Investment and Portfolio Management

Karachi Stock Exchange

Regulator:
The regulatory authority for the securities market and corporate sector in Pakistan is the
Securities and Exchange Commission of Pakistan. The Commission was established on January
01, 1999 by dissolving the Corporate Law Authority which was formed in 1981 under a Special
Law. The Commission administers the compliance of the corporate laws in the country. The
Commission is run by the Commissioners under a Chairman.
Regulations:
The securities market and the corporate sector are regulated by the provisions of:
1. The Companies Ordinance 1984;
2. The Securities and Exchange Ordinance 1969 and Rules framed there under in 1971;
3. The Securities & Exchange Commission Act 1999.

Membership:

hMembership of KSE is limited and fixed at 200 and prospective members have to purchase a
seat from existing members. The price of the membership seat is freely negotiable between the
buyers and sellers, which varies according to the interaction of the forces of demand and supply.
The KSE does not interfere with these transactions. However, the membership is allowed subject
to fulfillment of criteria and qualification laid down by the Board.
Since June 1990, membership has been opened to corporate entities. Corporate members are
required to have a minimum paid up capital of Rs. 20 million and are also subject to criteria
fixed by the Board.
The Membership of KSE is also available to foreign entities provided that the Nominee Director
of the company is a citizen of Pakistan.

Listing Requirements and Procedure:-

Issue of capital is mainly governed by the Companies Ordinance 1984, Companies (Issue of
Capital) Rules, 1996 and Listing Regulations, Regulations Governing Over-The- Counter (OTC)
Market and criteria for listing framed there under. The listing application completed in every
respect along with offering document requires not more than 2 weeks for clearance of the
Exchange.

The main requirements of listing on the ready market

1. Minimum paid up capital of Rs.200 million.

2. Minimum public offer as required under the Listing Regulations and the Companies (Issue
of Capital) Rules, 1996.
3. Public offer of equity has to be subscribed by at least 500 applicants.

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 Investment and Portfolio Management

4. The offering document has to be cleared by the KSE before it is submitted to the Securities
Exchange Commission of Pakistan for approval.

KATS
The Karachi Stock Exchange has a computerized trading system known as Karachi Automated
Trading System (KATS) to provide a fair, transparent, efficient and cost effective market for the
investors.

Delivery and settlement:

Clearing and Settlement is one of the most important aspects in the operation of the securities
business. It is the process of reporting, matching, correcting securities transactions and the
ultimate delivery or receipt of net balances.
Once the transaction of purchase or sale of security is executed, the same gets completion on
delivery and settlement thereof. If a company has not yet been entered in the Central Depository
System (CDS), the delivery of its shares is performed manually in physical form through the
Clearing House of the Exchange, otherwise the same is done electronically through CDS as
operated by a separate company namely Central Depository Company of Pakistan Limited
(CDC).
Central Depository System (CDS)

The system of electronic book-entry of securities i.e. CDS has been set up to eliminate physical
maintenance and transfer of securities. This system is in line with the international practice and
has replaced the manual system of physical handling and settlement of shares at stock exchanges.
Within the CDS, transfer of shares from one account to another account takes place
electronically. The CDS is managed by the Central Depository Company of Pakistan Limited
(CDC), which has been sponsored by the stock exchanges and leading local and foreign financial
institutions. Established under the Central Depositories Act, 1997, CDC has emerged from an
elementary settlement agency to a full fledged depository. It has revolutionalized the financial
market by making trading and settlement of securities transparent, reliable, efficient and secure
in eliminating risks.

Following are the advantages of the CDS:

• Electronic book entry system
• Records and transfers securities electronically.
• No physical change of hands of securities.
• Strict confidentiality
• No risk of damaged, lost, forged and duplicate securities.
• Simple procedure involved in pledging of securities.
• No delays in delivery, settlement and transfer of securities due to speed.
• Instantaneous credit of entitlements (Bonus, Paid Rights, etc.) to investors.
• Significantly reduced the cost of investors.

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 Investment and Portfolio Management

Transaction Costs:
1. Brokerage on transactions is freely negotiable between the brokers and clients.
2. Stamp duty: 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
Depository 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.

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