Stock exchange its functions and operations

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2009

Stock Exchange Its operations & functions This document include a detail about the stock exchange its functions and operations, including the major stock exchange of the world and Pakistan

Rabia Muzaffar Ali BEIT-II 1/12/2009

Stock Exchange

Contents 1. Over view of market

2.

………………………………………. pg.03 Types of financial market  Money market …………………………………… pg.04  Capital market …………………………………… pg.04 Market infra structure Stock exchange………………………………………………... pg.05  Introduction…………………………………….. pg.06  History………………………………………….. pg.06  Securities……………………………………….. pg.07  Types of operation……………………………… pg.08  Trading process in S.E………………………….. pg.09  Role of S.E……………………………………… pg.10  Listing of securities in S.E……………………… pg.12  Ownership of S.E……………………………….. pg.14  Future of S.E……………………………………. pg.14  Other types of S.E………………………………. pg.15 Functions of stock exchange………………………………. pg.16

3. 4. World major S.E…………………………………………….. 5. Stock exchange of Pakistan……………………………..   

pg.21

pg.23 Karachi stock exchange (K.S.E)………………. pg.24 Lahore stock exchange (L.S.E)………………… pg.30 Islamabad stock exchange (I.S.E)……………… pg.32

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1. Over view of market Market

Infra structure

Financial market

Money market

Capital market

Non security market

Security market

Stock exchanges

Clearing & settlement

Education & training

Investor productor

Rating agency

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Over view of market 1. Market: 

A public place where buyers and sellers make transactions, directly or via intermediaries. Also sometimes means the stock market. A market is a public place where provision and object are exposed for sale.

2. Types of Market:There are two types of Market as following :  

Money Market Capital Market

 Money Market:In finance, the money market is the global financial market for short-term borrowing and lending. It provides short-term liquidity funding for the global financial system. The money market is where short-term obligations such as Treasury bills, commercial paper and bankers' acceptances are bought and sold.  Capital Market:It is defined as a market in which money is provided for periods longer than a year as the raising of short-term funds takes place on other markets (e.g., the money market). The capital market includes the stock market (equity securities) and the bond market (debt).

3. Organization of markets:A market can be organized as      

an auction, a private electronic market, a commodity wholesale market, a shopping center, a complex institution such as a stock market, An informal discussion between two individuals.

Markets of varying types can spontaneously arise whenever a party has interest in a good or service that some other party can provide. Hence there can be a market for cigarettes in correctional facilities, another for chewing gum in a playground, and yet another for contracts for the future delivery of a commodity. There can be black markets, where a good is exchanged illegally and virtual markets, such as eBay, in which buyers and sellers do not physically interact during negotiation. There can also be markets for goods under a command economy despite pressure to repress them.

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2. Stock exchange

Stock exchange

Introduction

History

Securities

Types of operators

Trading process

Role

Listing of securities

Owner ships

Future

Types

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Stock Exchange

1. Introduction:

A stock exchange, (formerly a securities exchange) is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchange is a highly organized market where securities are purchased and sold.



A stock exchange is an organization of which the members are stock brokers. A stock exchange provides facilities for the trading of securities and other financial instruments. Usually facilities are also provided for the issue and redemption of securities as well as other capital events including the payment of income and dividends. The securities usually traded on a stock exchange include the shares issued by companies, unit trusts and other pooled investment products as well as corporate bonds and government bonds.

2. History of Stock Exchanges

In 11th century France the courtiers de change was concerned with managing and regulating the debts of agricultural communities on behalf of the banks. As these men also traded in debts, they could be called the first brokers. Some stories suggest that the origins of the term "bourse" come from the Latin bursa meaning a bag because, in 13th century Bruges, the sign of a purse (or perhaps three purses), hung on the front of the house where merchants met. However, it is more likely that in the late 13th century commodity traders in Bruges gathered inside the house of a man called Van der Burse, and in 1309 they institutionalized this until now informal meeting and became the "Bruges Bourse". The idea spread quickly around Flanders and neighboring counties and "Bourses" soon opened in Ghent and Amsterdam.

In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351, the Venetian Government outlawed spreading rumors intended to lower the price of government funds. There were people in Pisa, Verona, Genoa and Florence who also began trading in government securities during the 14th century. This

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was only possible because these were independent city states ruled by a council of influential citizens, not by a duke.

The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits—or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds. In 1688, the trading of stocks began on a stock exchange in London.

On May 17, 1792, twenty-four supply brokers signed the Buttonwood Agreement outside 68 Wall Street in New York underneath a buttonwood tree. On March 8, 1817, properties got renamed to New York Stock & Exchange Board. In the 19th century, exchanges (generally famous as futures exchanges) got substantiated to trade futures contracts and then choices contracts. There are now a large number of stock exchanges in the world.

3. Securities:The securities traded on a stock exchange include:   

Shares issued by companies. Debentures. Bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronics networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks. There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over the counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities

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Shares:The total authorized capital in the company is divided into small units and each is individually called “Share”. You can buy large or small lots to match the amount of money you want to invest. When the company does well, its shares can rise in value. If the company hits a bad patch, its share can fall in value. The shares are considered as the main 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: These are shares whose holders have preferential rights in respect of the payment of dividend and repayment of capital in the event of winding up. The rate of dividend on these shares is fixed. There are further two types of preference shares.  Cumulative preference shares: If the profit if company is not enough to pay dividend on any kind of shares at the end of financial year than the right of dividend on these shares accumulates until all arrears of unpaid dividend have been paid.  Non-Cumulative preference shares: These are the shares on which if dividend is not paid out of current years profit in any year then it is never paid. 2. Ordinary Shares: These shares are the shares on which dividend is not paid at fixed rate. Ordinary shareholders receive the dividend proportionally out of profit earned by the company after the payment of fixed dividend on preference shares. 3. Deferred Shares: The share issued to promoters of the company is called deferred or founders shares. The dividend on these shares is paid after the payment of dividend on all other types of shares. 4.

Types of operators on stock exchange

The operators who buy and sell securities on stock exchange are of several types. Some of them are described below: 1. Brokers:

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A broker is a member of the stock exchange. He buys and sells the securities on the behalf of the outsiders who are not the members. He charges brokerage for his services. He does not specialize in any particular security. He buys sells all types of securities according to the orders placed by his clients. 2. Jobbers: The jobber is a member of stock exchange but he buys and sells securities on his own behalf. He is a dealer in securities. He usually specializes in one type of security. His income comes from the profit or price difference in the purchase and sale of securities. A jobber normally deals for himself but he is not prohibited from buying and selling securities on the behalf of others. 3. Bulls: A bull is a speculator who expects a rise in prices. Therefore, he buys securities with a view to sell them in future at a higher price thereby make profit. When the conditions in the stock exchange are dominated by bulls, it is called a “bullish market”. When the prices fall and bulls have to sell at loss, it is called “bull liquidation”. 4. Bears: A bear is a speculator expects fall in prices. Therefore, he sells securities for future delivery. He sells securities, which he does not possess. He sells with the hope to buy the securities at lower price before the date of delivery. The efforts of bears to bring down the prices artificially are known as “bear raids”. When bears dominate the market, it is called a “bearish market”. When prices are rise and bears have to make purchases to meet their commitments, it is called “bear covering”.

5. Trading procedure on Stock Exchange In order to purchase or sell securities on a stock exchange, the following steps have to be taken: 1.

Selection of Broker:

A broker is a member of stock exchange and securities can only be purchased and sold through him. After selecting the broker the investor has to convince the broker to buy or sell securities on his behalf. For this purpose, the investor may have to make an advance or give references of a bank or some other persons. 2.

Placing the order:

There are three parties involved in the dealing of shares:  The Stock Broker

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 The Client  The Jobber The stock broker simply acts as agent and contacts the particular jobber in the stock exchange on behalf of the client. He does not disclose to the jobber whether he is a buyer or seller of shares. He therefore, asks him to quote two prices: I. The upper prices at which he is ready to sell the shares. II. The lower prices at which he is ready to buy the shares. For Example, Mr. Ali wants to sell one thousand shares of a Company. He contacts a broker dealing on the stock exchange. The broker asks a jobber to give quotations. He does not disclose the jobber whether he wants buy or sell the shares of a company. The jobber gives two prices, one at which he is willing to sell and the other at which he is ready to buy. For instance, the two quoted prices are Rs.21.90 and Rs.22.00 in a thousand. This means broker is willing to purchase at Rs.21.90 and sell at Rs.22.00 per share. If the broker is not satisfied, he can go to another jobber or ask the first one to make it closer (i.e. to reduce the margin between buying and selling). If the broker is satisfied with the new quotation, he then contacts with his client informs him the bid of the share. If the client agrees to the bid price, then bargain is struck

3.

Preparing the contract note:

The stock broker prepares a contact note, one copy of which is given to the client; second one to the jobber and the third remains with the broker. The contact note generally contains the following information:  Name and the address of the stockbroker.  The name and address of the jobber.  The type and price of the share.  The commission of the broker.  The date of transaction 4.

Settlement: 

In case of ready delivery contract, the buyer pays the money and the seller delivers the securities one same day.



In the case of forward delivery contracts settlements are done in a week or once in a month.

On the settlement day, the difference in the purchase and the sell price may be paid without any delivery of securities. The parties may also postpone the deal to the next settlement date through mutual consent. This is known as “carryover” or “budla”.

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6.Role of Stock Exchange in economy Stock exchanges have multiple roles in the economy, this may include the following: 1. Raising capital for businesses: The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public. It induces people to save and invest in securities. There is regular publicity of its operations, which encourages savings and investments. People know that when they need money, they can easily sell there securities on stock exchange. Therefore, they are more willing to invest there savings in securities. Thus a stock exchange serves as an instrument for raising capital. 2.

Mobilizing savings for investment:

When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels and firms. 3.

Facilitating company growth:

Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market shares, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion. 4. Redistribution of wealth: Stock exchanges do not exist to redistribute wealth. However, both casual and professional stock investors through dividends and stock price increases that may result in capital gains will share in the wealth of profitable businesses. 5.

Corporate governance:

By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors). However, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies. The dot-com bubbles in the early 2000s, and the subprime mortgage crisis in 2007-08, are classical

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examples of corporate mismanagement. Companies like Pets.com (2000), Enron corporation (2001), One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), Parmlat (2003), American International Group (2008), Lehman Brothers (2008), and Satyam Computer Services (2009) were among the most widely scrutinized by the media. 6.

Creating investment opportunities for small investors:

As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors. 7.

Government capital-raising for development projects:

Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities, known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate (to remove) the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral (side by side), the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature. 8.

Barometer of the economy:

At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy. 9.

Regulation of companies:

The stock exchange exercises a wholesome influence on the management of companies. A company that wants to be listed on stock exchange must bind itself to the rules and regulations prescribed by the stock exchange. 10.

Employment Opportunities:

Stock exchange provides employment opportunities to the jobbers and other members who perform there activities in the stock exchange. So it is an important source of employment not only for investors but also for the members and there employees.

7. Listing of Securities on Stock Exchange

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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. 1) Copies of memorandum, articles, prospects, directors’ report, balance sheet and agreement with underwriters. 2) Specimen copies of shares, debentures, certificates, letter of allotment and acceptance, etc. 3)

Particulars regarding capital structures.

4)

A statement showing the distribution of shares.

5)

Particulars of dividends and each bonus declared since its incorporation.

6)

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

7)

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

After the scrutiny of application, if the stock exchange authorities are satisfied, they call upon the company to execute the ‘listing agreement’. The listing agreement contains the following conditions and obligations: 1) The company must be fair to all the applicants for shares. In the case of over subscription, no undue preference will be shown to any particular class of applicants. 2) To notify stock exchange about the date of the board meeting at which decision of dividend is taken. 3)

To forward the copies of its annual accounts duly audited to the stock exchange.

4) To notify the stock exchange, about any material change or nature or feature of the company’s business. 5)

To notify the stock exchange any change in the capital of the company.

6)

To notify the issue of any new shares including bonus shares.

7) To comply with all the requirements of the listing agreement and not to commit any breach of any condition. 8) To notify the stock exchange of any occasion this will result in redemption or cancellation of any listed security. 9)

To avoid, the establishment of a false market for the listed securities.

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10) To supply the stock exchange any other information necessary to enable the shareholders to know about the company’s position.

8. Ownership of Stock Exchange Stock exchanges originated as mutual organizations, owned by its member stock brokers. There has been a recent trend for stock exchanges to demutualize, where the members sell their shares in an initial public offering. In this way the mutual organization becomes a corporation, with shares that are listed on a stock exchange. Examples are Australian Securities Exchange (1998), Euro next (merged with New York Stock Exchange), NASDAQ (2002), the New York Stock Exchange (2005), Bolsas y Mercados Españoles, and the São Paulo Stock Exchange (2007). The Shenzhen and Shanghai stock exchanges can been characterized as quasi-state institutions insofar as they were created by government bodies in China and their leading personnel are directly appointed by the China Securities Regulatory Commission.

9. The future of stock exchanges The future of stock trading appears to be electronic, as competition is continually growing between the remaining traditional New York Stock Exchange specialist system against the relatively new, all Electronic Communications Networks, or ECNs. ECNs point to their speedy execution of large block trades, while specialist system proponents cite the role of specialists in maintaining orderly markets, especially under extraordinary conditions or for special types of orders. UK based exchanges such as PLUS Markets are increasing competition with traditional exchanges. The ECNs contend that an array of special interests profit at the expense of investors in even the most mundane exchange-directed trades. Machine-based systems, they argue, are much more efficient, because they speed up the execution mechanism and eliminate the need to deal with an intermediary. Historically, the 'market' (which, as noted, encompasses the totality of stock trading on all exchanges) has been slow to respond to technological innovation, thus allowing growing pure speculation to continue. Conversion to all-electronic trading could erode/eliminate the trading profits of floor specialists and the NYSE's "upstairs traders", who, like in September and October 2008, earned billions of dollars selling shares they did not have, and days later buying the same amount of shares, but maybe 15 % cheaper, so these shares could be handed to their buyers, thereby making the market fall deeply. William Lupine, founder of the Instinet trading system and the Optima system, has been quoted as saying "I'd definitely say the ECNs are winning... Things happen awfully fast once you reach the tipping point. We're now at the tipping point."

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One example of improved efficiency of ECNs is the prevention of front running, by which manual Wall Street traders use knowledge of a customer's incoming order to place their own orders so as to benefit from the perceived change to market direction that the introduction of a large order will cause. By executing large trades at lightning speed without manual intervention, ECNs make impossible this illegal practice, for which several NYSE floor brokers were investigated and severely fined in recent years Under the specialist system, when the market sees a large trade in a name, other buyers are immediately able to look to see how big the trader is in the name, and make inferences about why s/he is selling or buying. All traders who are quick enough are able to use that information to anticipate price movements. ECNs have changed ordinary stock transaction processing (like brokerage services before them) into a commodity-type business. ECNs could regulate the fairness of initial public offerings (IPO’s), oversee Hambrecht's Open IPO process, or measure the effectiveness of securities research and use transaction fees to subsidize small- and mid-cap research efforts. However, believe the answer will be some combination of the best of technology and "upstairs trading" — in other words, a hybrid model. Trading 25,000 shares of General Electric stock (recent quote: $7.54; recent volume: 216,266,000) would be a relatively simple e-commerce transaction; trading 100 shares of Berkshire Hathaway Class A stock (recent quote: $72,625.00; recent volume: 877) may never be. The choice of system should be clear (but always that of the trader), based on the characteristics of the security to be traded. Even with ECNs forming an important part of a national market system, opportunities presumably remain to profit from the spread between the bid and offer price. That is especially true for investment managers that direct huge trading volume, and own a stake in an ECN or specialist firm. For example, in its individual stock-brokerage accounts, "Fidelity Investments runs 29% of its undesignated orders in NYSE-listed stocks, and 37% of its undesignated market orders through the Boston Stock Exchange, where an affiliate controls a specialist post."

10. Other types of exchanges In the 19th century, exchanges were opened to trade forward contracts on commodities. Exchange traded forward contracts are called futures contracts. These commodity exchanges later started offering future contracts on other products, such as interest rates and shares, as well as options contracts. They are now generally known as futures exchanges.

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3.

Functions of stock exchange

Function of SE

Main activities

Function as

An organization

In favor of investor

In favor of companies

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The functions of stock exchange are as following 1. Main activities: 

To promote the savings and for them to be canalized towards of carrying through investment projects that otherwise wouldn’t be possible you need that the issuing institution of the securities to be admitted for quoting. The negotiations will be done on the primary market.



To provide liquidity to the investors. The investor can recuperate the money invested when needed. For it, he has to go to the stock exchange market to sell the securities previously acquired. This function of the stock market is done on the secondary market.

2. Functions as an organization are: 

To guarantee the legal and economic security of the agreed contracts.



To provide official information about the quantities that are negotiated and of the quoted prices.



To fix the prices of the securities according to the fundamental law of the offer and the demand.

Specifying a bit more and centering on the two main agents that intervene in the market, investors and companies, we could do the following classification: 3. Functions in favor of the investor: 

It permits him the access to the profitable activities of the big companies.



It offers liquidity to the security investments, through a place in which to sell or buy securities.



It permits for the investor to have a political power in the companies in which he invests its savings due that the acquisition of ordinary shares gives him the right (among other things) to vote in the general shareholders meetings of the company in question.

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

It offers the possibility of diversifying your portfolio by enlarging the field of strategy of investments due to alternative options, as could be the derived market, the money market, etc.

4. Function in favor of the companies: 

It supplies them with the obtaining of long-term funds that permits the company to make profitable activities or to do determine projects that otherwise wouldn’t be possible to develop for lack of financing. Also, this funding signifies a less cost than if obtained at other channels.



The securities quoted at the stock exchange market usually have more fiscal purpose advantages for the companies.



It offers to the company’s free publicity, which in other way would suppose considerable expenses. The institution is objecting of attention of the media (television, radio, etc.) in case any important change in its owners (the share holders).

5. Constant following of the quotations. Therefore we can see how the stock exchange market supposes a great advantage to the companies, but there are also some inconveniences to have in mind: 

First of all, they need of a series of conditions to be apt to enter to the quotations, not all the companies that apply can do it.



The issuing of shares may suppose a loss of power for the founders of the company. Anyway, this is very relative because it will depend on the grade of atomization on the participations of the new shareholders and of the percentage of shares that the founders keep over the total capital of the company.



If for example a 49% of the share capital is in hands of the founders, these could loose the control of in case the other 51% would be in hands of one main shareholder. However, this rarely happens, due that the share capital that usually goes to the stock market tends to be distributed between a great number of shareholders that acquire modest participations in respect to that of the capital of the company the founders may still keep control with share capital is distributed between a great number of participants.

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

Now then, the property of these shares implies the possession of certain rights over the company in which you participate.

These are: political rights, among which appears the possibility of participating in the general share holders meetings and in the administration of the company by means of the execution of your rights to vote; and the economic right, which embraces the possibility of receiving dividends, preferential rights of subscription, the transmission of shares (selling) and the right to the liquidity value. This last implies that at the moment in which the company is liquidated, what remains is proportionally divided between the shareholders. 5. The possession of all these rights is what reduces the power of the founders. •

The shares may pass to be property of unknown people to the founders. At the moment in which they are object of quotations at the stock exchange market any supplier of capital may have them. If it’s a company that previously knew all its shareholders, considering this as an asset of value to the company. The stock market quotation may generate an important change that will not always be positive.

•

The companies that are quoted at the stock market offer a better transparency, in a way that the general public may have access to any information related to their evolution and activities.

•

This makes them have a greater control and to supervise every movement done.

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3. Major stock exchange

World major SE

Regions

America

Africa

Asia

Europe

Twenty Major Stock Exchanges In The World: Market Capitalization & Year-to-date Total Turnover at the end of August 2009

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Stock Exchange

Region

Stock Exchange

Market Value (millions USD)

Total Share Turnover (millions USD)

Africa

Johannesburg Securities Exchange

690,797.5

210,180.8

Americas

NASDAQ

2,847,535.2

19,343,868.3

Americas

São Paulo Stock Exchange

1,032,518.4

361,959.0

Americas

Toronto Stock Exchange

1,432,877.0

798,193.1

Americas

New York Stock Exchange

10,842,001.9

12,158,620.6

AsiaPacific

Australian Securities Exchange

1,066,513.2

560,912.8

AsiaPacific

Bombay Stock Exchange

1,082,572.0

171,176.2

AsiaPacific

Hong Kong Stock Exchange

1,945,517.7

970,227.6

AsiaPacific

Korea Exchange

727,125.3

1,050,473.8

AsiaPacific

National Stock Exchange of India

1,019,109.0

506,652.3

AsiaPacific

Shanghai Stock Exchange

2,142,756.8

3,315,768.5

AsiaPacific

Shenzhen Stock Exchange

596,320.2

1,701,256.8

Asia-

Tokyo Stock Exchange

3,478,602.5

2,675,983.3

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Pacific Europe

Euro next

2,605,097.6

1,195,962.2

Europe

Frankfurt Stock Exchange (Deutsche Börse)

1,204,292.0

1,589,736.7

Europe

London Stock Exchange

2,560,491.1

2,321,518.5

Europe

Madrid Stock Exchange (Bolsas y Mercado’s Españoles)

1,178,525.6

1,040,751.1

Europe

Milan Stock Exchange (Bursa Italiana)

636,674.8

565,759.3

Europe

Nordic Stock Exchange Group OMX1

781,146.3

503,049.9

Europe

Swiss Exchange

992,356.4

520,867.5

4. Stock exchange of Pakistan

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Pakistan stock exchange

Karachi stock exchange (KSE)

Lahore stock exchange (LSE)

Islamabad stock exchange (ISE)

1.

Karachi Stock Exchange

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The Karachi Stock Exchange or KSE is the first stock exchange located in Karachi, Sindh, Pakistan Founded in 1947; it is Pakistan's largest and oldest stock exchange, with many Pakistani as well as overseas listings. Its current premises are situated on Stock Exchange Road, in the heart of Karachi's Business District. Later on two more stock exchanges were formed in Lahore (1971) and Islamabad (1992) to facilitate the investment in securities. The investors get opportunities of international investment due to contract of Pakistan’s stock exchanges with other countries. The stock exchange not only informs the investors about international business trends but also plays important role in strengthening the economy of the country.

 History:The KSE is the first stock exchange located in Karachi, Sindh, Pakistan Founded in 1947; it is Pakistan's largest and oldest stock exchange, with many Pakistani as well as overseas listings. Its current premises are situated on Stock Exchange Road, in the heart of Karachi's Business District.

 Trading:The exchange has  Pre-market sessions from 09:15am to 09:30am.  Normal trading sessions from 09:30am to 03:30pm. It is the second oldest stock exchange in South Asia. The Karachi stock exchange has undergone a considerable deal of downturn partly due to global financial crisis and partly on account of domestic troubles. It remained suspended in excess of 4 months and resumed normal trading only on December 15, 2008. The KSE 100 Index and KSE 30 Index after hitting the low around mid January has now re bounced and recovered 20-25% till March 12th 2009.

 Growth:The KSE is the biggest and most liquid exchange in Pakistan and in 2002, it was declared as the “Best Performing Stock Market of the World”. As of December 20, 2007, 671 companies were listed with the market capitalization of Rs. 4364.312 billion (US$ 73 Billion) having listed capital of Rs. 717.3 billion (US$ 12 billion). On December 26, 2007, the KSE 100 Index reached its ever highest value and closed at 14,814.85 points. Foreign buying interest had been very active on the KSE in 2006 and continued in 2007. According to estimates from the State Bank of Pakistan, foreign investment in capital markets total about US$523 Million. According to a research analyst in Pakistan, around 20pc of the total free float in KSE-30 Index is held by foreign participants.

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KSE has seen some fluctuations since the start of 2008. One reason could be that it is the election year in Pakistan, and stocks are expected to remain dull. KSE has set an all time high of 15,000 points, before settling around the 14,000 mark. Karachi stock exchange Board Of Directors (2007) announced plans to construct a 40 story high rise KSE building, as a new direction for future investment. Disputes between investors and members of the Exchange are resolved through deliberations of the Arbitration Committee of the Exchange. KSE began with a 50 shares index. As the market grew a representative index was needed. On November 1st, 91 the KSE-100 was introduced and remains to this day the most generally accepted measure of the Exchange. Karachi Stock Exchange 100 Index (KSE-100 Index) is a benchmark used to compare prices overtime, companies with the highest market capitalization are selected. To ensure full market representation, the company with the highest market capitalization from each sector is also included. In 1995 the need was felt for an all share index to reconfirm the KSE-100 and also to provide the basis of index trading in future. On August the 29th, 1995 the KSE all share index was constructed and introduced on September, 18, 1995.

 2008 Karachi Stock Exchange Crisis 

April 20:-

Karachi Stock Exchange achieved a major milestone when KSE-100 Index crossed the psychological level of 15,000 for the first time in its history and peaked 15,737.32 on 20 April, 2008. Moreover, the increase of 7.4 per cent in 2008 made it the best performer among major emerging markets. 

May 23:-

Record high inflation in the month of May, 2008 resulted in the unexpected increase in the interest rates by State Bank of Pakistan which eventually resulted in sharp fall in Karachi Stock Exchange. 

July 17 :-

Angry investors attacked the Karachi Stock Exchange in protest at plunging Pakistani share prices. 

July 16 :-

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Stock Exchange

KSE-100 Index dropped one-third from an all-time high hit in April, 2008 as rising pressure on shaky Pakistan's coalition government to tackle Taliban militants exacerbates concern about the country's economic woes. 

August 18:-

KSE 100 Index rose more than 4% after the announcement of the resignation of President Pervez Musharaf but Credit Suisse Group said that Pakistan's Post-Musharaf rally in Stock Exchange will be short-lived because of a rising fiscal deficit and runaway inflation. 

August 28 :-

Karachi Stock Exchange set a floor for stock prices to halt a plunge that has wiped out $36.9 billion of market value since April. 

December 15:-

Trading resumes after the removal of floor on stock prices that was set on August 28 to halt sharp falls.  KSE Stock indices:

Stock indices:-

A stock index is a method of measuring a section of the stock market. There are two big indices used in Karachi Stock Exchange.

 KSE 100 Index Karachi Stock Exchange 100 Index (KSE-100 Index) is a stock index, acting as a benchmark to compare prices on the Karachi Stock Exchange (KSE) over a period of time. In determining representative companies to compute the index on, companies with the highest market capitalization are selected. However, to ensure full market representation, the company with the highest market capitalization from each sector is also included.

 History:The index was launched in late 1991 with a base of 1,000 points. By 2001, it had grown to 1,770 points. By 2005, it had skyrocketed to 9,989 points. It then reached a peak of 12,285 in February 2007. KSE-100 index touched the highest ever benchmark of 14,814 points on December 26, 2007, a day before the assassination of former Prime Minister Benazir Bhutto, when the index nosedived. The index recovered quickly in 2008, reaching new highs near 15,500 in April. However, by November 22, 2008 during the global financial crisis of 2008, it had fallen to 9,187.

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Stock Exchange

 Top 30 KSE 100 Index companies:The following is a list of 30 companies with the highest market capitalization volume and their respective weight ages in the index and account for over 80% of the KSE index as of February 20, 2008:

Number

Company Name

Weight age (%)

Market Capitalization (PKR)

1

OGDCL

14.14

550,948,930,000

2

MCB

7.17

279,583,150,000

3

National Bank Of Pakistan

5.43

211,726,900,000

4

Pakistan Petroleum

5.06

197,201,080,000

5

Standard Chartered Bank

4.41

171,704,800,000

6

PTCL

4.28

166,810,800,000

7

United Bank Limited

4.13

161,025,160,000

8

Jahangir Siddiqui &Company 2.66

103,600,000,000

9

Pakistan State Oil

2.08

81,034,440,000

10

Allied Bank Limited

2.01

78,371,670,000

11

Nestle Pakistan

1.93

75,280,250,000

12

Pakistan Oilfields

1.71

66,824,220,000

13

Fuji Fertilizer Company

1.68

65,607,390,000

14

ABN AMRO

1.63

63,666,370,000.

15

Engro Chemical

1.45

56,492,990,000

16

Arif Habib Securities

1.40

54,660,000,000

17

NIB Bank

1.27

49,320,250,000

18

Kot Addu Power Company

1.19

46,565,400,000

19

EFU General Insurance

1.16

45,300,000,000

20

Bank Of Punjab

1.13

43,869,030,000

21

Fuji Fertilizer Bin Qasim

1.06

41,474,480,000

22

Bank Alfalfa

1.03

39,975,000,000

23

Adam jee Insurance

1.01

39,258,300,000

24

Pakistan Tobacco Company

0.99

38,707,280,000

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Stock Exchange

25

Sui Northern Gas Pipeline

0.98

38,300,100,000

26

Hub Power Company

0.98

38,128,240,000

27

Dawood Hercules Chemicals 0.91

35,549,620,000

28

Habib Metropolitan Bank

0.91

35,354,280,000

29

EFU Life Assurance

0.89

34,750,000,000

30

Lucky Cement

0.86

33,593,480,000

 KSE-30 Index: The Karachi Stock Exchange has launched the KSE-30 Index with base value of 10,000 points, formally implemented from Friday, September 1, 2006. The main feature of this index that makes it different from other indices are: 

KSE-30 index is based only on the free-float of shares, rather than on the basis of paid-up capital.

 The other index in Karachi Stock Exchange represents total return of the market. That is, when a company announces a dividend, the other indices at KSE are not reduced/adjusted for that amount of dividend (whether cash or bonus).Whereas, KSE-30 Index is adjusted for dividends and right shares.

 At the end of 13 July, 2007, KSE-30 Index has reached its highest ever level of 17,162.45.  Market Indices:KSE began with a 50 shares index. As the market grew a representative index was needed. On November 1, 1991 the KSE-100 was introduced and remains to this date the most generally accepted measure of the Exchange. The KSE-100 is a capital weighted index and consists of 100 companies representing about 90 percent of market capitalization of the Exchange. In 1995 the need was felt for an all share index to reconfirm the KSE-100 and also to provide the basis of index trading in future. On August 29,1995 the KSE all share index was constructed and introduced on September 18, 1995.

 Monthly Performance:Market monthly performance during the period January 2006 to April 2009 is given under with high rated index showing in bold text. The highest ever closing for KSE 100 Index was achieved at 15,676.34 points on 18 April, 2008. Following a staggering loss of 42 per cent in four months (April 2008 to August 2008), the regulators had put planks under the KSE-100 index at 9,144 points on August 28, 2008 to

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prevent a further fall. The floor was finally removed on December 15, 2008 that had brought the bourse to a virtual halt for more than 100 days.

Number

Volume

Index

Date

1

402,639,040 9,672.47

02/01/2006

2

805,494,080 10,497.07 01/02/2006

3

761,960,000 11,473.99 01/03/2006

4

387,000,896 11,573.94 03/04/2006

5

331,884,928 11,572.94 02/05/2006

6

251,317,072 10,183.77 01/06/2006

7

152,448,096 9,603.71

8

284,526,880 10,507.09 01/08/2006

9

171,682,624 10,170.97 01/09/2006

10

224,694,528 10,616.24 02/10/2006

11

310,985,696 11,011.13 01/11/2006

12

172,052,400 10,388.19 01/12/2006

13

39,200,120

14

480,905,216 11,349.44 01/02/2007

15

229,188,400 11,207.64 01/03/2007

16

73,447,224

17

431,508,448 12,433.76 02/05/2007

18

460,166,784 12,933.66 01/06/2007

19

471,708,992 13,929.70 02/07/2007

20

326,983,008 13,689.03 01/08/2007

21

179,963,648 12,233.14 03/09/2007

22

367,242,752 13,737.74 01/10/2007

23

328,071,488 13,932.41 01/11/2007

03/07/2006

10,066.68 03/01/2007

11,277.13 02/04/2007

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Stock Exchange

24

137,879,220 13,925.59 03/12/2007

25

375,074,240 13,666.85 01/01/2008

26

151,358,160 13,974.40 01/02/2008

27

196,083,660 14,816.50 03/03/2008

28

218,399,820 15,210.17 01/04/2008

29

257,965,456 14,956.82 02/05/2008

30

169,125,456 12,281.20 02/06/2008

31

60,751,820

12,221.53 01/07/2008

32

72,835,000

10,171.39 01/08/2008

32

23,691,000

9,210.15

01/09/2008

34

1,560,000

9,178.97

06/10/2008

35

457,000

9,183.14

03/11/2008

36

102,000

9,187.10

01/12/2008

37

75,434,000

5,753.18

01/01/2009

38

177,668,000 5,333.95

02/02/2009

39

85,351,000

5,681.29

02/03/2009

40

207,282,000 6,931.90

01/04/2009

41

123,539,000 7,062.25

04/05/2009

2. Lahore Stock Exchange Lahore Stock Exchange (Guarantee) Limited is Pakistan's second largest stock exchange after the Karachi Stock Exchange. It is located Lahore, Pakistan.  History of LSE:Lahore Stock Exchange was established in October 1970 and is the second largest stock exchange in the country with a market share of around 12-16% in terms of daily traded volumes. LSE has 519 companies, spanning 37 sectors of the economy, that are listed on the Exchange with total listed capital of Rs. 555.67 billion having market capitalization of around Rs. 3.64 trillion. LSE has 152 members of whom 81 are corporate and 54 are individual members.

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Stock Exchange

Activities of Lahore Stock Exchange (LSE) have increased significantly in all operational areas since its inception. Over the years, LSE has successfully met various challenges and has now emerged, fully geared and positioned to aggressively compete with its fellow Exchanges, contributing towards the growth of Capital Markets in Pakistan. The 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. The Sialkot branch is referred to as the "Sialkot Trading Floor".  LSE Index  LSE-25: The Lahore Stock Exchange Twenty Five company index also calculates the performance of stocks assuming that all rights issues and bonus share issues only increase the listed capital. In the case of bonuses or rights the prices of the shares are not adjusted as they are in the case of the LSETRI. However, the LSE25 assumes that dividends paid out by a component company are not reinvested. In summary, in the LSE25, no price adjustments are made when any component company issues cash dividends. The Lahore Stock Exchange Total Return Index calculates the performance of stocks assuming that all payouts are reinvested in the index on the ex-date. The LSETRI assumes that if a component company issues bonus shares or announces a rights issue it will increase the listed capital. Additionally, the LSETRI also assumes that all pay-outs by a component company are 100% reinvested in the index. Therefore, the LSETRI is adjusted against such payouts announced by any of index constituents on its ex-date allowing the index value to remain comparable over time.  LSE's Membership Structure

Year

Private Limited Companies

2000 2001 2002 2003 2004 2005 2006 2007

26 26 26 26 44 26 22 24



Corporate Members Public Limited Companies 3 6 5 6 4 7 6 5

Sialkot Trading Floor (STF):

6 5 6 4 5 5 7 4

Banks or their Subsidiaries 3 3 3 3 3 3 3 3

Individual Total Members 118 118 118 118 118 118 118 118

118 118 118 118 118 118 118 118

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Stock Exchange

Is one of the two branch offices of Lahore Stock Exchange (LSE) in order expand its boundaries and make ease of its access in major cites of country. Acting as a part of LSE, STF is going forward day by day to achieve aims, goals and aspirations of its ancestor. It is located in the building of Sialkot Chamber of Commerce & Industry in Sialkot. All of the brokerage houses whether active or nonnative at STF are registered houses in LSE as well as these houses are governed by Security Exchange Commission of Pakistan (SECP).

 Facilities at Sialkot Trading Floor     

Online Trading Terminals (TWS). View Only Terminals (VOT). Technical Support Regarding Trading System. Limited Hardware Support / Trouble Shooting. Ultimate Support and Assistance of web VOT & TWS for People at their locality.

3. Islamabad Stock Exchange Islamabad Stock Exchange is one of the three stock exchanges of Pakistan and is located in the capital of Islamabad.  History:-

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. The purpose for establishment of the stock exchange in Islamabad was to cater to the needs of less developed areas of the northern part of Pakistan. The ISE Towers comprise twin 22 storey towers with unique and inspiring amenities, offer futuristically and aesthetically designed offices with panoramic views, is being constructed over a piece of land measuring 5600 square yards in the heart of Islamabad at Jinnah Avenue (Blue Area) which is the hub of all business and commercial activities in Islamabad. The building is facing 400 feet wide Jinnah Avenue on one side and has another entrance from 100 feet wide Nazimuddin Road, besides breathtaking scenic view of the Margalla Hills and the city from the building.

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Stock Exchange

 Islamabad Stock Exchange Building, Register Companies and Members:-

At present there are 119 members out of which 93 are corporate bodies including commercial and investment banks, DFIs and brokerage houses. The other 26 Members are individual persons who are well educated, enterprising and progressive minded. The affairs of the Exchange are governed by the Board of Directors. The Board of Directors consists of ten directors, of which five are elected member directors and four are non-member directors nominated by the SECP while the managing director by virtue of his office is the tenth director of the Board. In order to protect the interest of the investing public, an Investors Protection fund has been established by the Exchange. Since the inception of automated trading system (ISECTS), the trade volume has been multiplying day by day and the average daily turnover has now crossed the figure of 1 million shares. Now all the listed securities are traded through the ISECTS. The system of physical handling of shares and securities has been phased out and majority of the scrip’s are settled through Central Depository Company of Pakistan Limited. At the moment there are 241 companies/securities listed on the Exchange with an aggregate capital of Rs. 389.512 billion. The market capitalization stood at Rs. 2,275.00 billion as on 04-042007 . The pace of listing has remained slow as the economy of the Country is under consistent pressure due to internal as well as external factors. In comparison with major financial markets around the World, the functioning of capital market in Pakistan is still very much in its infancy and lacks advanced technology.

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References:  

Internet Print media Electronic media

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