE

Regions

America Africa Asia Europe

Twenty Major Stock Exchanges In The World: Market Capitalization & Year-to-date Total Turnover

Region   Stock Exchange   Market Value Total Share Turnover

 (millions USD)   (millions USD)  

Africa Johannesburg Securities Exchange 690,797.5 210,180.8

Americas NASDAQ 2,847,535.2 19,343,868.3

Americas São Paulo Stock Exchange 1,032,518.4 361,959.0

Americas Toronto Stock Exchange 1,432,877.0 798,193.1

Americas New York Stock Exchange 10,842,001.9 12,158,620.6

Asia-Pacific Australian Securities Exchange 1,066,513.2 560,912.8

Asia-Pacific Bombay Stock Exchange 1,082,572.0 171,176.2

Asia-Pacific Hong Kong Stock Exchange 1,945,517.7 970,227.6

Asia-Pacific Korea Exchange 727,125.3 1,050,473.8

Asia-Pacific National Stock Exchange of India 1,019,109.0 506,652.3

Asia-Pacific Shanghai Stock Exchange 2,142,756.8 3,315,768.5

Asia-Pacific Shenzhen Stock Exchange 596,320.2 1,701,256.8

Asia-Pacific Tokyo Stock Exchange 3,478,602.5 2,675,983.3

Europe Euro next 2,605,097.6 1,195,962.2

Europe Frankfurt Stock Exchange (Deutsche Börse) 1,204,292.0 1,589,736.7

Europe London Stock Exchange 2,560,491.1 2,321,518.5

Europe Madrid Stock Exchange (Bolsas y Mercado’s Españoles) 1,178,525.6 1,040,751.1

Europe Milan Stock Exchange (Bursa Italiana) 636,674.8 565,759.3

Europe Nordic Stock Exchange Group OMX1 781,146.3 503,049.9

Europe Swiss Exchange 992,356.4 520,867.5

Stock exchange of Pakistan

Pakistan stock exchange

Karachi stock exchange

(KSE)
 (PART B)

B1. Karachi Stock Exchange

 Type Stock Exchange

Location Karachi, Pakistan

Owner Karachi Stock Exchange Limited

Key people Adnan Afridi, CEO

Currency PKR

No. of listings 671

MarketCap US$ 73 billion

Volume US$ 12 billion

KSE 100 Index

Indexes
KSE-30 Index

Website www.kse.com.pk

The Karachi Stock Exchange or KSE is the first stock exchange located in Karachi, Sindh, Pakistan Founded in
1947; it is Pakistan's largest and oldest stock exchange, with many Pakistani as well as overseas listings. Its
current premises are situated on Stock Exchange Road, in the heart of Karachi's Business District. Later on two
more stock exchanges were formed in Lahore (1971) and Islamabad (1992) to facilitate the investment in
securities. The investors get opportunities of international investment due to contract of Pakistan’s stock
exchanges with other countries. The stock exchange not only informs the investors about international business
trends but also plays important role in strengthening the economy of the country .

B2. History:
The KSE is the first stock exchange located in Karachi, Sindh, Pakistan Founded in 1947; it is Pakistan's largest
and oldest stock exchange, with many Pakistani as well as overseas listings. Its current premises are situated on
Stock Exchange Road, in the heart of Karachi's Business District.

B3. Trading:

The KSE has

 Pre-market sessions from 09:15am to 09:30am.

 Normal trading sessions from 09:30am to 03:30pm.
 It is the second oldest stock exchange in South Asia.

B4. Trading System:

The KSE has introduced as state of the art computerized trading system known as Karachi automated trading
system to provide a fair , transparent an deficient and cost effective market for the investors.

The trading is divided into four distinct segments, each of which has its own clearing and settlement procedure.
These are:

 T+3
 Provisionally listed companies
 Spot (T+1)
 Transactions and future contrasts

 T + 3 Counters:

Transactions in this segment are settled through the clearing and settlement? NNCPL that nets out the purchases
and sales and the financial obligations theory of each member/firm for the notified clearing period. Payment
from and to members are routed through the clearing & settlement/ NNCPL. For the securities declared eligible
securities by the central depositary company the clearing and settlement takes place through NNCPL in order to
handle the clearing of all the three stock exchanges of the county under one roof, the national clearing and
settlement system has been introduced. NNCPL is managed by central depositary company of Pakistan limited.

 Futures Trading in Provisionally Listed Companies:

The shares of companies which make a minimum public offering of Rs.150 million are traded on this segment
from the date of publication of offering documents. The period of contracts of each script is notified by the
exchange. The outstanding contracts carried out under the provisionally listed companies are settled on the
settlement date and members are not allowed to transfer their positions to the ready clearing board or any other
board. On formal listing, the trading in the shares of the company is shifted to the ready board counter under T+
3 settlement system from the dates of normal listing.

 Spot / T+1 Transaction:

For about 5 days before the closure of shares transfer book notified by the company for any corporate action,
transactions are settled on T+ 1 basis. For non-CDC securities the delivery and payment is settled through the
clearing house of the exchange, however, delivery is tendered directly between the buying and selling members
as per the instructions of the clearing house, however the delivery is tendered directly between the buying and
selling members as per the instructions of the clearing 7 settlement. The transactions in CDC eligible securities
are settled through NCCPL.

 Future Contracts:

A future contract involves purchase and sale of securities at some future date (normally within one calendar
month) at a price foxed today. The number and names of companies to be traded on the futures counter are
determined every six months based on the eligibility criteria approved by SECP in this regard ad which are
notified to the market participants in advance. Under the regulations governing future contracts and the contract
is fixed for a period of one month transaction costs. Brokerage on transactions is freely negotiable between the
negotiator and the client.

Stamp duty is charged at 1.5% of the face value of the shares under the physical form of transfer. There is no
stamp duty for transfer settled through the central depositary system; however, there is a one time stamp duty at
the rate of one paisa per share at the time of deposit of securities in the CDS. The stamp duty is born by the
buyer ad the seller.

B5. Growth:

The KSE is the biggest and most liquid exchange in Pakistan and in 2002, it was declared as the “Best
Performing Stock Market of the World”. As of December 20, 2007, 671 companies were listed with the market
capitalization of Rs. 4364.312 billion (US$ 73 Billion) having listed capital of Rs. 717.3 billion (US$ 12
billion). On December 26, 2007, the KSE 100 Index reached its ever highest value and closed at 14,814.85
points.

Foreign buying interest had been very active on the KSE in 2006 and continued in 2007. According to estimates
from the State Bank of Pakistan, foreign investment in capital markets total about US$523 Million. According
to a research analyst in Pakistan, around 20pc of the total free float in KSE-30 Index is held by foreign
participants.

KSE has seen some fluctuations since the start of 2008. One reason could be that it is the election year in
Pakistan, and stocks are expected to remain dull. KSE has set an all time high of 15,000 points, before settling
around the 14,000 mark.

Karachi stock exchange Board Of Directors (2007) announced plans to construct a 40 story high rise KSE
building, as a new direction for future investment.

Disputes between investors and members of the Exchange are resolved through deliberations of the Arbitration
Committee of the Exchange.

KSE began with a 50 shares index. As the market grew a representative index was needed. On November 1st,
91 the KSE-100 was introduced and remains to this day the most generally accepted measure of the Exchange.
Karachi Stock Exchange 100 Index (KSE-100 Index) is a benchmark used to compare prices overtime,
companies with the highest market capitalization are selected. To ensure full market representation, the
company with the highest market capitalization from each sector is also included.

In 1995 the need was felt for an all share index to reconfirm the KSE-100 and also to provide the basis of index
trading in future. On August the 29th, 1995 the KSE all share index was constructed and introduced on
September, 18, 1995.

B-6. KSE Stock indices:

B-6-1. Stock indices:

A stock index is a method of measuring a section of the stock market. There are two big indices used in Karachi Stock
Exchange.
 a) KSE 100 Index

Karachi Stock Exchange 100 Index (KSE-100 Index) is a stock index, acting as a benchmark to
compare prices on the Karachi Stock Exchange (KSE) over a period of time. In determining
representative companies to compute the index on, companies with the highest market capitalization
are selected. However, to ensure full market representation, the company with the highest market
capitalization from each sector is also included.

b) History:

The index was launched in late 1991 with a base of 1,000 points. By 2001, it had grown to 1,770 points. By 2005, it had
skyrocketed to 9,989 points. It then reached a peak of 12,285 in February 2007. KSE-100 index touched the highest ever
benchmark of 14,814 points on December 26, 2007, a day before the assassination of former Prime Minister Benazir
Bhutto, when the index nosedived. The index recovered quickly in 2008, reaching new highs near 15,500 in April.
However, by November 22, 2008 during the global financial crisis of 2008, it had fallen to 9,187.

c) Top 30 KSE 100 Index companies:

The following is a list of 30 companies with the highest market capitalization volume and their respective weight ages in
the index and account for over 80% of the KSE index as of February 20, 2008:

Weight age
Number Company Name Market Capitalization (PKR)
(%)

1 OGDCL 14.14 550,948,930,000

2 MCB 7.17 279,583,150,000

3 National Bank Of Pakistan 5.43 211,726,900,000

4 Pakistan Petroleum 5.06 197,201,080,000

5 Standard Chartered Bank 4.41 171,704,800,000

6 PTCL 4.28 166,810,800,000

7 United Bank Limited 4.13 161,025,160,000

8 Jahangir Siddiqui &Company 2.66 103,600,000,000

9 Pakistan State Oil 2.08 81,034,440,000

10 Allied Bank Limited 2.01 78,371,670,000

11 Nestle Pakistan 1.93 75,280,250,000

12 Pakistan Oilfields 1.71 66,824,220,000

13 Fuji Fertilizer Company 1.68 65,607,390,000

14 ABN AMRO 1.63 63,666,370,000.

15 Engro Chemical 1.45 56,492,990,000

16 Arif Habib Securities 1.40 54,660,000,000

17 NIB Bank 1.27 49,320,250,000

18 Kot Addu Power Company 1.19 46,565,400,000

19 EFU General Insurance 1.16 45,300,000,000

20 Bank Of Punjab 1.13 43,869,030,000

21 Fuji Fertilizer Bin Qasim 1.06 41,474,480,000

22 Bank Alfalfa 1.03 39,975,000,000

23 Adam jee Insurance 1.01 39,258,300,000

24 Pakistan Tobacco Company 0.99 38,707,280,000

25 Sui Northern Gas Pipeline 0.98 38,300,100,000

26 Hub Power Company 0.98 38,128,240,000

27 Dawood Hercules Chemicals 0.91 35,549,620,000

28 Habib Metropolitan Bank 0.91 35,354,280,000

29 EFU Life Assurance 0.89 34,750,000,000

 30 Lucky Cement 0.86 33,593,480,000

d) KSE-30 Index:
The Karachi Stock Exchange has launched the KSE-30 Index with base value of 10,000 points,
formally implemented from Friday, September 1, 2006. The main feature of this index that makes it
different from other indices are:
 KSE-30 index is based only on the free-float of shares, rather than on the basis of paid-up
capital.
 The other index in Karachi Stock Exchange represents total return of the market. That is, when
a company announces a dividend, the other indices at KSE are not reduced/adjusted for that
amount of dividend (whether cash or bonus).Whereas, KSE-30 Index is adjusted for dividends
and right shares.
 At the end of 13 July, 2007, KSE-30 Index has reached its highest ever level of 17,162.45.

e) Market Indices:

KSE began with a 50 shares index. As the market grew a representative index was needed. On November 1, 1991 the KSE-
100 was introduced and remains to this date the most generally accepted measure of the Exchange. The KSE-100 is a
capital weighted index and consists of 100 companies representing about 90 percent of market capitalization of the
Exchange. In 1995 the need was felt for an all share index to reconfirm the KSE-100 and also to provide the basis of index
trading in future. On August 29,1995 the KSE all share index was constructed and introduced on September 18, 1995.

B7. STRUCTURE OF KSE

BOARD OF DIRECTORS:
The KSE is run by a Board of Directors that consists of 10 members including Managing Director. Out of
these, 5 Directors are elected from amongst 200 members of the Exchange and 4 non-member Directors are
nominated and appointed by SECP from amongst the professionals belonging to various trades and professions. The
Chairman is elected by the Board from amongst the non-member Directors. The operational and administrative
activities of the Exchange are managed by the Managing Director who is the full time Chief Executive of the
Exchange.
Following are the members of the Board.

1. Mr. Kamran Y. Mirza

 Chairman
2. Mr. Adnan Afridi
 Managing Director
3. Mr. Asad Iqbal
 Director
4. Mr. Osman Asghar Khan
 Director
5. Dr. Farid Khan
 Director
6. Mr. Muhammad Yasin Lakhani
 Director
7. Mr. Zafar S. Moti
 Director
8. Mr. Khalid Ahmed Sherwani
 Director
9. Haji Ghani Haji Usman
 Director
10. Mr. Amin Yusuf
 Director
 (PART C)

C1. Lahore Stock Exchange

Lahore Stock Exchange

Type Stock Exchange

Location Lahore, Pakistan

Owner Lahore Stock Exchange Limited

Key people Arif Saeed(Chairman)

Currency PKR

No. of listings 671

MarketCap US$ 73 billion

 Volume US$ 12 billion.

Indexes LSE 25 Index

Lahore Stock Exchange (Guarantee) Limited is Pakistan's second largest stock exchange after the Karachi Stock
Exchange. It is located Lahore, Pakistan.

C2. History of LSE:

Lahore Stock Exchange was established in October 1970 and is the second largest stock exchange in
the country with a market share of around 12-16% in terms of daily traded volumes. LSE has 519 companies,
spanning 37 sectors of the economy, that are listed on the Exchange with total listed capital of Rs. 555.67
billion having market capitalization of around Rs. 3.64 trillion. LSE has 152 members of whom 81 are corporate
and 54 are individual members. LSE was the first Exchange in the country to take on automation of trading at
the exchanges in 1994. LSE has made large investments in technology & automation to keep pace with
globalization of securities trading.

LSE was the first Exchange in Pakistan to offer online Internet based trading to its members in the year 2001. It
enables the brokers to reach out to the unexploited retail markets. Currently, more than 50% of the total trading
volume at the LSE originates from Internet trading terminals. Activities of Lahore Stock Exchange (LSE) have
increased significantly in all operational areas since its inception. Over the years, LSE has successfully met
various challenges and has now emerged, fully geared and positioned to aggressively compete with its fellow
Exchanges, contributing towards the growth of Capital Markets in Pakistan.

Activities of Lahore Stock Exchange (LSE) have increased significantly in all operational areas since
its inception. Over the years, LSE has successfully met various challenges and has now emerged, fully
geared and positioned to aggressively compete with its fellow Exchanges, contributing towards the
growth of Capital Markets in Pakistan.

The LSE was the first stock exchange in Pakistan to use the internet and currently 50% of its
transactions are via the internet.
The Lahore Stock Exchange has opened branches in the industrial cities of Faisalabad and Sialkot for trading.
The Sialkot branch is referred to as the "Sialkot Trading Floor".

C3. Stock Trading:

If an investor wants to purchase the shares of a particular company, he has to open an account with the Broker
in the Stock Exchange. On the other hand the broker has the account and registered with the Stock Exchange.
The registration fee is Rs.4 Million and broker is allowed to trade up to 25 times of his Net Capital. Investor can
order in two ways,
Limit Orders: In a limit order, the investor or client suggest the price at
which the order is to be executed.

Market Order: Also known as at best order, the order is executed at the
prevailing market rate.
1.2)How Shares are traded
Clients can purchase shares from their brokers on debt but it is necessary by
SECP that client should pay at least 60% of the amount .

C4. Trading and Settlement System:

The stock exchanges have introduced a computerized trading system to provide a fair, transparent, efficient and cost
effective market mechanism to facilitate the investors. Before this system stocks were traded physically by bidding in
the open hall which was very slow system. In Pakistan LSE is the first to introduce IT trading system, in which
software”ULTRA” is used.

The trading system comprises of four distinct segments, which are:

 T+3 Settlement System;
 Provisionally Listed Counter;
 Spot Transactions; and
 Futures Contracts.
C5. STRUCTURE OF LSE:
C6. Board of Directors:
(PART D)
C1. Islamabad Stock Exchange

Islamabad Stock Exchange is one of the three stock exchanges of Pakistan and is located in the capital
of Islamabad.

C2. History:

The Islamabad Stock Exchange (ISE) was incorporated as a guarantee limited

Company on 25th October, 1989 in Islamabad  Capital territory of Pakistan
with the main object of setting up of a trading and settlement infrastructure,
information system, skilled  resources, accessibility and a fair and orderly
market place that ranks with the best in the world. The purpose for
establishment of the stock exchange in Islamabad was  to cater to the needs of
less developed areas of the northern part of Pakistan.
The ISE has set the highest standards of operational efficiency and is committed to support a climate of
confidence and optimism that encourages and promotes trading activity. It also provides for conducive
environment to channelize the small investments of the residents of less developed areas. The ISE offers an
easy access to both domestic as well as foreign investors and actively encourages the listing of eligible and
profitable companies, both large and small to make it an exciting and diverse Exchange. The Exchange is
playing a pivotal role for economic growth of the area thereby contributing towards the overall economic
prosperity and welfare of the country.

C3. Growth:

At present there are 118 members out of which 104 are corporate bodies including commercial and investment
banks, DFIs and brokerage houses. The other 18 Members are individual persons who are well educated,
enterprising and progressive minded. The affairs of the Exchange are governed by the Board of Directors. The
Board of Directors consists of ten directors, of which five are elected member directors and four are non-
member directors nominated by the SECP while the managing director by virtue of his office is the tenth
director of the Board . In order to protect the interest of the investing public, an Investors Protection fund has
been established by the Exchange.

Since the inception of automated trading system (ISECTS), the trade volume has been multiplying day by day
and the average daily turnover has now crossed the figure of 1 million shares. Now all the listed securities are
traded through the ISECTS. The system of physical handling of shares and securities has been phased out and
majority of the scrips are settled through Central Depository Company of Pakistan Limited.

In comparison with major financial markets around the World, the functioning of capital market in Pakistan is
still very much in its infancy and lacks advanced technology. In this context efforts are being made to
bring ISE in line with the International system and methodology.

C4. Structure and Index of Stock Exchange:

The stock exchange has different departments. The departments perform various
functions according to their responsibilities. There are five main deferent departments in
ISE, which are following,

Department of Companies Affairs.

Department of Investor Relation.
Department of Internal Control.
Department of General Administration.
Department of Finance.

C5. Board of directors:

The board of director comprises the 10 directors, 1 chairman of stock exchange. The 6 directors in ISE board
are belonging to SECP and five are elected from the exchange in annual general meeting.

C6. Committees:
 There are number of standing committees for efficient functions of management in ISE,
Research and development committee.
Information technology committee.
 Seminars, training & publication.
 Floor & mediation committee.
SECP coordination, rules & regulation committee.
  Taxation committee.
Employment, administration & finance committee
 Membership committee.
Companies affairs, listing & active participation committee
 Default management committee.
Inter stock exchange committee.
 New building committee.
Arbitration committee

 Building maintenance committee.

The committees above mentioned perform a important role in different matters existing in
exchange. Each committee contains various members including one Chairman of
committee. The article of association decide the following provisions regarding to the
committees,
C7. Other Committees:
The director may from time to time and at any time constitute a committee consisting of
two or more persons, whether director or members, as they think fit, to undertake any
function and responsibilities entrusted to it/them by the directors. Any committee so
formed shall, in the exercise of the power so delegated, conform to any restriction that
may be imposed on it by the directors.
 Convener of Committee Meetings:
A committee may elect a convener of its meetings, but, if no such convener is elected, or
if at meeting the convener is not present within fifteen (15) minutes after the time
appointed for holding the same or is unwilling or unwilling to act as converner, the
members present may choose one of their members to be convener of the meeting .
 Proceeding of Committee Members:
“A committee may meet and adjourn, as it thinks proper. Questions arising at any
meeting shall be determined by a majority of votes of the members present. In case of an

equality of votes, the convener shall have and exercise a second or casting vote.”
(Memorandum and Article of association, Page98).

C8. Hierarchy Level:

There are different hierarchy levels in ISE. For officer the levels start from associate
 1. manager to M.D. and chairman of the exchange. The tier of hierarchy is following,
2. Chairman.
3. Managing Director.
4. Directors.
5. Secretary.
6. General Manager.
7. Senior Executive Secretary.
8. Associate Managers
9. Staff.(Annexture)

Responsibilities:
The responsibilities of different positions are assessed on the bases of qualification,
authority and experience.

1. Chairman:

The chairman is elected in the meeting of directors with subjects to limit for one year. In case of other person is
not ready to elect as a chairman he will eligible to reelection. The chairman can hold this position for
consecutive three years under this condition. For next time he will eligible after a year for election. The
chairman hold office and observe that all function are going according will on the behalf of directors. The
chairman is liable to perform the following main functions,
To observe the policies of management and whole functions of exchange for the
better interest of members and directors.
To approval of any document which is sent by managing director (M.D.) without
any objection.
If on any complex matter regarding to policymaking he understand that the
meeting should call than he should call the meeting.

To preside all meeting of exchange

2. Managing Director (M.D.):

The managing director is responsible for the whole function of exchange. He liable for
the functions of staff to the Chairman. The board does the appointment of M.D. for the
period of three years. The person who is elected as a M.D. is restricted to hold any other
business or activity of trading in stock exchange. He is an independent person in
exchange and full time paid employee of exchange. He is liable for following right and duties,
To sustain the routine matters regarding to exchange.
He can perform all functions for the betterment of management.
He can arrange the training of the staff according to requirement.
He can act for disciplinary actions for smooth functioning in trading of members .
He responsible to provide the information to director on demand from them.
He can give the summary regarding to policies of exchange in different matters.
He is responsible to maintain the accounts up to date and present in meeting on the
behalf of management

3. Directors:

The director is elected in election trough the election. The board of directors has power to
give the approval for any borrowing for the purpose of future growth of exchange. The
director has right to inspect the accounts of exchange at any time. The directors has
following rights and liabilities,
The directors in the meeting of the board can give approval of loan whether in the
form of bonds, TFC’s or any other security.
The can inspect the accounts of exchange at any time.
They can give their opinion regarding to any matter in board meeting.
Any resolution cannot be approve without the prior approval of directors.
They can give approval regarding to any investment for exchange in future.

4. Secretary:

The secretary is senior officer of stock exchange. He is head of secretariat and

responsible to general management. He is also obligated for work, which is assigned to
him from Chairman and Managing director. The main functions of secretary are,
He possess the common seal of exchange and responsible for it.
He has authority to verify the expenses before sending the minute sheet to
5. Managing director:

For annual general meeting he issues the notice to members.

 On the instruction of chairman he is responsible to call the meeting board and to inform the members.
He can perform the functions regarding to director finance.
He responsible to attend the meeting the board of directors.
He arranges the training and rehabilitation.
He is responsible completion of any formality regarding to authorities e.g. SECP,
Ministry of Finance.
6. General Manager:

The general manager is responsible for all functions for all matters regarding to different
departments, which are working under him. He performs the following functions,
He provides the consultancy service to departments.
He performs the daily matters regarding to general management.
He is responsible for any function regarding to any department on behalf of
associate manager of department.

He remained contact with SECP and other exchanges for information.

He can make any decision regarding to fine and delisting of any company with the
consultation of Secretary and Managing director.

7. Senior Executive Secretary:

Senior executive secretary performs her part of duties for Chairman and Managing
director. She perform the following main functions,
To note all telephone messages of Chairman and Managing director.

To handle all incoming and outgoing faxes.

Arrange hotel booking of chairman/ Managing director & Executives of ISE.
Arrange all appointments of Chairman and Managing director.
To check all mail of Chairman and Managing director.
Maintain all personal and official files of Chairman and Managing director.
Work as a telephone operator for chairman and Managing director
 8. Associate Manager:

Associate manager head of his department. He works according to instructions of general

manager and secretary. The associate manager sent summary on different matter
regarding his department to above management.
He is responsible for functions of his department.
He sent the report to Managing director with the advisory of general manager.
He is chargeable if any thing due or any regulation exist regarding to law related
to his department

9. Staff:

The staff performs various functions, which are assigned to him. The staff is not directly
responsible to all functions but on behalf of associate mangers.
C9. Performance Evaluation:

The performance of an employee is evaluated on the basis of every six months. The
performance is evaluated with the help of performance evaluation committee. The letters
are sent to employee for purpose of acknowledgement from secretary on the behalf of
committee.