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Submitted To: Madam Farah Zamir

Submitted By:

Saba Khan (Reg#2496) Sehrish Tufail (Reg#2438) Urooj Fatima (Reg#2495)

Dated: May 16, 2011

Batch: BBA 19 B

Table of Contents

I. II. III.

Executive Summary5 Introduction5 Karachi Stock Exchange.6 III.1 Trading and settlement Mechanism7 III.2 Market Indices7 III.3 KSE 100 Index...8 III.4 KSEs Key Role in Pakistan...8 III.5 Business timings.8 III.6 List of top 10 Companies....9 III.7 Technology at KSE.9 III.7.1 mKATS ..9 III.8 Legal framework.10 III.9 The Regulator.10

IV.

Lahore Stock exchange...10 IV.1 Introduction 10 IV.2 Technology .11 IV.3 LSE indices.11
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IV.4 Product and services offered.......11 IV.5 Listed companies.12 IV.6 Regulation ...13 IV.7 Reason of price Fluctuation.13 V. Islamabad Stock Exchange..14 V.1Brief history....14 V.2Governing laws14 V.3Custodial functions.15 V.4Operations of ISE...........15 V.4.1 Trading systems..15 V.4.2 Trade order..15 V.5ISE 10 index...15 V.6Blue chip companies16 V.7Sources of revenue...16 V.8Listing fees...16 VI. VII. VIII. Conclusion16 Recommendation..17 References.17

EXECUTIVE SUMMARY
This report is written in order to review the functioning of stock exchanges in Pakistan. The task was assigned to us by Madam Farah Zamir to enhance our knowledge regarding stock market prices and fluctuation in Pakistan. In it, we have tried to cover all three stock exchanges of Pakistan along with their revolutionizing history; explaining their journey from an unknown company to the prestigious institution. The corporate governance, indices and technologies being used are undertaken. The project exhibits legal framework along with regulators of the institutions who set the rules in stock exchanges (S.E). This market analysis is beneficial for current investors as well as people who are searching for reliable investment opportunities.

STOCK EXCHANGES IN PAKISTAN INTRODUCTION

A stock exchange or share market-back bones of countrys economy is an institute which offers "trading" services for stock brokers and traders, to deal with shares of the listed companies and other financial instruments such as Term Finance Certificates and Derivatives. Stock exchanges also make available amenities for the issue (listing), redemption (delisting) of securities and other capital events including the imbursement of income and dividends. The principal rationale for companies to be publicly listed at the exchange is to cost-effectively hoist capital. It reduces the company's confidence on the traditional financiers such as financial institutions and individuals. Listing permits business extension without increasing borrowings or draining the company's cash assets. Companies that convert to public possession are more likely to become successful than control companies that remain private. IPO companies grow faster than control
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companies after becoming public. However, it is compulsory that both public and private companies must disclose financial information to regulators. You can participate in the stock market through different ways: 1. Directly by buying and selling shares 2. Indirectly through a joint venture, in which shares are grouped together, such as a mutual fund or Exchange Traded Funds (ETFs). There are 3 stock exchanges in Pakistan namely:

1) Karachi Stock Exchange 2) Lahore Stock Exchange 3) Islamabad Stock Exchange A current estimate shows that approximately 85% of the turnover occurs at KSE, 14% at LSE and 1% at ISE. According to the Pakistan Economic Survey (2007), for the fiscal year 20062007 Pakistans GDP is projected to be US$143 billion. This makes market capitalization approximately 49% of the GDP. Despite its relatively small size the market has came under the limelight in recent years. According to percentage increase in the local stock market index in 1991 it was ranked 3rd by International Finance Corporation.. More recently in 2002 Pakistan was reported to be the best performing market in the world according to the US news magazine Business Week. All stock exchanges of Pakistan have same patterns of corporate governance. Corporate Governance:

Board of Directors consists of 10 members. 5 Elected Member Directors. 4 Non-Member Directors are appointed by Securities of Exchange Commission of Pakistan (SECP) renowned business personalities from all industries. MD is ex-member of the Board and is responsible for the operational administrative matters of the Exchange. Chairman is elected by the Board out of the Non-Member Directors

1. KARACHI STOCK EXCHANGE

Introduction: The Karachi Stock Exchange is situated in Karachi, Sindh, Pakistan. Founded on 18th September 1947, it is Pakistan's leading and oldest stock exchange, with many Pakistani as well as foreign listings. Karachi Stock Exchange (KSE) is a modern market where buying and selling takes place with electronic trading system called Karachi Automated Trading System (KATS), which gives the Exchange advantages of speed, efficiency and minimum cost of transactions. However, trades on an exchange are by members only. The customers of the Karachi stock exchange are Issuers (Limited Companies), Brokers and Members and Investors. The securities traded in the market include ordinary shares, preference shares, redeemable certificates and term-finance certificates (corporate bonds). The ordinary share is the most traded security. The KSE-100 index and market capitalization in 1998 dropped as a result of sanctions on Pakistan over the issue of nuclear tests. However, there is no visible impact of sanctions on trading value and turnover. The drop in the number of companies from 2001 to 2002 was in response to the implementation of the code of corporate governance. Since 2003, futures trading in some active stocks also started. The exchange plans to start options in the near future and according to their estimate by 2012, 50% of the trading will be in the derivatives. Trading and settlement Mechanism: The intermediary functions in the KSE are executed by brokerage firms. Pakistans capital market observed a very high trading volume growth resulting in excessive management of physical certificates. To handle this large volume, the Central Depository Company of Pakistan (CDC) was established in September 1997. The CDC registers and retains the transfer of securities in the form of an electronic book-entry. Presently, 97 percent of settlements are done through CDC. The trading can be divided into four segments each having its own settlement procedure. Most common is the T+2 settlement, in which transactions are settled through the Clearing House which nets out the purchases and sales of the financial compulsions of each member. The futures trading of the recent public offering firms are carried out in a separate segment of provisionally listed companies. The shares of the companies with a minimum public offering of Pak Rupee 150 million are traded on this segment from the date of the settlement document. Securities with books closure announcement re traded through the spot T+1 settlement mechanism. Capital gain is currently tax exempted. The dividend income is however subject to withholding tax at different rates depending on the investor type.

The secondary market was opened for foreign investors in 1991. This step along with privatization has resulted in quick growth of the market since 1991. The change of policy is most evitable in the financial sector where a number of commercial banks, investment banks, discount houses, leasing companies, modarabas, life insurance companies and mutual funds have been allowed in the private sector. Liberalization policy has led to deregulation of the national economy and the barriers to private initiative have also been removed. Foreign exchange holdings and transfers have been liberalized; industrial sanctioning has been done away with except for few sectors where, for strategic reasons, prior permission of the government is necessary. Market Indices: A stock market index is a process of measuring a portion of the stock market. 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. The KSE-100 is a capital weighted index and consists of 100 companies characterizing about 90 percent of market capitalization of the Exchange.

KSE 100 Index: Karachi Stock Exchange 100 Index (KSE-100 Index) acts as a benchmark to compare prices on the Karachi Stock Exchange (KSE) over a period of time. It comprises of the top companies from each of the 34 sectors on the KSE, in terms of market capitalization. In formulating representative companies to compute the index on, companies with the highest market capitalization are selected. However, to ensure full market illustration, the company with the highest market capitalization from each sector is also included. Movements in share prices are measured by various indices. These provide a benchmark against which you can compare the performance of your shareholdings. The most quoted index is the KSE-100. It comprises of the 100 largest companies on the Stock Exchange and is updated minute by minute during trading hours. The index reflecting all the companies on the Stock Exchange is the KSE-All Share Index and the KSE-30 Index comprises of top 30 companies. A recent estimate shows that approximately 85% of the turnover occurs at KSE. KSEs Key Role in Pakistan: KSE is one of Pakistans largest tax payer and in the financial year 2006- 2007 contributed over Rs. 4 billion towards the national exchequer. Listed Companies contribute over 10% of total

revenue collected by the Government of Pakistan. KSE brokers on average pay more than 50% of their profit before tax as presumptive tax. Our investors pay 10% tax on dividends. Business Timings MONDAY TO THURSDAY Regular (Pre-Open) Regular (PreOpening)* Regular (Open) Regular (Suspend) Square-up (PreOpen) 9:15 AM - 9:30 AM 9:30 AM* 9:30 AM - 3:30 PM 3:30 PM 11:30 AM - 12:00 noon FRIDAY First Session 9:00 AM - 9:15 AM 9:15 AM* 9:15 AM - 12:00 noon 12:00 noon 11:00 AM - 11:30 AM

Second Session 2:15 PM - 2:30 PM 2:30 PM* 2:30 PM - 4:30 PM 4:30 PM -

List of top 10 Companies: No 1 2 3 4 5 6 7 8 9 10 Name OGDCL MCB NBP Pakistan Petroleum Standard Chartered Bank PTCL United Bank Ltd Jahangir Siddiqui Co. Pakistan State Oil Allied Bank Weightage(%) 14.14 7.17 5.43 5.06 4.41 4.28 4.13 2.66 2.08 2.01 Market Capitalization(PKR) 550,948,930,000 279,583,150,000 211,726,900,000 197,201,080,000 171,704,800,000 166,810,800,000 161,025,160,000 103,600,000,000 81,034,440,000 78,371,670,000

Technology at KSE: Tailored services and state-of-the-art technology infrastructure, has given KSE an advantage over other exchanges in the country. Its prominent features are:

Fully automated trading, clearing and settlement system. Internet routed trading facility. Gateway trading (Order Management System). Investors and fund managers can also access information through Display Only Terminal

Internet trading facilities available. Order-driven system. Brokers connectivity to KSE through VPN (to ensure security of data).

mKATS Karachi Stock Exchange introduces mobile Karachi Automated Trading System (mKATS), the only official real-time mobile enabled stock service by the Exchange. With mKATS, an SMS and IVR based service you can now access real-time data of the stock market at your convenience, both via text and audible message.

Legal Framework

The securities market and the corporate sector are regulated by the provisions of the Companies Ordinance 1984. The Securities and Exchange Ordinance 1969 and Rules 1971 The Securities & Exchange Commission Act 1999. Federal legislations Rules and Regulations of the stock exchanges

The Regulator The dictatorial 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 disbanding the Corporate Law Authority. The Commission administers the fulfillment of the corporate laws in the country. The Commission is run by the Commissioners under a Chairman. The new system provides managerial, operational and monetary autonomy to the Commission and at the same time provides an accountability mechanism. The Board is directly answerable to the Parliament.

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2 LAHORE STOCK EXCHANGE

Introduction Lahore Stock Exchange (LSE) was incorporated in October 1970 under the Securities and Exchange Ordinance in Punjab province which caters to the needs of entrepreneurs for raising capital and provides venture opportunities to the investing public. It has 152 members; 113 of which are corporate bodies and majority is dynamic. It is the vibrant member of South Asian Federation of Exchanges (SAFE) and Federation of Euro-Asian Stock Exchanges (FEAS) bringing good repute and deriving investors attraction towards the country. LSE has inaugurated its branches in Faisalabad and Sialkot for trading. The second name for Sialkot branch is Sialkot Trading Floor. LHS institutional members are playing progressive role in public funds handling for investment in stocks. LSE aims to provide transparent, resourceful, cost-effective, well equipped and shareholder friendly environment for capital market promotion in Pakistan. Over the years, LSE has 497 listed companies with total listed capital of Rs. 850 billion conferring market capitalization of Rs. 3.134 trillion (as on February 14, 2011). It has implemented a fully automated in-house developed Trade Risk Filter (TRF) to efficiently monitor members pre-trading exposures on real time basis and thus managed risk effectively. Technology LSE is a well-regulated system of Pakistan. In 1987, CLA imposed a condition of enrollment of companies in both LSE and KSE simultaneously to boost Punjabs capital market. Incorporation of Central Depository Company of Pakistan Limited (CDC) is assisting in operating the Central Depository System (CDS) since 1993.It is Pakistans first automated Trading Company providing trade investor protection. T+3 technology (settlement on 3rd day), automated trade risk filters, Internet trading system (Online) and full computerization allow LSE to cope with challenges of globalization successfully. T+3 basically minimize the trading cycle thus cut down risk and offer time savage. Financial oracles, margin Trading System (MTS), Security Lending and Borrowing System (SLB) and network up gradation which has enhanced its market liquidity. LSE Indices
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LSE-25 the benchmark for LSE, estimates the functioning of stocks; with the assumption of paying out of all dividends (no reinvestment The Lahore Stock Exchange Total Return functions consideringre-investment of all dividend on previous prices. LSETRI assumes occurrence the listed capital enhancement on issuance of bonus shares. ). Both LSE and LSETRI comprises of companies selected on the criteria of Highest tun over. Mubashar Latif (President), Azan Mubashar (Executive Vice-President) and Abubakar Mubashar (C.E.O) is some remarkable stock brokers in LSE. Products and services offered Lahore stock exchange offers marketing & technology advisory services, Ultra- automated trading system, Broker-Net-online trading solution for brokers investors, LSS-Trade reporting platform, training programs for investor and Co-Location Services.

Broker-net provides quick and secure transactions for brokers and grant them control over the processed integrating all operations effectively. Real time order management system provides thorough portfolio overview, and fully automated solution. Ultra traderight choice for S.E ensures an integrated investment approach handling a wide array of trading instruments.

SSS (Broker Back Office) is a light weight and scalable product ensuring simplification of overall control on client information, stock inventory accounts maintenance and audit trail etc.

Market technology services offered by LSE present a diversified service for domestic and round-the-globe businesses dealing with business integration, continuity planning and information system risk analysis. Software development out sourcing, technology Services for System Engineering, specializing in Windows Platform, data base Design, implementation and troubleshooting are its major contributions.

Courses for human resource as well as awareness programs for stake-holders make LSE a trend-setter.

Some famous Listed LSE companies Abbott Laboratories (Pakistan) Ltd Adamjee Insurance Company

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JS growth fund Ansari sugar mills United Bank Ltd. Allied bank ltd Al-ghazi tractor Ltd. Askari bank ICI Pakistan Arif habib bank Ltd. Atlas Bank Ltd. Kasb BANK Ltd. Unilever Pakistan foods Limited

Regulations LSE is liable of keeping in accordance with SECP rules. The general rules that ought to be followed are: General rules and regulation (GRR) Automated trading regulations for LOTS Bond Automated Trading Systems maintenance Branch office member policies Carry over Transaction Rules Investor Protection Fund guidelines

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LSE listing laws System audit Maintenance UTS Rules etc

To conclude, LSE is a dynamic, vibrant and globally competent company which is provides innovation and practicality in its products supervised by SECP to retain compliance with its rules. Reason of price fluctuation The first-ever study of stock prices variations was started from KSE conducted by a Pakistani scholar motivated to research after witnessing the 2005 short span crash which brought loss of billions. Stock prices fluctuations are mainly due to market forces (Demand and supply). This can be explained by a general relation: Demand increase and supply remains constant or declines resulting in shortage deriving the prices of stocks upwards and vice versa. Similarly, if supply boosts taking the demand in the market constant; surplus will push the prices down. The other reasons may include investors perceptions and future expectations. If any of market player fore-sees positive prospects; he may decline his todays spending to earn more benefit on the same asset in future. Earning of companies also affect their stock prices. There are many theories explaining price variation reasons but none of them is Perfect. Number of outstanding share contributes to company valuation thus influence the purchase pattern and prices. In a nut shell, practically its tough to find the reason behind peoples liking or disliking towards any shares so price fluctuations causes cannot be comprehended appropriately.

3. ISLAMABAD STOCK EXCHANGE

Brief History

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Stock Exchange (ISE) was incorporated as a guarantee limited Company on 25th October, 1989 in Islamabad in order to ensure a globally competent set up of a trading and settlement infrastructure, information system, skilled resources, accessibility and a fair and orderly market place.. It is ever growing institution that flourished from a new born SE to Remote Trading System, brokers audit system were its major achievements in year 2003. Currently it is using Ultra trade system, UIN, T+2 technologies, computerized trading; thus accommodate to the needs of under-developed area of northern part of Pakistan successfully. It has ISE index 2002 which offers a wide range of facilities. Governing Laws Governing Laws the Securities and Exchange Commission of Pakistan (SECP) is the main regulator of the stock market. It regulates the stock market through following major statutory laws/rules namely; Securities and Exchange Ordinance 1969, Securities and Exchange Rules 1971 , Securities and Exchange Commission of Pakistan Act 1997 ,Specific Purpose Legislations for Conduct of Trade, Stock Exchanges Regulations, Memorandum & Articles of Association, Listing Regulations, General Regulations. The rules are set keeping in view the above mentioned ordinances.

Custodial Functions Central Depository Company of Pakistan Limited (CDC) provides custodial services for shares. It ensures efficient handling and transfer of Types of CDC Accounts. The type types include Main Account for Brokers (a gateway account), House Account (a family account of the Broker) Sub-Account (An investor account with CDC through Broker) and Investor Account Services (Facilitating the Investors to open their independent CDC Accounts). Initial Account Opening Fee: Rs.500/-. Annual renewal Fee Rs.500/. Operations Of ISE Operations can be categorized as Internal control and investor relation management. Companies Affairs includes provision of listings to Companies, monitoring listed companies. ISE give quotations to media ensure listing requirements and code of corporate governance by companies. Internal Control at ISE includes membership granting to brokers, control members, monitor computerized trading and perform market surveillance efficiently. Administration of Risk Management System is the inside functionaing of the company that deal with the market fluctuations. It ensures appropriate dealing and resolution of complaints along with provision of

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market Information. It functions to educate Investors handle default & legal cases and maintain media relations. Trading Systems The stock exchanges have fully computerized trading systems and out-cry systems no more exist. Bids (buy orders) and offers (sale orders) are placed in the trading software and then executed accordingly. ISE deals with two types of trading system namely; regular and future. Trade Orders There are two types of trade orders at ISE; Market Order, Limit Order. Stock Market Index There are three stock Exchanges which includes KSE-100 index, LSE-25 index, ISE-10 index. ISE-10 INDEX The main objective for the construction of an index is to track the performance of the various listed stocks according to their market capitalization. A capital weighted index is composed of a basket of securities, which captures the change in market capitalization due to the variation in prices. Blue Chip Companies The blue chip companies in Islamabad stocks exchange includes Oil & Gas Development Company Limited ,Pakistan Petroleum Limited, Pakistan Telecommunication Company Limited, National Bank of Pakistan Limited ,Pakistan State Oil Company Limited, Pakistan Oilfields Limited,Hub Power Company Limited, Fauji Fertilizer Bin Qasim Limited, Sui North Gas Pipeline limited ,D. G. Khan Cement. Sources of Revenue of ISE ISE earns revenues by its listing fees. Fee criteria are as follows: Listing Fees Initial listing fee @.1% of total paid-up capital maximum upto Rs.1.00 million. Then Annual Listing Fee is to be paid per annum to avoid delisting. Paid-up Capital Upto Rs. 50 mn Rs. 10,000/- P.A. Above Rs. 50 mn to Rs. 200 mn Rs. 15,000/- P.A.
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Above Rs. 200 mn Rs. 25,000/- P.A.

Additional Listing Fee @ 0.1% of the increased capital Trading Fee @ 0.0015% - Rs.1.50 per Rs.100,000 value.

CONCLUSION
This paper provides a synopsis of Pakistans stock market focusing more on recent developments. Pakistans stock market is smaller in size but is also a market with high trading movement. This high level of trading is indication of short term traders who utilize a special carry forward trading arrangement. Pakistans market has recently been reported to be one of the best performing markets. New corporate governance codes and technology is being implemented that intend to ensure fair trading and better information disclosure by firms to help the market make better resource allocation functions. In many facets Pakistans stock market appears to be operating as a typical emerging market with high returns, high volatility, high market concentration and virtual inability to mobilize new investment. Pakistans market is relatively segmented from the major markets providing a potential venue for diversification.

RECOMMENDATIONS

Rules of the stock exchanges should be made more flexible in order to attract investors Introduction of SWOPTION technique to the business can work to enhance it revenues. To magnetize foreign sponsors, market volatility of shares should be enhanced. The regulators (SECP) may provide incentives so that inclination of people toward investment in stocks could be attained. This can help relist the companies that out-list from the stock exchange in last crash.

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LSE-25 may be replaced by LSE-101 effectively so that certain deficient areas can be covered.

REFRENCES

1. http://www.kse.com.pk 2. http://www.lahorestock.com 3. www.ise.com.pk 4. http://www.secp.gov.pk 5. http://www.forumpakistan 6. http://www.friendsmania.net/forum/pakistan-business-updates-news/65976.htm 7. http://wasisecurities.com 8. http://www.stockmarketsreview.com 9. http://www.investopedia.com 10. http://www.marketwatch.pk/news/pakistan-business-news/ 11. http://www.scribd.com/doc/12661515/Stock-Exchanges-of-Pakistan 12. http://www.cbr.gov.pk 13. http://www.ehow.com
14. http://www.pakistanlaw.net

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