Stock Exchange

STOCK EXCHANGE

INTRODUCTION Definition: “A stock exchange is a corporation or mutual organization which provides trading facility to stock brokers and traders to trade stock and other securities. A stock exchange is a highly organized market where securities are purchased and sold” 

Introduction A market where stocks are traded by several different vendors like any other market.  Stock market is the secondary market where securities are sold after they are sold in the secondary market. 

Features Public companies looking to sell their shares to investors.  Investors looking to buy shares in anticipation of profits  And stock exchange that bring companies and investors together. 

Why Do we need STOCK EXCHANGE?? Ensures expedient access of capital to thousands of companies  Allows millions of small investors to participate in the profits of companies they own. 

Stock exchanges in Pakistan Islamabad stock exchange  Karachi stock exchange  Lahore stock exchange 

Securities 

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The securities traded on the stock exchange include: Shares issued by companies. Debentures. Bonds.

Shares: The total authorized share capital in the company is divided into small units and each is individually called “shares”. The shares are considered as the man source to raise company’s capital.

Share holder: The people who provide finance to company by purchasing shares are called shareholders.

Types of shares: 1. Preference shares 2. Ordinary shares 3. Deferred shares.

Types of operators on stock exchange: The operators buy and sell securities on stock exchange are of several types some of them are: 1. 2. 3. 4.

Brokers Jobbers Bulls and Bears.

Trading procedures on stock exchange: In order to purchase or sell securities on stock exchange, the following steps have to be taken: 1. Selection of broker. 2. Placing the order 3. Preparing the contract note 4. settlement

Roles of Stock Exchange 1. 2. 3. 4. 5.

6. 7. 8. 9. 10.

Raising Capital for business Mobilizing savings for investments Facilitating company growth Redistribution of wealth Corporate governance Opportunities for small investors Raising capital for Developmental projects Barometer of the economy Regulation of companies Employment opportunities

Roles of Stock Exchange 

Raising capital for Business:

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Facilitates business to raise capital Induces people to save and Invest People can easily Sell/Buy the shares

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Mobilizing Savings for Investments

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Savings change to Investments Promotes economic growth in different sectors of economy

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Roles of Stock Exchange  Corporate Governance 

Public sector companies have varied owners, to appeal to them more and follow stringent government polices is a major objective.  The public sector companies are made to follow rules and regulations strictly and also shareholder satisfaction is expected  Failures of Corporate Governance can be Sub prime mortgage, dot com crisis and housing bubble crisis in USA  SECP has more intervention since our S.E are still very young unlike foreign S.E’s

Roles of Stock Exchange Facilitating Company growth :  Expansions, hedging against volatility  Acquisitions, and other features like bidding or mergers.  Redistribution of Wealth  Capital gains in selling shares and also dividend income 

Roles of Stock Exchange 

Investment opportunities for small investors

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Not every one can invest a million Rs, at S.E you can invest in as low as 1 share. Thus, helping small investors

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Capital Raising for Government

All kinds of Bonds and TFC’s are raised and sold through S.E  For developmental projects  A fiscal measure to void or devoid taxation in times of crisis 

Roles of Stock Exchange 

Barometer of the Economy

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The Increasing/ decreasing share prices, listing De-listing of company, paints the real economic picture  Financial position of the company 

Regulation of Companies

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Every listed company has to follow the rules and regulations of S.E

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Employment opportunities

Listing of Securities on S.E 

All securities are not dealt on stock exchange. Only those securities are sold or purchased which are included in trading list of the stock exchange. In order to get a security listed on stock exchange for trading purposes, the company issuing such a security must make an application along with following prescribed documents

Listing Securities on S.E 

1)Copies of memorandum, articles, prospects, directors’ report, balance sheet and agreement with underwriters.

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2)Specimen copies of shares, debentures, certificates, letter of allotment and acceptance , etc.

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3)Particulars regarding capital structures.

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4)A statement showing the distribution of shares.

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5)Particulars of dividends and each bonus declared since its incorporation.

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6)Particulars of shares and debentures for each, permission are required.

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7)A brief history of the company’s activities since its incorporation.

Listing Securities on S.E 

After the scrutiny of application, if the stock exchange authorities are satisfied, they call upon the company to execute the ‘listing agreement’.

Functions Of Stock Exchange Main Activities: to promote savings to provide liquidity 2. Functions as an organization  To guarantee the legal and economic security of the agreed contracts.  To provide official information about the quantities.  To fix the prices of the securities according to the fundamental law of the offer and the demand.

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Functions In Favor Of The Investor

access to the profitable activities of the big companies.  It offers liquidity to the security investments.  It permits for the investor to have a political power in the companies .  It offers the possibility of diversifying your portfolio . 

ii. Function In Favor Of The Companies:

It supplies them with the obtaining of long-term funds.  The securities quoted have more fiscal purpose advantages for the companies.  It offers to the company’s free publicity.

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3. Constant following of the quotations 4.The possession of certain rights over the company in which you participate.

5.The possession of all these rights is what reduces the power of the founders.

Karachi Stock Exchange        

KSE is a Guarantee Limited Company. KSE was founded in 1947. Karachi Stock Exchange (KSE) is the biggest and most liquid exchange in Pakistan. Karachi Stock Exchange (KSE) is currently located in the heart of Karachi's Business District, II Chundrigar Road. It was declared the “Best Performing Stock Market of the World for the year 2002”. The exchange has pre-market sessions from 09:15am to 09:30am Normal trading sessions from 09:30am to 03:30pm. At present, the KSE has four market indices (KMI-30, KSC30, KSE-100 and KSE-All Share Index).

Mission Of KSC To strive to provide quality and value-added services to the capital market in an efficient, transparent and orderly manner, compatible with international standards and best practices.  To provide state-of-the-art technology and automated trading operations, driven by a team of professionals in accordance with good corporate governance.  To protect and safeguard the interests of all its stakeholders, i.e. members, listed companies, employees and the investors at large.  To reflect the country’s economic health and behavior and play its role for the growth, development and prosperity of Pakistan 

Growth 

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Growth

A total of 654 companies were listed on December 8, 2009 with a market capitalization of Rs. 8.561 trillion (US$ 120.5 billion) having listed capital of Rs. 2805.873 billion (US$ 40.615 billion). Foreign buying interest had been very active on the KSE in 2006 and continued in 2007. According to State Bank Of Pakistan Foreign investment in capital markets about US$523 Million. Around 20pc of the total free float in KSE-30 Index is held by foreign participants. KSC Board Of Directors announced in 2007 to construct a 40 story building as new direction for future investment.

Lahore Stock Exchange  

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LSE is a Guarantee Limited Company. Lahore Stock Exchange (LSE) was incorporated in October 1970 under the Securities and Exchange Ordinance 1969 by the Government Of Pakistan. It is the second largest stock exchange of Pakistan. It initially had 83 members and was housed in a rented building in the crowded Bank Square area of Lahore. Their new building is located at 19-Khayaban-e-Aiwan-e-Iqbal, Lahore. New location has sufficient space, modern facilities, and all the needed communications. The number of listed companies is 519 with 37 sectors of the economy. Listed companies have total capital of Rs. 555.67 billion having market capitalization of around Rs. 2.51 trillion .

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Currently LSE has 152 members of which 81 are corporate, and 54 are individual members. LSE was the first stock exchange in Pakistan to use the internet and currently 50% of its transactions are via the internet. The Lahore Stock Exchange has opened branches in the industrial cities of Faisalabad and Sialkot for trading. At present, the LSE has two market indices ( LSE-25 and LSETRI)

LSE-25 AND LSETRI 

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LSC-25 calculates the performance of stocks assuming that all rights issues and bonus share issues only increase the listed capital so that the prices of the shares are not adjusted and it also assumes that dividends paid out by a component company are not reinvested. The Lahore Stock Exchange Total Return Index (LSETRI) calculates the performance of stocks assuming that all payouts are reinvested in the index and if a component company issues bonus shares or announces a rights issue it will increase the listed capital and also assumes that all pay-outs by a component company are 100% reinvested in the index.

Islamabad Stock Exchange     

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ISE was incorporated as a Guarantee Limited Company on 25 October 1989 in Islamabad capital territory. ISE is the youngest of the three stock exchanges of Pakistan. It was licensed as a stock exchange on 7 January 1992 and started trading in July 1992. Currently Islamabad Stock Exchange has 120 members out of which 26 are individual and 94 are corporate members. At present there are 261 companies listed in ISE however number of listed companies varies from time to time due to delisting, mergers and default of companies. Islamabad Stock Exchange joined hands with Lahore Stock Exchange on 30 April 2007 to establish a Unified Trading Platform. At present, the ISE has two market indices ( ISE-10 and ISE Network Index)

Trading System 

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Initially, an outcry method of trading (verbal bids and offers in the trading pits) in shares was adopted by ISE which was replaced with the automated trading system (a computerized system) commonly called “ISE-CTS” in 1997. The computerized trading system has brought much needed transparency in the securities trading. It provides automatic matching of bids and offers for execution purpose. In 2002 ISE-CTS is replaced by “ULTRA TRADE” trading system. Remote Trading or Internet Trading has been implemented in ISE on 23 June 2003.