Financial Institution And Markets

Presented By:
Fiza Tehreem Shakir
Roll # 409
M.phil (Commerce)
2019-2021
 Stock Exchanges
(Easy way to earn money, Easy way to lose money)
 Stock Exchange
Definitions:

➢ Stock exchange is a market where shares and securities of listed companies are bought and sold
by member (brokers) on behalf of their clients and also on their accounts.
➢ According to Securities Regulation Act 1956:
○ Stock exchange as “An association, organization, or a individual which is established for
the purpose of assisting, regulating, and controlling business in buying, selling and
dealing in securities.”

Meaning:

“The stock market is a device for transferring money from the impatient to the patient.”
 Features of Stock Exchange

➢ Organized market place.

➢ It is a securities market.
➢ It is an important constituent of capital markets i.e., market for long term finance.
➢ It is a voluntary association of persons desirous of dealing in securities. And Its membership is not
open to everybody, Company has to be listed their.
➢ Members may act as agent or principle.
➢ Securities includes: shares, units trusts, pooled derivatives, pooled investments products.
➢ The law of supply and demand determine the price in the stock exchange.
➢ Dealing in stock exchange are under certain accepted code of conduct.
 Importance of Stock Exchange
➢ The stock exchange promotes industries and economic growth.
➢ Stock exchange is one of the basic financial tools for stimulating the economy by attracting capital
for investment.
➢ Stock Exchange helps to revive other sectors of the economy.
➢ Stock Exchange helps to utilized national savings through mobilizing and distribution for the best
purpose.
➢ Stock exchange simulating private savings and channelizing such savings into productive
investments.
➢ The listed companies on stock exchange enjoy better reputation, good will and credit-standing in
the market.
➢ The Stock Exchange attract foreign investors, And enables companies to raise their funds.
 Importance of Stock Exchange

➢ The communication of information about the price of securities enables the investors to make better
investment decision.
➢ SE provides easily convertible securities into cash to the investors.
➢ The investors of interest are safeguard by regulation imposed by the SE authorise.
➢ The prospective investors look to the stock exchange for guidance for investment.
➢ The Stock Exchange helps to promote national prosperity and development besides contributing to
the laudable objective of base ownership.
➢ Stock Exchange enables medium size enterprise to grow and convert into large scale.
 Roles of Stock Exchange

1. Major role of stock exchange is to assist, regulator.

2. Raise capital.
3. Mobilize saving for investment.
4. Restrict concentration of wealth.
5. Facilitates growth.
6. Regulatory role leading to improved standards of CG, Management and efficiency.
7. Public participation in development projects through flotation of government bonds.
8. Enables investors to entry and exist the market.
 History of Stock Exchange

The history of stock markets isn’t as clear as it could be. Many scholars claim that stock trading began in the
early 17th Century, although there is evidence that this goes all the way back to ancient Rome, where there are
records that shares were traded, as evidenced by Cicero’s claim that shares were trading at a high price at the
time of one of his speeches. In 1602, the world’s first formal stock exchange was created, the Amsterdam Stock
Exchange, initially to promote the trading of securities issued by the Dutch East India Company, the first
company to issue corporate bonds and stock to the public.
 History of Stock Exchange

➢ This was the first instance of what we would consider to resemble modern stock markets, with things
like shares, dividends, advice preaching patience in holding stocks for the long term for capital
appreciation, and so on.
➢ For something to be called a stock market or financial market as we now know and define it, there does
have to be the trading of securities involved, and this was the case with the issues of the Dutch East
India Company.
➢ This period also produced the first book written about stock market trading, in 1688, called Confusion
of Confusions, written by Joseph de la Vega, a successful stock trader of the day. It described the
workings of the Amsterdam stock market and provided general advice on being successful in this
enterprise.
 History of Stock Exchange

After the success of the Amsterdam Stock Market, the idea of creating other stock markets spread, although
it took almost a century for this to catch on elsewhere.

Europe:
➢ In the 12th Century mostly trading arose through commercial bills of exchange. In the late 16th
century the institutional beginning of the security markets, in other trading centre throughout europe
and great britain, originated.
➢ In 1773, london moved coffee houses into their own buildings and in 1802 made trading levels for
stock exchange.
➢ In 19th century trading in securities became common in london.
 History of Stock Exchange

USA Stock Market:

➢ The era was around 1780 when on the piers of Manhattan's East River, New York, USA the stock
market began. The first securities traded were bills of lading for inbound cargo loaded ships.
➢ Since silver was the unit for international trade, Bars of silver were used to purchase the shares in
cargo. This is the reason that even today in US, a share's price is raises or lowers (one tick) by 1/8" of
a dollar.
➢ The beginning of New-York Stock Exchange was in 1792, 24 men signed an agreement on wall
street, to sell securities and determined fixed commission rates.
➢ In early 1800s the New-York Exchange and board moved into a new building and later moved to
present site on NYSE in 1863.
 History of Stock Exchange

Listing Rules of USA Stock Market:

1. New-york stock Exchange (NYSE).
2. National Association of Securities Dealers Automated Quotations (NASDAQ).
3. London Stock Exchange.
 History of Stock Exchange
Stock Markets In Subcontinent:
➢ In the subcontinent, the east india company started this business.
➢ The leading SE in India the “Bombay Stock Exchange” was established in 1850.
➢ Solely managed and ran by the british.
➢ The locals started this business under Native stock brokers association and late these were merged into it.

Listing Rules in Bombay Stock Exchange:

➢ Bombay Stock Exchange (BSE) has requirements for minimum market capitalization of 250 million and
public float equivalent to Rs.100 million.
 Broker and Jobber

Broker:
He is one acts as a intermediary on behalf of others. A broker in a stock exchange, is a commission agent who
transacts business in securities on behalf of non-members.

Jobber:
He is not allowed to deal with the public directly. He deals with brokers who are engaged with the investors.
Thus, the securities is bought by the jobber from members and sells to members who are operating on the
stock exchange as broker.
 Speculation and Speculator
Speculation:
➢ It is the transaction of members to buy or sell securities on stock exchange with a view to make profit in
anticipated raise or fall in price of securities.

Speculator:
➢ The dealer in stock exchange who indulge in speculation are called speculator. They do not take delivery
of securities purchased or sold by them, but only pay or rescue the difference between the purchase price
and sale price.
➢ The mostly used types of speculators are :
1. Bull
2. Bear
 Bull and Bear

Bull:
He is speculator who expects the future raise in price of securities he buys the securities to sell them at future
date at the higher price . He is called as bull because his activities resembles as a bull as the bull leads to
throw its victims up in the air through its horns. In simple the bull speculator tries to raise the price of
securities by placing big purchase order.

Bear:
He is speculator who expects future fall in prices, he does an agreement to sell securities at future date at the
present market rate. He is called as bear because his altitude resembles with bear, as the bear tends to stamp
its victims down to earth through its paws. In simple the bear speculator forces of prices of securities to fall
through his activities.
Stock Exchange In pakistan
 Pakistan Stock Exchange History

Karachi Stock Exchange (KSE):

➢ Was established on Sept-18-1947. It was incorporated on march-10-1949.
➢ Only 5 companies were initially listed with total paid-up-capital of 3 million rupees.
➢ The first index introduced in KSE was based on fifty companies and was called KSE-50 Index.
➢ In 2002 KATS was introduced. KSE is the best biggest and most liquidate exchange in pakistan,
In 2002 it was declared as the “Best performance stock market of the world by business week”.
➢ USA today term KSE as one of the best stock exchange for performing bourses in the world.
 Pakistan Stock Exchange History

Lahore Stock Exchange:

➢ Established in 1970, under the ordinance of 1969 by the government of pakistan.
➢ In response to the needs of the provincial metropolis of the province of punjab.
➢ It initially had 83 members and was housed in rented building, the members have increased
from 83 to 152 over a period 25 years.
➢ 81 members are corporate and 54 are individual.
➢ In 2016 the LSE was integrated with KSE and ISE under the act of SE 2012 to from the PSE.
 Pakistan Stock Exchange History

Islamabad Stock Exchange

➢ Established in islamabad the capital city of pakistan on oct, 25 1989.
➢ To cater to the needs of less developed areas of the northern part of pakistan.
➢ It was licensed as a SE on Jan, 17 1992. And started trading in July
➢ A present there are 119 members 93 out of 119 are corporate bodies and 26 are
individuals.
 PSX Introduction

Pakistan Stock Exchange PSX 2016 - Pakistan Stock exchange is the merger of all
three stock exchanges(ISE, LSE, KSE) of Pakistan. Entities which provide
"trading" facilities for stock brokers and traders, to trade stocks and other securities.
 Trading Procedure on Stock Exchange

In order to sale and purchase securities on stock exchange the following steps have to taken.

1) Selection of broker.
2) Placing the order.
3) Preparing the contract note.
4) Settlement.
 PSX Products & Services
Products
1. Equity
2. Fixed Income
3. Derivatives
4. Margin Trading System (MTS)
Services:
5. Company services
6. Data Services
 Listing In PSX
➢ Under the PSX plan the listed companies on the exchange with 40% of its shares offered to foreign
buyers, And 20% in IPO and remaining 40% allocated to listed brokers.
➢ As on oct 2016 there are 576 companies listed in PSX and total market capitalization is 8,384.86
Billion.
➢ Currently there are 558 companies listed in PSX with a Market Capitalisation of PKR 9,386 Bn, The
listing is done on the basis of strict rules and regulations laid out by (SECP) & the management of
(PSX).
➢ All the listed companies are categorized in various main business sectors. Currently There are total
35 sectors listed on Pakistan Stock Exchange which contribute towards the market capitalization and
all the listed companies (excluding their future contracts) are divided among these.
➢ Rest of the non-contributory sectors are allocated for indexes, futures, bonds etc.
Thank You