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Lahore Stock Exchange

Lahore Stock Exchange

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Lahore Stock Exchange 2012

Unit code FN-450- Money and Banking
Final Project “Lahore Stock Exchange”
Submitted to: Program: Semester: Section: Submitted by: Farrukh Dar Sanam Saeed Sumayya Rashid Shurahbil Bin Naseem Rafay Aslam Khan (083805-105) (083805-093) (083805-140) (083805-171) (083805-022) Ms. Shaista Rasheed Bachelor of Business Administration (Hons) Fall 2011 A

“This Project is submitted in part fulfillment of our BBA (Hons)” Submitted on : January 11th, 2012

1

in Pakistan there is no relationship between macroeconomic indicators and stock exchange prices. its trends and scope in domestic and international market. All the stock exchanges have the equal appeal. All the reputed and known organizations list their shares on stock exchanges. its formation and structure. Stock markets play a significant role in the stability of the economy.Lahore Stock Exchange 2012 Abstract This report discusses the role of Lahore Stock Exchange. Different trends shown by Lahore Stock Exchange are explained in this project. Stock exchanges cater to different financial services. The Background and significance of the study is explained in different sections. This report has undergone different research analysis for Lahore Stock Exchange. Local and international scope has different capacities. Economic growth and development of any economy is interlinked with the performance of its financial institutions. This report includes the detailed research on Lahore Stock Exchange. The study has a definite rational which is explained in research rationale. In the recent scenario of Pakistan. people want to invest in foreign stock exchanges. 2 . The reason is very clear. This report discusses the role of stock market in the economy.

................................................................................................... 14 Benefits of T+3 Settlement Systems ...................................................................................................................... 11 Facilitate company growth ....... 6 Key Features of Lahore Stock Exchange ............................................................................................................................................... 14 Provisionally Listed Counter ........................................................................................................................................................... 14 Spot/T+1 Transaction........................... 14 3 ................................................................................................................................................................................................................................................................................................................................................................... 6 Members & Management at LSE: ........................................................................................................................................................................................................Lahore Stock Exchange 2012 Contents Introduction .................................................................................................... 5 Research Rationale....................................................... 12 Barometer of the economy ............................................................................. 13 Trading and Settlement ............................................. 13 LSETRI .................................... 12 Government raises capital for development projects ........................................................................................................................................................................................................... 11 Redistribution of wealth ................................................................................................................................................................ 11 Corporate governance ........................................... 12 Indexation ........................................................................................................................................................................................................................................................................................................ 7 Overview ............................................................................................................................................................................................ 11 Creates investment opportunities for small investors ............................ 13 T+3 Settlement Systems ................................................ 6 Background of Lahore Stock Exchange (LSE) ....................................................................................................................................................... 12 LSE Indices ........................................................................................................................................................................................................................................... 10 Raising capital for businesses ..................... 8 Role of the Stock Exchange ............................................................................ 5 Background to the study ........................................................ 10 Mobilizing savings for investment ...... 14 Futures Contract .......................................................................................... 8 Trend over the Year ........................................ 5 Significance of study...................................................................... 13 LSE-25 .............................................................................................................................................................................................................

...................................................................................................................Lahore Stock Exchange 2012 Future Outlook ............................................................................................................................................................................................................... 14 Conclusion .............................................. 15 References ..... 15 4 ..........................................................

Stock exchange provides the facilities to sell and trade assets and its importance can be noted by the statementeconomy would quickly grind to a halt”. As the research shows that stock markets and economic growth have the positive relation. Karachi Stock Exchange is the first one among these three.Lahore Stock Exchange 2012 Lahore Stock Exchange Introduction Financial institutions and economic growth are dependent on each other. Similarly boom in stock exchange can lead to the higher economic growth within the economy. the global Background to the study In Pakistan. This study will be a welcome addition to our further studies. increasing saving pattern and managing the risk in the economy. It could be the one variable for studying stock markets. Our knowledge related to stock exchange markets especially about Lahore Stock Exchange has very much improved by this study. We cannot find an economic stability in any country where financial institutions are not performing well. The trends and scope of LSE will help us to compare our economy with the international economies. Significance of study The topic of Lahore Stock Exchange is rarely discussed in literature. Pakistan is going through a difficult stage. there are three stock exchanges. Research in this field argues that only the financial system is responsible for exerting corporate capital. This project aims to analyze the role of Lahore Stock Exchange and its scope on domestic and international level. “Without stock exchange. Globalization affect in all of the capital markets around the world has highlighted the need of a stabilized and large scales stock exchange markets in countries. Lahore Stock Exchange (LSE) and Islamabad Stock Exchange (ISE). These are the markets located in three different cities of Pakistan. This project is an effort to explain the role of Lahore Stock Exchange in Pakistan Economy. Karachi Stock Exchange (KSE). Stock exchange is the necessary element in this whole phenomenon. This is the primary reason why we are conducting the research on Lahore Stock Exchange. 5 . Financial and economic instability must have some reasons. Stability in stock exchange market will significantly stable the economic growth.

The management of LSE is run by its president. The Sialkot branch is referred to as the "Sialkot Trading Floor". who is elected by the 14 directors. Conveyor is chosen by the members of each committee. Background of Lahore Stock Exchange (LSE) Lahore Stock Exchange Limited was developed in October 1970. 1969. 555. it is global in scope. The number of members has increased over years. Only a few of all the members were active. LSE was the first stock exchange in Pakistan to use the internet and currently 50% of its transactions are via the internet.Lahore Stock Exchange 2012 Research Rationale This project will help us to better understand the stock exchange market phenomenon and enhance our skills in this area. and the LSE affairs in that particular field. under the Securities and Exchange Ordinance. LSE is the second largest stock exchange in the country with a market share of around 12-16% in terms of daily traded volumes. having market capitalization of around Rupees 2. Lahore Stock Exchange is well prepared to contribute its full share in this growth Members & Management at LSE: LSE has 152 members of whom 81 are corporate and 54 are individual members. who in turn are elected by the members.61 trillion. Vouchers and Bonds. and they too had to work through Karachi Stock Exchange. assisted by the Vice President. The study is not only restricted to local level. LSE has 519 companies. Many of the views and trends discussed in the project are regional and global in nature. The Lahore Stock Exchange has opened branches in the industrial cities of Faisalabad and Sialkot for trading. who is directly elected by the members of the LSE. Asia was identified as the future center of world growth. spanning 37 sectors of the economy that are listed on the Exchange with total listed capital of Rupees. or be limited to do business in Bonus.67 billion. 6 . Only 83 members had its memberships and it was housed in a rented building in the crowded area of Bank Square in exotic city of Lahore. who then becomes responsible to the Board of Directors for the smooth and efficient running of the committee. Fourteen committees are formed out of directors and members of the LSE to look after all affairs of LSE. A permanent secretariat managed by a General Manager. of the Government of Pakistan in response to the needs of the Provincial metropolis of the Punjab.

the main objective for the construction of an index is to track the performance of the various listed stocks according to their market capitalization. is available to strengthen implementation of management decision LSE Indices: In Pakistan. However. the stock turnover and its monetary value. and check of members' credit limits.   Share order/interest match system: The members are able to narrow down the prospective buyers and sellers in scrip’s of their interest.). Of particular interest to analysts is the fact that the two indices are based on ordinary shares listed at the Lahore Stock Exchange. comprehensive record of members. rights. current market capitalization of individual stocks. and status of only those companies defined in his portfolio. bonus. etc. On a very basic level. purchase. the current and the previous day index and its monetary value in rupees. 7 .  Personal portfolio management: Each end user can define its list of preferred companies in which he deals most of the time. they are distinguishable from each other by the treatment of corporate actions of component companies (i. any stock Key Features of Lahore Stock Exchange     Lahore Stock Services (LSS): Basic analysis on the historical data. Both the indices are composed of 25 companies selected on the basis of the highest turnover at the Lahore Stock Exchange. The two distinct indices the LSETRI and the LSE-25 are weighted by their listed capital and have identical company selection criteria. dividends.Lahore Stock Exchange 2012 and specialist professional assistance of legal.e. and the fact that the Exchange is making public the qualifying/disqualifying criteria as well as a negative list. audit and accountants. Performance of stocks: List of top 10 gainers and losers pricewise and volume wise Daily market statistics: Current market capitalization of equities. the overall and the individual paid up value of stocks. He can then list his total sales. Equities scroll: Monitors price/volume fluctuations LSE data. recent trading activity reports. Clearing House System (CHS): Data entry and retrieval from any network.

(NCEL). LSE is an active member of the Federation of Euro-Asian Stock Exchanges (FEAS) and the South Asian Federation of Exchanges (SAFE). The goal is to bring LSE up to international standards in operational. (NCCPL). Currently. LSE was the first Exchange in Pakistan to offer Internet based trading to its members in the year 2001. efficient. and National Commodity Exchange Ltd. (PACRA). all of which play a central role in developing the infrastructure around the financial markets of Pakistan. regulatory and quality management areas and to ensure that not only domestic but also foreign investors are attracted. It enables the brokers to reach out to the untapped retail markets. The Exchange is fully committed to providing a transparent. more than 50% of the total trading volume at the LSE originates from Internet trading terminals.Lahore Stock Exchange 2012 Additional features of LSS           Closing rates of all the companies on a particular date Daily status of all traded stocks and their turnover Current rate of any scrip Number of traded companies on a particular day Total number of deals in a particular scrip Best bid rate of a scrip on a given date Best offered rate of a scrip on given date Lowest rate of a scrip on a given date Average rate of a scrip on a given date Best volume deal on a specific date Overview Trend over the Year LSE was the first Exchange in the country to undertake automation of trading at the exchanges in 1994. National Clearing Company of Pakistan Ltd. helping to expand its outreach. fair and investor friendly environment for the benefit of Investors and Issuers. technical. presence and profile beyond the boundaries of Pakistan. LSE has made direct investment in Pakistan Credit Rating Agency (Pvt) Ltd. LSE has made large investments in technology & automation to keep pace with globalization of securities trading. In addition. Central Depository Company Ltd. 8 . The aim of this measure is to transform the LSE from a regional to a national player over a period of time. (CDC).

LSE's trading system has already been modified to connect branch offices in real-time fashion. It has also launched a series of Education Programs with a view to educate the brokers. which is more conducive and transparent for investment. LSE's capabilities as both a front-line regulatory body and a service organization have been significantly enhanced. A visible trend at the LSE has been the increasing number of corporate members. The measures at LSE have attempted to create an atmosphere. LSE has improved the quality of operations and upgraded them to modern international standards. Lahore Stock Exchange and Islamabad Stock Exchange have joined hands to establish a Unified Trading Platform which will help to bring increased liquidity in the market. maximize transparency. in order to build investors' confidence. particularly in relation to financial markets. broaden 9 . LSE has taken effective risk and exposure management measures including the implementation of a fully automated in-house developed Trade Risk Filter (TRF) to efficiently monitor members' pre-trading exposures on a real time basis. This has included upgrading LSE's IT infrastructure. There is a growing need for remote trading terminals reflecting the confidence of traders in the use of stable Internet Trading Systems. LSE has successfully launched Unique Identification Number (UIN) System with an objective to bring more efficiency and transparency to the stock business and to improve the surveillance and monitoring capacity of the Exchange. In an effort to promote the education sector. LSE has implemented a regular timetable for the Broker System Audit. updating regulations and procedures to incorporate existing and expected technological changes. agents and general public about the securities market and its laws. This trend has led to record trading volumes as well as an improved product offering. is the first of its kind in Pakistan and was established in 2006. This has been a quantum leap for LSE in improving its risk management systems. Two such branch offices have become operational in Faisalabad and Sialkot. increase turnover. Also. as well as reorganizing and restructuring the workforce. It is heartening to note that part of this increase has been due to the entry of investment banks/financial institutions (or their subsidiaries) as members of the Exchange. The investing public has received the reforms very positively. improve price discovery. LSE is providing scholarships to deserving students of Lahore University of Management Sciences (LUMS).Lahore Stock Exchange 2012 LSE has increased its geographical outreach by establishing its branches in other cities of the Province. Similar Offices in other cities are also being contemplated. LSE Training Institute specifically dedicated to the Capital Markets. In another trend-setting example. Formal courses have been introduced to provide trained human resources for the capital markets. As a result. LSE encourages universities and colleges to come and visit LSE.

provide cost effective service to the investing public and enhance the image of both the Exchanges. It has had the honor of Chairing the IT Committee of Federation of Euro Asian Stock Exchanges and South Asian Federation of Exchanges. these two departments were merged to form the Risk and Clearing Department. Also IT division continued to service the automation and support of Ghana Stock Exchange Automated Trading System. As part of second generation capital market reforms being pursued by the Securities & Exchange Commission of Pakistan. 10 . As well as Member Relations Department (MRD) was setup to facilitate member related issues. Role of the Stock Exchange Raising capital for businesses The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public. demutualization is being seriously considered by the members of the exchanges and during the year 2007 a decision had been taken in the best interest of the capital markets of the country. increased mutual understanding and assistance in various areas including technology. LSE was the first exchange in Pakistan to move Electronic Trading in 1996 and the first to offer Internet Trading in 2001. curtail risks and distortions in trade. Clearing House and the Risk & Exposure Management Department. Another work they did that Auto-Debit facility for payment of weekly charges & taxes levied on Brokers trading. Also Manual distribution of Market Access Fee (MAF) cheques to brokers regarding has been replaced with direct crediting of amounts to Brokers respective bank account. which had ensure that the exchange truly and fairly represents the interests of all stakeholders. Demutualization is in line with international standards. Lahore Stock Exchange (G) Limited (LSE) launched the Securities Borrowing and Lending Platform (SLB) developed for National Clearing Company of Pakistan Limited. the SLB provides a prior arrangement of borrowing securities to cover the short sale under the Ready Market scrip. Lahore Stock Exchange has recently taken significant measures to facilitate trading through Internet.Lahore Stock Exchange 2012 investor base. Also trainings and courses have been planned and carried out for the Capacity Building of Members. In 2010. MOU was signed between Lahore Stock Exchange and Tehran Stock Exchange fulfilling the purpose of increased co-operation. Also LSE introduced Marginal Trading System (MTS) in line with international leverage products. In 2011. The another milestone they have achieve that they took the initiative to setup an independent Media and Public Relations Department to enhance relations with public and media personnel. Latest figures show that the volume generated from Internet terminals have grown to 40 percent of total LSE volume.

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. 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 (e. hedge against volatility. or acquire other necessary business assets. resulting in a stronger economic growth and higher productivity levels. Waban. or otherwise by a small group of investors). it leads to a more rational allocation of resources because funds. Consequently. MCI WorldCom. 11 .com. However.g. 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 by public stock exchanges and the government. Redistribution of wealth By giving a wide spectrum of people a chance to buy shares and therefore become part-owners (shareholders) of profitable enterprises. which could have been consumed. Facilitate company growth Companies view acquisitions as an opportunity to expand product lines. Both casual and professional stock investors through stock price increases and dividends get a chance to share in the profits of promising business that were set up by other people. commerce and industry. Pets. increase distribution channels. Corporate governance By having a wide and varied scope of owners. Enron Corporation. the stock market helps to reduce large income inequalities. are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture. often owned by the company founders and/or their families and heirs. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways to company growing by acquisition or fusion. increase its market share. or kept in idle deposits with banks. or Parallax).Lahore Stock Exchange 2012 Mobilizing savings for investment When people draw their savings and invest in shares.

investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Government raises capital 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. Indexation In process of indexation. face value of shares is multiplied by total numbers of shares floating. These bonds can be raised through the Stock Exchange whereby members of the public buy them. depression. its 25. In case of LSE. It’s done just to present 12 . 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. thus loaning money to the government. although by securing such bonds with the full faith and credit of the government instead of with collateral. PPL 15%. We get an index simply by dividing this total by a factor. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. on market forces. first thing is to choose the number of high performers (listed companies) in terms of volume and trade which is according to the size of the corresponding stock exchange. Now each high performer is allocated weights according to the traded value of its stocks on the stock exchange. share prices rise and fall depending. An economic recession. Now for each of these companies the total numbers of shares floated are multiplied by their respective market prices.Lahore Stock Exchange 2012 Creates investment opportunities for small investors As opposed to other businesses that require huge capital outlay. bank Alfalah 3% and so on. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy. for instance NBP has weight of 10%. Therefore the Stock Exchange provides an extra source of income to small savers. largely. But at the time of construction of index. Say. or financial crisis could eventually lead to a stock market crash. The issuance of such municipal bonds can obviate the need to directly tax the citizens in order to finance development. Barometer of the economy At the stock exchange.

this obviously depends on market conditions. the LSETRI is adjusted against such payouts announced by any of index constituents on its ex-date allowing the index value to remain comparable over time. Spot Transactions. And hence in this measure of performance of a bucket of high performers help stakeholders in understanding the overall direction of a stock exchange. no price adjustments are made when any component company issues cash dividends. Additionally. Trading and Settlement The stock exchanges have introduced a computerized trading system to provide a fair. which are:    T+3 Settlement Systems. The trading system comprises of four distinct segments. efficient and cost effective market mechanism to facilitate the investors. LSE Indices LSE-25 The Lahore Stock Exchange Twenty Five company index also calculates the performance of stocks assuming that all rights issues and bonus share issues only increase the listed capital. and 13 . LSETRI The Lahore Stock Exchange Total Return Index calculates the performance of stocks assuming that all payouts are reinvested in the index on the ex-date. However. What we hear daily about rise or fall in index is basically presenting the cumulative effect of rise or fall of each of these companies’ individual stock price and rise or fall of volume traded. Therefore. the LSE-25 assumes that dividends paid out by a component company are not reinvested. In the case of bonuses or rights the prices of the shares are not adjusted as they are in the case of the LSETRI (Lahore Stock Exchange Total Return Index). The LSETRI assumes that if a component company issues bonus shares or announces a rights issue it will increase the listed capital. Provisionally Listed Counter. transparent. the LSETRI also assumes that all payouts by a component company are 100% reinvested in the index. In summary.Lahore Stock Exchange 2012 the daily changes in terms of percentage compared to a base time period (or from the time index is last revised). in the LSE-25.

which make a minimum public offering of Rs. as the settlement cycle is shorter. Futures Contract A Futures contract involves purchase and sale of a financial or tangible asset at some future date. Benefits of T+3 Settlement Systems   It reduces the time between execution and settlement of trades. Future Outlook The prime objective of the Exchange for the upcoming years shall be a 100% growth/value creation in the balance sheet size of the Exchange with a minimum of 20% increase in the EVA on year on year basis.100 million. Trading on the provisionally listed counter then comes to an end and all the outstanding transactions are transferred to the T+3 counter with effect from the date of official listing. which in turn reduces the market risk.3 years) due to tough global economic conditions. The Exchange would initiate and successfully complete the process of corporatization in the near term (during one year). are traded on this segment from the date of publication of offering documents When the company completes the process of dispatch/credit of allotted shares to subscribers.Lahore Stock Exchange 2012  Future Contracts T+3 Settlement Systems In the T+3 settlement systems. It reduces settlement risk. purchase and sale of securities is netted and the balance is settled on the third day following the day of trade. 14 . at a price fixed today. Provisionally Listed Counter The shares of companies. Spot/T+1 Transaction Spot transactions imply delivery upon payment. through CDC it is officially listed and placed on the T+3 counter. LSE Board has already allocated some budget for the establishment of a nationwide association of stock brokers. Normally in spot transactions the trade is settled within 24 hours. The process of full demutualization may be completed during the medium term (1.

(n.com/2011/08/lahore-stock-exchange.scribd.d). (n..html http://invest.com. References  Review about Karachi and Lahore stock exchange.com/database2/cover/c96-95. Nov 16. Khan. (n. so our study reveal that they are continuously moving towards the modern trading system as they launched a different services like one window operations as well as others.pk/investorguide.Retrieved from http://en. Lahore stock exchange through history.d). 1996.com/doc/40306009/Lahore-Stock-Exchange Lahore stock exchange. Lahore Stock Exchange is doing their job very well.http://www. to continuously deliver value to its owners and stakeholders. A. And as if we see their future plans they are looking forward to become one of the best Stock Exchange of the world.pakistaneconomist.pk/#/LSE/History.asp Lahore. Conclusion Lahore Stock exchange is the second biggest Stock Exchange of Pakistan after Karachi Stock Exchange.org/wiki/Lahore_Stock_Exchange http://download-reports.d). Also if we see that they are also indulging themselves as a corporate social responsible by offering internships for the students of different universities. So in short.Lahore Stock Exchange 2012 LSE is further striving to create a name for better investor's protection standards.lse.wikipedia. the "Business Growth Strategy.aspx       15 . Retrieved from http://www." the 'Market Support Initiatives' and the 'Branding/Servicing Strategy. The future strategic activities of the Exchange would be divided into three broad categories namely.blogspot.exchange. to exercise effective supervision over the listed sector and the market participants.com/doc/48014807/Review-About-Karachi-and-Lahore-StockExchange Naeem.stock.htm http://www. Retrieved from http://www.scribd.

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