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SECURITY ANALYSIS AND

PORTFOLIO
MANAGEMENT

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Submission
Date:
Submitted by:
Introduction 18 OCT, 2018
Mehreen Saleem
Reg no:4484-FMS/BBA/F15
Submission
Date:
Section:
17 May, 2018
BBA 33B

Submitted
Submitted to:
to:
MA’AM
MA’AM SHUMAILA
SHUMAILA Section:
BBA 33B

Supervised
Supervised by:
by:
Ms.
Ms. Sana
Sana Zafar
Zafar
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1-What is stock exchange?

A Stock exchange is an organized market where shares, debentures, stocks and other
securities are bought and sold.

Share are the part into which capital of company is divided and Bonds are documents
issued by a government or a company when borrowing money from the public.

2-Function of Stock exchange:

i. Provide central and convenient meeting places for sellers and buyers of securities.

ii. Increase the marketability and liquidity of securities.

iii. Contribute to stability of prices of securities.

iv. Equalization of price of securities

v. Help the investors to know the worth of their holdings

vi. Promote the habit of saving and investment

vii. Help capital formation

viii. Help companies and government to raise funds from the investors

ix. Provide forecasting service

3-Characteristics of stock market:

i. Opportunities and better return

ii. Pronounced risk factor

iii. Speculation, rumors and news orientation

iv. Diverse type of participants

v. Connectivity with other financial markets

vi. Dependence on commodity move

vii. Fiscal, monitory and taxation policy effects

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viii. Sector performance and incentives by governments

4-Difference between primary capital and secondary capital market:

The difference between the primary capital market and the secondary capital market is
that in the primary market, investors buy securities directly from the company issuing
them, while in the secondary market, investors trade securities among themselves, and the
company with the security being traded does usually not participate in the transaction.

When a company publicly sells new stocks and bonds for the first time, it does so in
the primary capital market. In many cases, this takes the form of an initial public offering
(IPO). When investors purchase securities on the primary capital market, the company
offering the securities has already hired an underwriting firm to review the offering and
create a prospectus outlining the price and other details of the securities to be issued.

The secondary market is where securities are traded after the company has sold all
the stocks and bonds offered on the primary market. Markets such as the New York Stock
Exchange (NYSE), London Stock Exchange or Nasdaq are secondary markets. On the
secondary market, small investors have a better chance of buying or selling securities,
because they are no longer excluded from IPOs due to the small amount of money they
represent. Anyone can purchase securities on the secondary market as long as they are
willing to pay the price for which the security is being traded.

On the secondary market, a broker typically purchases the securities on behalf of an

investor. The price of the security fluctuates with the market, and the cost to the investor
includes the commission paid to the broker. The volume of securities traded also varies
from day to day, as demand for the security fluctuates. The price paid by the investor is
no longer directly related to the initial price of the security as determined by the first
issuance, and the company that issued the security is not a party to any sale between two
investors, except in the case of a company stock buyback.

5-Participants of stock exchange:

A stockbroker or trading participant is licensed by the Securities and Exchange

Commission (SEC) and is entitled to trade at the Exchange. They act as an agent between
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a buyer and seller of stocks in the market. For their services as stockbrokers, they receive
from their clients either a buying or a selling commission

6- origin of stock exchange:

1531:The first stock market

Originated in Antwerp,Belgium and referred as Sans Stock instead of buying and selling
shares, brokers met here to deal in business, government and even individual debt issues

1602:The first paper shares

The dutch East India corporation, issued the first paper shares and official start of the
stock market. Here not only people could talk, but here they could buy, sell, and trade
stocks with other shareholders and investors.

1698:Jonathan’s Coffee-House

The idea of paper shares spread across Europe, in powers such as Portugal, Spain and
France. Eventually this idea reached London, a organized marketplace to exchange these
share became necessary and then on. Thus ,a famous coffee shop was used as the stock
exchange and on, the stock market had reached a superpower.

1790:The Philadelphia first time stock exchange in USA but building built in 1911

1801:London stock Exchange

The coffee house developed into the first stock exchange in London

1817:NYSE(New York Stock Exchange)

1861:TSX (Toronto Stock Exchange)

1875:BSE(Bombay Stock Exchange)

1878:TSE(Tokyo Stock Exchange)

1971:NASDAQ(National Association of Securities Dealers Automated Quotations)

Introduced in the Era of electronic stock exchanges, online trading.

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7-Origin and development of Pakistan stock exchange:

The Karachi Stock Exchange (KSE) was established on 18th September, 1947. It was
later converted and registered as a Company Limited by Guarantee on 10th March, 1949.
the oldest stock market of Pakistan. 

Lahore Stock Exchange limited came into existence in October 1970, under the
Securities and Exchange Ordinance, 1969, of the Government of Pakistan in response to
the needs of the Provincial metropolis of the Punjab. 

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.

In January 11, 2016 the Karachi Stock Exchange, Lahore Stock Exchange and
Islamabad Stock Exchange were integrated under the Stock Exchanges (Corporatisation,
Demutualization and Integration) Act, 2012 to form the Pakistan Stock Exchange
Limited as the only stock exchange in Pakistan

8-How trading in stock exchange take place, procedure:

TRADING IN STOCK EXCHANGE:

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

PROCEDURE:

Selection of a Broker:
The first step is to select a broker, who will buy/sell securities on behalf of the
speculator/investor. This is necessary because trading of securities can only be done
through SEBI registered brokers, who are members of stock exchange. Brokers may be
individuals, partnership firms and corporate bodies.
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Opening Account with Depository: CDC- Central Depository Company (for transfer of
shares).

There are three types of accounts open in CDC company;

 Investors Account- open by investors’ own name

 Sub Account-open through broker

 Group Account- under the control of broker

Placing the Order:
The next step is to place the order with the broker. The order can be communicated to
the broker either personally or through telephone, cell phone, e-mail, etc.
The instructions should specify the securities to be bought or sold and the price range
within which the order is to be executed. Only the securities of listed companies can
be traded on the stock exchange.

Executing the Order:

According to the instructions of the investor, the broker buys or sells securities. The
broker, then issues a contract note. A copy of the contract note contains the name and the
price of securities, names of the parties, brokerage charges, etc. It is duly signed by the
broker.

Settlement:

 On the spot settlement

It means settlement is done immediately and on spot settlement follows. T+2 rolling
settlement. This means any trading taking place on Monday gets settled by Wednesday.

 Forward settlement

It means settlement will take place on some future date. It can be T+5 or T=7 etc. All
trading in stock exchanges takes place between 9:30am-3:30Pm Monday to Friday.

Graphs
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9-

TECHNICAL TERMINOLOGIES IN TRADING:

Bid -the buying price, for the purposes of the exam, the bid only refers to the price a
market maker will pay for a security; it's the price an investor would receive if selling the
security.

Ask - also called the offer, this is the price an investor would pay when buying the
security

Volume-Volume is quantity.

Offer: selling price

Spread - the difference between the bid and the ask price; the spread provides
compensation to the market maker.

Trade date - you should be aware of the difference between the trade date and the
settlement date. The trade is the date on which a security trade actually takes place.

Settlement date - this is the date by which the securities trade must be completed. Note
that government securities and options must settle by the day after the trade.
Cash transactions - this refers to securities that must settle on the trade date. It is rare for
a trade to require a same-day settlement, but a test question might refer to this.
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Regular way settlement - the completion of a securities transaction by the purchasing

broker; while the current regular way settlement is three full business days after the trade
date, this can be changed. Before computers were as efficient as they are today, regular
way settlement was the trade date plus five days.
Record date - the date set by the issuer to determine the holders of record.This date is
necessary to know in order to determine the ex-dividend date.
Ex-dividend date - this is the date when the buyer of a stock will not be entitled to an
upcoming dividend. It occurs two business days before the record date.

Floor broker - these NYSE brokers handle only very large orders, such as 10,000 shares
or more.
Market maker -works within the over-the-counter (OTC) market; they are the equivalent
of specialists on the NYSE. Market makers are always prepared to buy or sell shares of
assigned securities for their own accounts.
Day order - all orders are considered day orders unless marked otherwise.
Good-till-cancelled (GTC) - an order that remains in effect until it is executed or the
investor decides to cancel it. If the order does not have an instruction, the order expires at
the end of the day on which it was placed. GTC orders typically are canceled by the
broker-dealer after 30 to 90 days.
Short sale - refers to selling shares borrowed from the broker-dealer. If the price drops,
the investor then buys the shares at a lower price and returns them to the broker-dealer

10-TYPES OF ORDERS:

Market order - this order is designed to be executed immediately, at the current market
price - no price is specified on the order.
Limit order - this order does specify the price desired; however, there is no guarantee
that the order will be filled. There are two types of limit orders:
Buy limit order - this order is entered at a price below the current market price (since it
would not make sense to specify a higher-than-market price!).
Sell limit order - this order is placed above the current market price.
Stop order - this order is used to trigger an execution only if the market reaches a certain
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level; when this limit is reached, the stop order becomes a market order. As a result, there
is no way to predict the actual price the security will receive. As with limit orders, there
are two types:
Buy stop order - these are used to limit losses on short stock positions and are always
placed above the current market price and filled only if the market rises.
Sell stop order - these are used to limit losses on long stock positions and are always
placed below the current market price and filled only if the market falls.

Stop-limit order - this order is used to ensure that a specific price is received, but the
order is only placed when a specific stop price is reached. The stop price and the limit
price do not need to be the same. However, there is a risk that the stop price could be
reached, but the market never reaches the limit price. In that case, the order will never be
filled.

11-Role of stock exchange in development of economy:

Role of Stock Exchanges are varied and highly important in the development of economy
of a country. They measure and control the growth of a country.

Stock markets are the places, where exactly you do your business. Your stock trading
transactions are executed at the stock exchanges through your broker, unless you have a
membership with that exchange, which enable you to trade directly.

Stock exchange apart from being hub of primary and secondary market, they have very
important role to play in the economy of the country. Some of them are listed below.

Raising capital for businesses

Exchanges help companies to capitalize by selling shares to the investing public.

Mobilizing savings for investment

They help public to mobilize their savings to invest in high yielding economic sectors,
which results in higher yield, both to the individual and to the national economy.

Facilitating company growth

They help companies to expand and grow by acquisition or fusion.

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Profit sharing

They help both casual and professional stock investors, to get their share in the wealth of
profitable businesses.

Corporate governance

Stock exchanges impose stringent rules to get listed in them. So listed public companies
have better management records than privately held companies.

Creating investment opportunities for small investors

Small investors can also participate in the growth of large companies, by buying a small
number of shares.

Government capital raising for development projects

They help government to rise fund for developmental activities through the issue of
bonds. An investor who buys them will be lending money to the government, which is
more secure, and sometimes enjoys tax benefits also.

Barometer of the economy

They maintain the stock indexes which are the indicators of the general trend in the
economy.They also regulate the stock price fluctuations.