INTRODUCTION The capital market in Pakistan is still in its infancy commensurating with the stage of economic development and

transition from agricultural base to industrial based set-up. Broadly capital market includes various institutions like Commercial Banks, Investment Banks, Leasing Companies, Modarabas and Stock Exchanges. But it specifically connotes money market operations and marketing of securities through stock exchanges. The Stock Exchange is a formal association of agents who deal in shares and securities and execute the order of their customers on commission basis. An agent usually has an office with sufficient information sources, current quotations and advisory expertise to assist investors in making decisions. They also must know where to find the buyers and sellers for the securities and arrange membership or contacts with the other stock exchanges operating in the country. Besides providing incidental services like financing the transactions and storage of securities. The main function of a stock exchange is to provide a place where the agents can bring their orders in respect of given list of securities. In this way buying and selling orders and transactions are matched and completed where customers gets the required service and the agents earn commissions. A Stock Exchange deals both in stock and bonds. In Pakistan there are two Stock Exchanges at present those are Karachi Stock Exchange and Lahore Stock Exchange, while Islamabad Stock Exchange is in the process of being established. Karachi Stock Exchange is the one where significant business in stock and bonds takes place. These Stock Exchanges have the list of securities in which their members are expected to have a reasonable number of orders, so that to avoid wastage of time and energy to do business in inactive stocks. Recently two Brokerage houses have also been established at Karachi, who may handle very large business and hold memberships or seats in more than one exchanges. The entire business of buying and selling is done by the agents, who execute orders on the exchange floor.

Corporate Law Authority The working of Stock Exchange in Pakistan is regulated by Corporate Law Authority. Although Lahore Stock Exchange has not so far gained enough business so that to sustain itself. yet the agents working there can improve with the growth of telecommunication links with the Karachi Exchange. Like Stock Exchange in other countries. declaration of dividends. When he is asked for a security price by a broker. The rules also include registration of stocks and certificates and publication of Balance Sheets as a pre-condition to get listing in Stock Exchange. These rules try to ensure that agents or membersshouldnottakeunfairadvantage to the detriment of investors. These rules and regulations if applied properly bring prestige to Stock Exchanges and create confidence amongst the investors. and transfer of securities. Basically these regulations are made to protect the investors and also to assist members and develop Stock Exchange. These rules and regulations also govern proxy system. issuance of right and bonus shares and the publication of accounts reflecting the affairs of the company. so that the public interest in security is widened and they can also act economically in local markets for nationally known securities specially in small quantity. Jobber and Broker A jobber is a member of stock exchange who trades with brokers or other jobbers but does not act directly for members of the public. While listing a stock or bond the Stock Exchange forges an understanding with the issuing company in matters like allotment. Although the floor rules vary in nature yet they ensure the set routine and proper handling of orders. and can be used for approval or dropping of any security. When making this . he quotes two prices "bid" and "offer price".The expenses of the Stock Exchange are met by the dues paid by the members in addition to the fee collected for services rendered to the agents and as well as to the corporations whose shares are traded in the exchange. insider trading in securities etc. Stock Exchanges in our country are also governed by business practices and extensive rules regarding method of trading in securities.

After completion of a transaction both the agents note the transaction made on their buy and sell tickets and intimate the same to their offices for book . A broker is also member of stock exchange who acts as an agent for members of the public. These floor brokers execute.price he does not know whether the enquirer is buyer or seller but once a price is quoted in this manner the jobber must buy or sell at that price. The interaction of various buying and selling rates produce transactions at prices which represent truly free market impact. Under a system various securities are distributed to a number of different areas on the trading floor. Karachi Stock Exchange have a limited number of members who are called floor brokers. In the meanwhile exchange employees in the assigned areas report the number of shares transacted and price thereof to the exchange reporting system for broadcasting to the various financial offices. he cannot buy or sell in his own name. biddings and acceptances are done by word of mouth. Cash Basis : Cash basis requires settlement on the . Mechanics The transactions in Stock Exchange are completed in floor trading in the form of continuous auction by virtue of which any security can be traded at any time during the business hours. He merely brings the buyer and seller together for an impersonal contract of sale. Delivery and Settlement The rules governing delivery of stock exchange are elaborate on the times for transfer and payments of stock and bonds transactions. As he does not possess securities.keeping purposes. The transactions are completed on one of the following has 1 . buy or sell orders handed to them by other members and for this service they receive a share of commission. All the offerings. Any agent who wants to buy or sell a security goes to the assigned area call his bid or offer for acceptance from another agent having a corresponding order.

2. ex-rights etc. right or other privileges the same are taken care of when deliver of securities and quotations are tailored accordingly such as exdividend. 1. Short sale stands for a sale when a seller sells something not owned by him for buying later at a low price against the short sale. The sale and purchase of securities are also governed by nature of orders as per instructions of the customers.very day of transaction 2. . 4. Stop Order Becomes Market order as son as the stock trades at or beyond the stop price. Because it is imperative for agents that the instructions of customers are followed meticulously. Market Orders Market orders are instructions to buy or sell as the case may be at best price available. Sellers' Option : Regular basis requires settlement on the 5th full business day thereafter. Open Orders Open orders are instructions which are good till cancelled by the customer or until the limit time is reached by which the agent will hold such orders. 3. Regular Basis 3. As regards the distribution interest. In the realm of shares and stock exchange operations the term of short sale is heard very often. : Requires settlement within settlement within 60 days but as specified in the contracts. Limit Orders Limit orders are instructions to buy or sell at given prices or better.

Particularly improvement in telecommunication and computer technology is going to bring far reaching changes in the mechanics of floor trading. Against every order which goes to the floor there must be an indication whether it is long or short order when the short selling is allowed. . The speculative short selling of securities drives security prices down to the unreasonable level with disastrous impact when the market is declining. The price of securities independent upon the law of supply and demand. technical improvements and to deal with challenges of complicated business problems. In near future one can foresee a computerised network which will be more efficient and economical than the auction market staffed by human beings.In fact when the delivery is to be made within a few days the short sale becomes a problem and in such a situation the delivery on short sale the agents must arrange stock for completion of transaction. Besides Government monitary policy. It must however be noted that the security business and stock exchanges are undergoing very rapid change to meet the now financial needs. Particularly Karachi Stock Exchange is run by semi-literate personnel who may not be able to coup with the accelerated pace of change unless new blood is infused and arrangements for their education and training are made. fiscal policy. strikes and law and order situation. Stock Exchanges in Pakistan are still very primitive. These forces include unstable Government. There are many forces and factors which affects supply and demand. economic conditions and economic system in the country are other factors. Short sale basically is a tool for speculation and is utilised mostly to manipulate the market by unscrupulous agents. political unrest. However in a normal market short selling can prevent bullish enthusiasm. However. A stock exchange is very sensitive market. fear of nationalisation. As such to prevent undue pressure on the declining market short salesare sometimes forbidden by the authorities. so that proper trading procedure is adopted.