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2012

EXECUTIVE MASTERS IN BUSINESS ADMINISTRATION FINAL YEAR RESEARCH PROJECT BY: Umer Farooq Roll No: AI- !"#$%

SUPERVISED BY: MR. Ahmad Imran

[ANALYSIS OF THE KARACHI STOCK EXCHANGE]


[An Extensive Knowledge on the Stock Exchange Di!!e"ent Anal#ses i$e$ S%&' PES' ( )inancials on the Ka"achi Stock Exchange$ Po"te" * )o"ces A++lication$ Ke# Iss,es )aced -# 'he &"gani.ation ( Reco//endations0

&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

Group Members Submission


A Business Project report submitted on Karachi Stock Exchange in fulfillment of the degree of Executive MBA.

Signature _____________
Umer Farooq AI-5 !"#$

%erti&ie' b()

_____________ Mr* Ahma' Imran Supervisor

I'enti&ie' b() _____________


Mr*

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Table of Contents
A2K3&%4ED5E6E3'S .................................................................1 K3&%4ED5E$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$* AB&U' KARA27I S'&2K E827A35E$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$9: A3A4YSIS.........................................................................................47 )I3A32IA4$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$9; PES'$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$*9 P&R'ER * )&R2ES ......................................................................57 S%&'$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$*< KEY ISSUES.....................................................................................57 2&324USI&3$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$*;

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ACKNO LE!GEMENTS"
%e a"e ext"e/el# thank!,l to Al/ight# Allah %ho has -lessed ,s with the o++o"t,nit# and st"ength to co/+lete o," P"o>ect$ %e a"e also ve"# g"ate!,l to o," s,+e"viso" Mr. Imran #amar !o" his t"e/endo,s s,++o"t th"o,gho,t$ In the end we wo,ld like to thank o," !a/il# and !"iends !o" thei" s,++o"t and well wishes$

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KNO LE!G E

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HAT IS STOCK EXCHANGE$


A %&'() *+(han,* %*(-r.&.*% *+(han,* is a

co"+o"ation o" /,t,al o"gani.ation which +"ovides ?t"ading? !acilities !o" stock -"oke"s and t"ade"s to t"ade stocks and othe" sec,"ities$ Stock exchanges also +"ovide !acilities !o" the iss,e and "ede/+tion o! sec,"ities as well as othe" !inancial inst",/ents and ca+ital events incl,ding the +a#/ent o! inco/e and dividends$ 'he sec,"ities t"aded on a stock exchange incl,de: sha"es iss,ed -# co/+anies ,nit t",sts and othe" +ooled invest/ent +"od,cts and -onds$ 'o -e a-le to t"ade a sec,"it# on a ce"tain stock exchange it has to -e listed the"e$ Us,all# the"e is a cent"al location at least !o" "eco"dkee+ing -,t t"ade is less and less linked to s,ch a +h#sical +lace as /ode"n /a"kets a"e elect"onic netwo"ks which gives the/ advantages o! s+eed and cost o! t"ansactions$ '"ade on an exchange is -# /e/-e"s onl#$ 'he initial o!!e"ing o! stocks and -onds to investo"s is -# de!inition done in the +"i/a"# /a"ket and s,-se@,ent t"ading is done in the seconda"# /a"ket$ A stock exchange is o!ten the /ost i/+o"tant co/+onent o! a stock /a"ket$ S,++l# and de/and in stock /a"kets is d"iven -# va"io,s !acto"s which as in all !"ee /a"kets a!!ect the +"ice o! stocks$

T*rm% -%*d .n S&'() E+(han,*% Shar*"


It is ce"ti!icate o! owne"shi+ in a co/+an# in which the investo" /ade the invest/ent$ 'he sha"es a"e iss,ed to the owne" who +,"chases the sha"es !"o/ the stock /a"ket$ Sha"es a"e iss,ed ,s,all# -# the

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co/+anies in lots o! di!!e"ent si.es$ 'he co//on lot in the /a"ket is *BB$

/-00"
B,ll is a t"end when the +"ices o! /ost o! the co/+aniesC sha"es "ise ,+$ 6a"ket ,s,all# goes to -,ll when de/and o! sha"es is /o"e than the s,++l# o! sha"es$

/*ar"
Bea" is "eci+"ocal o! -,ll in which the /a"ket !alls down and the +"ices o! /a>o"it# o! co/+anies go down$ In -ea" the s,++l# o! sha"e is /o"e than the de/and o! sha"es$

Ca1.&a0 Ga.n"
It is the sit,ation when the +"ices o! sha"es a"e gone to ,+ than the val,e at which the investo" -,#s the sha"es$ 'he"e a"e /an# "easons !o" s,ch highe" in /a"ket$ 'hese incl,de "easons /a# -e +olitical econo/ical and the +e"!o"/ance o! the co/+an# o" an# othe" in the /a"ket$

/ad0a 'r Carr2 O3*r Trad*"


It the !o"/ o! t"ade in which the individ,al o" an# instit,tion +"ovides the loan on sho"t te"/ ,s,all# !o" one da#$ 'he Badla "ate is high than the /a"ket "ate$ 'he va"iation in -adla "ates can negativel# o" +ositivel# e!!ect in /a"ket sit,ation$

/0-* (h.1%"
Bl,e chi+s a"e those co/+anies in which the /axi/,/ t"ade is done in a da#$ 'he investo"s done /axi/,/ t"ade in these co/+anies with the ex+ectation o! /axi/,/ +"o!it$ 'he vol,/e o! these co/+anies is high than othe" co/+anies in the /a"ket$ 'he othe" thing is that -l,e chi+s co/+anies a"e the -est +e"!o"/e" in the /a"ket$ 'he sha"es o!

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s,ch co/+anies a"e easil# availa-le$ In these da#s E35R& ))B4 ))2 DS24 )A'I6A &5D2 a"e the -l,e chi+s$

!.3.d*nd"
It the +a"t o! +"o!it which is given to the owne" o! sha"e$ A +a"t o! +"o!it is dist"i-,ted a/ong the sha"eholde"s$

Ord.nar2 %har*%"
'he /ost co//on !o"/ o! sha"es and these sha"es a"e iss,ed -# /axi/,/ co/+anies$ 'he dividends de+ending on +"o!ita-ilit# o! the co/+an# and "eco//endation o! di"ecto"s$

4r*5*rr*d %har*%"
In this t#+e o! sha"e the +"o!it is given to the sha"eholde" at !ixed "ate$ I! the co/+an# ea"ns /o"e +"o!it than the sha"eholde" cannot cont"i-,te in +"o!it in the case o! loss he !eels co/!o"t -eca,se the ea"ning o! sha"e is "e/ained sec,"e$ In Pakistan the +"e!e""ed sha"e

In.&.a0 4-60.( O55*r.n, 7I4O8"


%hen a co/+an# !i"st ti/e la,nches its sha"es in the /a"ket to gene"al +,-lic !o" sale is called initial +,-lic o!!e"ing EIP&F$

4r.3a&* 40a(*m*n& 'r In%.d* Trad.n,"


In the t#+e o! t"ading the +,"chase o" sale is /ade -# a +e"son who has inside in!o"/ation a-o,t the co/+an# which is not gene"all# availa-le in the /a"ket$ In Pakistan s,ch deal is illegal$

L'n, 4'%.&.'n"
'he sha"e is +,"chased with intention that in !,t,"e the +"ice o! sha"es will go ,+$ A!te" o-se"ving thei" s,ita-le +osition he sale these sha"es in the /a"ket and ea"n +"o!it$

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Sh'r& 4'%.&.'n:
In this t#+e o! t"ading the investo" +,"chase the sha"e s o! the co/+an# with intention that he sale a!te" so/e ti/e when the +"ice o! sha"es will go ,+$ %hen the sale is /ade than a!te" he +,"chase again when the +"ice go down$ 'he ea"ning is /ade ti/e to ti/e !"o/ s,ch sale$ 'his t#+e o! t"ading is called sho"t +osition$

4'r&5'0.'"
%hen the investo" +,"chases the sha"es o! di!!e"ent co/+anies to "ed,ce the "isk !"o/ the /a"ket the whole collection is called +o"t!olio$

Ca1.&a0 Ga.n"
'his is the a++"eciation on the +"ice o! sha"es which exist in !,t,"e$ %hen the sha"es a"e -o,ght -# the investo"s a!te" a so/e +e"iod the +"ice o! s,ch sha"e "ise ,+ d,e to excellent +e"!o"/ance o! co/+an# o" an# othe" "eason the investo" can ea"n +"o!it -# selling it in the /a"ket this is called ca+ital gain$ 2a+ital gain H 6a"ket +"ices o! sha"es I P"ice at which the sha"es +,"chased

In3*%&m*n& C'r1'ra&.'n '5 4a).%&an 7IC48"


'he Invest/ent 2o"+o"ation o! Pakistan is a -od# which invest in di!!e"ent co/+anies and /ake +o"t!olio o! it$ &n the -ehal! o! s,ch invest/ent it iss,e ,nits which a"e called I2P ,nits$ 'h"o,gh +,"chase o! s,ch ,nits the investo" "elaxes d,e to less tension it is -eca,se he is not involved in t"ading +"ocess$

R.,h& I%%-*"
%hen a co/+an# wants to iss,e /o"e sha"es in the /a"ket it is a choice !o" the co/+an# that it o!!e"s sha"es !i"st to existing sha"eholde"s$ B# ,sing this o+tion o! "ight iss,e owne"shi+ will "e/ain to existing sha"eholde" and do not divided to othe" +eo+le$ I! the existing sha"eholde" do not take inte"est in -,#ing new sha"es than a!te" so/e da#s the "ight is t"ans!e""ed to gene"al +,-lic$

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S*&&0*m*n&"
'he"e a"e two t#+es o! settle/ents 'J: Unde" 'J: s#ste/ the t"ansaction is /ade on s+ot within da#$ 'J= In this s#ste/ the t"ansaction is /ade !i"st da# and clea"ance is /ade on thi"d da#$

T*rm F.nan(* C*r&.5.(a&*% 7TFC9%8"


'he te"/ !inance ce"ti!icates a"e "ese/-les to -onds which a"e iss,ed -# co/+anies !o" ai/ to gene"ate the !,nds !"o/ gene"al +,-lic$ %hen the investo" +,"chase ')2Cs the "eceive inte"est !"o/ the co/+anies$

S&'() E+(han,*% in Pakistan:


'he"e a"e th"ee stock exchanges in Pakistan$ Ka"achi stock exchangeK !o"/ed in :G9A 4aho"e stock exchangeK !o"/ed in :GA: Isla/a-ad stock exchangeK !o"/ed in :G;G

&,t o! all the th"ee exchanges the Ka"achi stock exchange is the +"e/ie"e stock exchange$ Exchange o! the co,nt"# with ove" ABB

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listed co/+anies$ It was esta-lished soon a!te" the c"eation o! Pakistan$

ha& .% Kara(h. %&'() *+(han,*$


'he Kara(h. S&'() E+(han,* o" KSE is a stock exchange located in Ka"achi Sindh Pakistan$ )o,nded in :G9A it is PakistanLs la"gest and oldest stock exchange with /an# Pakistani as well as ove"seas listings$ Its c,""ent +"e/ises a"e sit,ated on Stock Exchange Road in the hea"t o! Ka"achiLs B,siness Dist"ict$

H.%&'r2"
Ka"achi Stock Exchange is the -iggest and /ost li@,id exchange in Pakistan$ It was decla"ed the MBest Pe"!o"/ing Stock 6a"ket o! the %o"ld !o" the #ea" 1BB1N$ As on 6a# =B 1BB; <*9 co/+anies we"e listed with a /a"ket ca+itali.ation o! Rs$= A9<$1B= -illion EUSO *<$==9 -illionF having listed ca+ital o! Rs$AB*$;A= -illion EUSO :B$<:* -illionF$ 'he KSE :BB'6 Index closed at :1:=B$*: on 6a# =B 1BB

Trad.n,"
'he exchange has +"eI/a"ket sessions !"o/ BG::*a/ to BG:=Ba/ and no"/al t"ading sessions !"o/ BG:=Ba/ to B=:=B+/$ It is the second oldest stock exchange in So,th Asia$ 'he Ka"achi stock exchange has ,nde"gone a conside"a-le deal o! downt,"n +a"tl# d,e to glo-al !inancial c"isis and +a"tl# on acco,nt o! do/estic t"o,-les$ It

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"e/ained s,s+ended in excess o! 9 /onths and "es,/ed no"/al t"ading onl# on Dece/-e" :* 1BB;$ 'he KSE :BB Index and KSE =B Index a!te" hitting the low a"o,nd /id Dan,a"# has now "e-o,nded and "ecove"ed 1BI1*P till 6a"ch :1th 1BBG$

Gr':&h"
'he KSE is the -iggest and /ost li@,id exchange in Pakistan and in 1BB1 it was decla"ed as the MBest Pe"!o"/ing Stock 6a"ket o! the %o"ldN -# MB,siness %eekN$ As o! Dece/-e" 1B 1BBA <A: co/+anies we"e listed with the /a"ket ca+itali.ation o! Rs$ 9=<9$=:1 -illion EUSO A= BillionF having listed ca+ital o! Rs$ A:A$= -illion EUSO :1 -illionF$ &n Dece/-e" 1< 1BBA the KSE :BB Index "eached its eve" highest val,e and closed at :9 ;:9$;* +oints$ )o"eign -,#ing inte"est had -een ve"# active on the KSE in 1BB< and contin,ed in 1BBA$ Acco"ding to esti/ates !"o/ the State Bank o! Pakistan !o"eign invest/ent in ca+ital /a"kets total a-o,t USO*1= 6illion$ Acco"ding to a "esea"ch anal#st in Pakistan a"o,nd 1B+c o! the total !"ee !loat in KSEI=B Index is held -# !o"eign +a"tici+ants$ KSE has seen so/e !l,ct,ations since the sta"t o! 1BB;$ &ne "eason co,ld -e that it is the election #ea" in Pakistan and stocks a"e ex+ected to "e/ain d,ll$ KSE has set an all ti/e high o! :* BBB +oints -e!o"e settling a"o,nd the :9 BBB /a"k$ Ka"achi stock exchange Boa"d o! Di"ecto"s has "ecentl# E1BBAF anno,nced +lans to const",ct a 9B sto"# high "ise KSE -,ilding as a new di"ection !o" !,t,"e invest/ent$
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Dis+,tes -etween investo"s and /e/-e"s o! the Exchange a"e "esolved th"o,gh deli-e"ations o! the A"-it"ation 2o//ittee o! the Exchange$ KSE -egan with a *B sha"es index$ As the /a"ket g"ew a "e+"esentative index was needed$ &n 3ove/-e" :st G: the KSEI:BB was int"od,ced and "e/ains to this da# the /ost gene"all# acce+ted /eas,"e o! the Exchange$ Ka"achi Stock Exchange :BB Index EKSEI :BB IndexF is a -ench/a"k ,sed to co/+a"e +"ices ove"ti/e co/+anies with the highest /a"ket ca+itali.ation a"e selected$ 'o ens,"e !,ll /a"ket "e+"esentation the co/+an# with the highest /a"ket ca+itali.ation !"o/ each secto" is also incl,ded$ In :GG* the need was !elt !o" an all sha"e index to "econ!i"/ the KSEI :BB and also to +"ovide the -asis o! index t"ading in !,t,"e$ &n A,g,st the 1Gth :GG* the KSE all sha"e index was const",cted and int"od,ced on Se+te/-e" :; :GG*$

;<<= Kara(h. S&'() E+(han,* Cr.%.%"

A1r.0 ;< : Ka"achi Stock Exchange achieved a /a>o" /ilestone when KSEI:BB Index c"ossed the +s#chological level o! :* BBB !o" the !i"st ti/e in its histo"# and +eaked :* A=A$=1 on 1B A+"il 1BB;$ 6o"eove" the inc"ease o! A$9 +e" cent in 1BB; /ade it the -est +e"!o"/e" a/ong /a>o" e/e"ging /a"kets$ Ma2 ;>: Reco"d high in!lation in the /onth o! 6a# 1BB; "es,lted in the ,nex+ected inc"ease in the inte"est "ates -# State Bank o! Pakistan which event,all# "es,lted in sha"+ !all in Ka"achi Stock Exchange$

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?-02 1@ : KSEI:BB Index d"o++ed oneIthi"d !"o/ an allIti/e high hit in A+"il 1BB; as "ising +"ess,"e on shak# PakistanLs coalition gove"n/ent to tackle 'ali-an /ilitants exace"-ates conce"n a-o,t the co,nt"#Ls econo/ic woes ?-02 17 : Ang"# investo"s attacked the Ka"achi Stock Exchange in +"otest at +l,nging Pakistani sha"e +"ices$ A-,-%& 1=: KSE :BB Index "ose /o"e than 9P a!te" the anno,nce/ent o! the "esignation o! P"esident Pe"we. 6,sha"a! -,t 2"edit S,isse 5"o,+ said that PakistanLs PostI6,sha""a! "all# in Stock Exchange will -e sho"tIlived -eca,se o! a "ising !iscal de!icit and ",nawa# in!lation$ A-,-%& ;= :Ka"achi Stock Exchange set a !loo" !o" stock +"ices to halt a +l,nge that has wi+ed o,t O=<$G -illion o! /a"ket val,e since A+"il !*(*m6*r 15: '"ading "es,/es a!te" the "e/oval o! !loo" on stock +"ices that was set on A,g,st 1; to halt sha"+ !alls$

ha& .% &h* C*n&ra0 !*1'%.&'r2$


'he 2ent"al De+osito"# S#ste/ is an elect"onic -ook ent"# s#ste/ to "eco"d and t"ans!e" sec,"ities$ 'his s#ste/ changes owne"shi+ o! sec,"ities witho,t an# +h#sical /ove/ent o! ce"ti!icates o" necessit# !o" exec,tion o! t"ans!e" deeds$ 'he 2DS is no"/all# o+e"ated -# a 2ent"al De+osito"# 2o/+an# which "eco"ds and t"ans!e"s the -ene!icial owne"shi+ o! sec,"ities and wo"ks si/ila" to a -ank$ Sec,"ities will -e de+osited into the 2DS and t"ansactions will -e e!!ected elect"onicall# the"e-# "e/oving the c,""ent need to co,nt

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ve"i!ies sto"e and t"ans+o"t co,ntless ce"ti!icates$ 'he co/+onents o! the 2DS incl,de the ha"dwa"e so!twa"e netwo"king envi"on/ent legal !"a/e wo"k +a"tici+ants and the 2D2 /anage/ent$ So/e inte"national exa/+les o! sc"i+less t"ading a"e 3ew Yo"k 7ong Kong and the 4ondon stock exchanges$ 'hese s#ste/s all va"# !"o/ each othe" in one wa# o" anothe"$ In 7ong Kong !o" instance the 2ent"al 2lea"ing and Settle/ents S#ste/ E22ASSF is e/+lo#ed !o" settle/ents$ 'he 22ASS is a co/+,te"i.ed sec,"ities and settle/ents$ %itho,t a,to/ation and i//o-ili.ation o! ce"ti!icates the delive"# and settle/ent o! sec,"ities wo,ld -eco/e ,n/anagea-le not to /ention highl# "isk#$ S#ste/ that has "e+laced the +h#sical delive"# s#ste/$ Unde" the 22ASS ce"ti!icates "e+"esenting sec,"ities t"aded on the stock exchange In the K,ala 4,/+," Stock exchange a se/iIsc"i+less s#ste/ is -eing ,sed$ A s+eci!ic n,/-e" o! sha"es have -een de+osited with the cent"al de+osito"# and the "est a"e t"aded +h#sicall#$

h2 d' :* n**d &h* !*1'%.&'r2$


'he"e a"e a n,/-e" o! advantages that the 2DS -"ings with it -,t the"e a"e th"ee /ain "easons !o" the 2DS$ 'he Stock 6a"kets in Pakistan in the last !ew #ea"s have "egiste"ed exce+tional g"owth es+eciall# with the ent"# o! !o"eign investo"s in the local /a"ket$ '"ading vol,/es have inc"eased /ani!old and a"e

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likel# to inc"ease !,"the" with the +assage o! ti/e and the +h#sical handling o! ce"ti!icates will -eco/e /o"e c,/-e"so/e and ti/e cons,/ing Secondl# the c,""ent delive"# settle/ent and t"ans!e" +"oced,"es have t"aditionall# -een +lag,ed -# length# dela#s "isks o! da/age loss !o"ge"ies d,+lication and conside"a-le invest/ent in ti/e and ca+ital$ I/+le/entation o! the 2DS will not onl# /ini/i.e these +"o-le/s -,t also assist in the develo+/ent o! the ca+ital /a"ket$ 'hi"dl# the i/+le/entation o! 2DS in Pakistan will !,l!ill the

"eco//endations /ade -# the 5"o,+ o! 'hi"t# a +"ivate inte"national -od# whose cha"te" is to "aise awa"eness and ,nde"standing o! /a>o" inte"national and !inancial iss,es$ Its o->ective is to standa"di.e the settle/ent +"oced,"es and "ed,ce associated inhe"ent "isks on a glo-al -asis$ 'he /ost i/+o"tant "eco//endation /ade -# the 5"o,+ o! 'hi"t# was to set,+ sec,"ities de+osito"ies -# /a>o" stock exchanges wo"ldwide so as to !acilitate delive"# and settle/ent o! t"ansactions$ 'he 5"o,+ o! 'hi"t#Ls "eco//endations have -een ado+ted -# the Inte"national )ede"ation o! Stock Exchanges and a"e s,++o"ted th"o,gho,t the inte"national sec,"ities co//,nit#$ 'he 2D2 will act as a t",stee !o" investo"s and all sec,"ities within the 2D2 will -e "egiste"ed in its na/e$ 2D2 howeve" will have no -ene!icial "ights to these sec,"itiesK it will hold the/ as a no/inee on the investo"sL -ehal!$ 'he"e!o"e all "ights and -ene!its s,ch as dividends -on,s "ights entitle/ents and voting "ights will "e/ain with the act,al owne" o! those sec,"ities$

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Th* (-rr*n& %2%&*m and .&% 50a:%


In the c,""ent +h#sical s#ste/ /e/-e"s !ace seve"al +"o-le/s like: :$ Inc"eased vol,/e o! -ook kee+ing$ 1$ Inc"eased vol,/e o! +a+e" wo"k$ =$ Agg"avated delive"# +"o-le/s d,e to inc"eased vol,/e$ 9$ 5"eate" "isks o! !o"ge"ies etc$

In3*%&'r% a0%' ar* n'& &'&a002 ha112 :.&h &h* (-rr*n& %2%&*m and 5a(* d.55.(-0&.*% 0.)*"
:$ 4a"ge s+ace "e@,i"e/ents !o" sa!e kee+ing o! ce"ti!icates$ 1$ 'he "e@,i"e/ents as to the ti/e o! t"ans!e" Eco,ld -e ,+ to 9* da#sF and !o"/alities s,ch as ve"i!ication o! t"ans!e" deeds$ =$ In case o! new iss,es the ti/e taken Eat least two /onthsF !o" the s,ccess!,l a++licants to "eceive +"e+a"ation t"ans!e" ce"ti!icates deeds in and o"de" to s,-se@,ent "ende" the signat,"e and ve"i!ication o!

ce"ti!icates delive"a-le$ 9$ Investo"sL need !o" checking gen,ineness o! ce"ti!icates$

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&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

Th*n &h* .%%-*r% '5 &h* (*r&.5.(a&*% ha3* &h*.r ':n %*& '5 ('m10a.n&%
:$ P"o-le/s !aced -# iss,e"s o! sec,"ities$ 1$ P"inting and des+atch o! ce"ti!icates o! new iss,es to the allotees$ =$ P"inting and des+atch o! ce"ti!icates conse@,ent to -on,s and "ight iss,es$ 9$ Iss,ance o! d,+licate ce"ti!icates$ *$ 4a"ge s+ace "e@,i"e/ents !o" sto"ing ce"ti!icates$ <$ 'he ca""#ing o,t o! the !ollowing activities at the ti/e o! -ook clos,"e when tho,sands o! ce"ti!icates a"e lodged !o" t"ans!e":

2hecking gen,ineness o! ce"ti!icates Signat,"e ve"i!ication 2hecking co""ect val,e o! t"ans!e" sta/+s Signat,"e o! Di"ecto" !o" con!i"/ation o! t"ans!e"

H': :.00 &h* C!S h*01$


P"esentl# -"oke"age ho,ses c,stodian -anks and othe" !inancial instit,tions s+end a lot o! val,a-le ti/e on the +h#sical handling o! ce"ti!icates and +a+e"wo"k$ 'he 2DS will ca,se a sha"+ decline in

EMBA 03 PROJECT

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&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

-ack o!!ice wo"k -# +"oviding a convenient e!!icient and "elia-le /eans to settle sec,"ities t"ansactions$ S,dden inc"eases in settle/ent vol,/e will no longe" /ake a /a>o" i/+act on -ack o!!ice /an+owe" "e@,i"e/ents and not "es,lt in +"o-le/s o! delive"# inc"eased +a+e"wo"k vol,/e and -ook kee+ing$ Investo"s will not -e "e@,i"ed to "egiste" sec,"ities in thei" na/e in o"de" to clai/ entitle/ents$ 'his is -eca,se owne"shi+ will -e thei"s as soon as sec,"ities a"e t"ans!e""ed into thei" acco,nt$ 'his will save val,a-le ti/e which was +"evio,sl# s+ent in having ce"ti!icates t"ans!e""ed o" waiting !o" ce"ti!icates o! new iss,es to -e "eceived$ Sec,"it# o! invest/ent need no longe" de+end on gen,ineness o! ce"ti!icates In !act acco"ding to 2E&K t"ans!e" will -e instantaneo,s co/+a"ed to 9* da#s o" longe" with the +h#sical s#ste/$ 'he length# and tedio,s activities ,nde"taken -# iss,e"s at the ti/e o! -ook clos,"e will -e eli/inated$ Iss,e"s need no longe" -e conce"ned with the dis+atch and +"inting o! ce"ti!icates at the ti/e o! new allot/ents o" at the ti/e o! dist"i-,tion o! -on,s and "ight iss,es$ 'he -ene!icia"ies o! the 2DS will -e the enti"e !inancial se"vices ind,st"# s+eci!icall# all the /a>o" +la#e"s o! the ca+ital /a"ket$ 'hese a"e investo"s +a"tici+ants o! the 2D2 iss,e"s o! ca+ital and thei" designated "egist"a"sQt"ans!e" agents ERQ'AF

Th* ma.n '1*ra&.'n% 1*r5'rm*d .n &h* C!S ar* a% 5'00':%"

EMBA 03 PROJECT

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&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

De+osit o! existing and new sec,"ities into the de+osito"# %ithd"awal o! sec,"ities in the !o"/ o! ce"ti!icates !"o/ the de+osito"# to cate" !o" investo"s who +"e!e" to have +h#sical +ossession o! ce"ti!icates$

)"ee t"ans!e" o" -ook ent"# t"ans!e" o! sec,"ities /ove/ent$ witho,t an# associated cash

PledgeQ"eleaseQcall like +lacing a lien on sec,"ities in !avo," o! a lende" which can onl# -e "eleasedQcalled -# the lende"$ Stock -o""owing o" lending th"o,gh the /echanis/ o! t"ans!e" with o" witho,t associated /one# /ove/ent th"o,gh the de+osito"# s#ste/$ 2o"+o"ate action like -on,s iss,es "ights

entitle/ents s,-Idivision consolidation and an# othe" action that changes the n,/-e" o! sec,"ities held in a +a"tici+antLs acco,nt o" involves the dete"/ination o! entitle/ent to -ene!icial owne"s$

Delive"# ve"s,s +a#/ent -ook ent"# t"ans!e" o! owne"shi+ o! a sec,"it# in exchange !o" +a#/ent to settle a t"ansaction$

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&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

2ash onl# /ove/ent /ove/ent o! cash !"o/ one acco,nt to anothe" witho,t an# associated sec,"ities /ove/ent$

h' :.00 &rad* &h*n$


As soon as a co/+an# is +,t on the 2DS all +h#sical t"ade will no longe" -e +ossi-le$ 3ow it will -e the +a"tici+ants who will t"ade !o" thei" clients$ 'hese +a"tici+ants will -e li/ited to sec,"ities instit,tions s,ch as stock -"oke"s !inancial instit,tions and so/e @,ali!ied +"ivate investo"s$ Retail investo"s will +a"tici+ate th"o,gh these instit,tions$ 'he +a"tici+ants o! 2D2 will -e a-le to settle thei" t"ansactions within the 2DS th"o,gh !ive t#+es o! acco,nts na/el#: Ma.n A(('-n&: Each +a"tici+ant in the s#ste/ will -e allocated a /ain acco,nt -# vi"t,e o! -eing a +a"tici+ant in the 2DS$ 'his acco,nt will /ainl# -e ,sed as a t"ansit acco,nt !o" /ove/ent o! sec,"ities$ H'-%* A(('-n&" Used !o" sec,"ities owned -ene!iciall# -# +a"tici+ants$ 7olding a ho,se acco,nt is o+tional and an# n,/-e" o! s,ch acco,nts /a# -e c"eated -# a +a"tici+ant$ S-6Aa(('-n& 7C0.*n& A(('-n&8" 'his acco,nt is ,sed !o" kee+ing sec,"ities -elonging individ,all# to each o! the clients o! a +a"tici+ant$ A +a"tici+ant /a# o+en an# n,/-e" o! s,- acco,nts he "e@,i"es and /aintain these s,-Iacco,nts on -ehal! o! his clients$

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&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

Gr'-1 C0.*n& A(('-n&" 'his acco,nt is ,sed !o" kee+ing sec,"ities which a"e -ene!iciall# owned -# the +a"tici+antLs clients$ It will -e ,sed !o" clients who a"e not willing to ,tili.e the !acilit# o! o+ening se+a"ate s,-Iacco,nts$ Each g"o,+ acco,nt will contain the sec,"ities owned -# a g"o,+ o! clients$ 'he detailed -"eakI,+ o! the sec,"ities held -# each client o! s,ch a g"o,+ will -e held -# the +a"tici+ant and no s,ch "eco"d will -e /aintained within the 2DS$ Ca%h A(('-n&" Each +a"tici+ant in the s#ste/ who o+ts to avail the Delive"# vs$ Pa#/ent EDVPF !acilit# will -e "e@,i"ed to de+osit in advance a "olling settle/ent !,nd to -e ,sed !o" the settle/ent o! his DVP o-ligations$ 'he -alance o! the +a"tici+antLs "olling settle/ent !,nd will -e sto"ed in this acco,nt$

H': d'*% .& :'r)$


'his is +e"ha+s the /ost co//on @,estion and +o+s ,+ in eve"# /ind$ 'he !i"st ste+ o! co,"se will -e to de+osit the ce"ti!icates in the 2D2 i! a t"ansaction is to -e /ade$ 'he 2D2 will decla"e sec,"ities eligi-le !o" de+osit in the 2DS$ A +a"tici+ant will initiate a de+osit t"ansaction eithe" on his own -ehal! o" on -ehal! o! his client$ 'he ce"ti!icates a!te" d,e ve"i!ication -# the iss,e" will -e canceled and the no/inee holding o! 2D2 will -e inc"eased in the "elevant "egiste" o! the iss,e"$ At the sa/e ti/e the -ene!icial owne"sL acco,nt will -e c"edited in the 2DS$ 7oweve" the"e a"e investo"s who /ight want to kee+ thei" ce"ti!icates$ 'he"e is no co/+,lsion that all ce"ti!icates -e de+osited with the

EMBA 03 PROJECT

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&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

2D2$ So this o+tion will -e +"ovided -# the 2D2 to cate" !o" investo"s who +"e!e" to kee+ ce"ti!icates$ %ithd"awn ce"ti!icates howeve" will not -e eligi-le to -e ,sed to settle a /a"ket t"ade$ In o"de" to -e t"aded in the /a"ket the# will have to -e "ede+osit into the 2DS$ Pa"tici+ants /a# also a++l# to iss,e"s o" thei" a++ointed "egist"a"Q t"ans!e" agent in o"de" to withd"aw sec,"ities -# sending the/ the +"esc"i-ed withd"awal !o"/$ S,-Iacco,nt holde"s will a!!ect withd"awals th"o,gh thei" +a"tici+ants$ &nce the withd"awal !o"/ has -een a++"oved -# the iss,e" he will iss,e a ce"ti!icateQs in the na/e o! itLs -ene!icial owne" and "ed,ce 2D2Ls no/inee holding acco"dingl#$ Sec,"ities can also -e +ledged th"o,gh the 2D2$ A +a"tici+ant acting eithe" on his own -ehal! o" on -ehal! o! his client can +lace sec,"ities ,nde" +ledge with an eligi-le +ledgee !"o/ who/ a loan is to -e taken$ Placing sec,"ities ,nde" +ledge will "es,lt in sec,"ities -eing !lagged as no longe" availa-le !o" t"ans!e" Qdelive"# ,ntil s,ch ti/e as the# a"e "eleased !"o/ +ledge o" t"ans!e""ed on the inst",ctions o! the eligi-le +ledgee to the acco,nt o! a +a"tici+ant$ An# -ene!its will howeve" still acc",e to the +ledgo"$ S,- acco,nts can -e /aintained -# +a"tici+ants on -ehal! o! thei" clients$ 'he client howeve" will not -e a-le to o+e"ate the acco,nt hi/sel!$ 'he "elevant +a"tici+ant will handle all his t"ansactions !o" hi/ th"o,gh this s,-Iacco,nt$ 'he +a"tici+ant will o+en /aintain and o+e"ate this s,- acco,nt in the na/e o! the s,-Iacco,nt holde" so as to "eco"d his title to the sec,"ities in his acco,nt$ A s,- acco,nt

EMBA 03 PROJECT

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&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

holde" will "eceive con!i"/ation o! his acco,nt -alance !"o/ the "elevant +a"tici+ant$ 6o"eove" he can also "e@,est the 2D2 to di"ectl# con!i"/ his -alance$ 'he 2ent"al De+osito"ies legislation has s+eci!ic +"ovisions !o" +"otecting the s,-Iacco,nt holde"$ )o" exa/+le a +a"tici+ant is not legall# allowed to ,nde"take an# t"ans!e"s +ledges o" withd"awals !"o/ s,-Iacco,nts witho,t s+eci!ic inst",ctions !"o/ the s,-Iacco,nt holde"$ Violation o! this cla,se -# a +a"tici+ant is +,nisha-le -# a signi!icant !ine and i/+"ison/ent$

C'r1'ra&* a(&.'n% :.00 6* hand0*d 62 &h* C!C .n &h* 5'00':.n, mann*r"


N'&.(* '5 m**&.n,%" 'he law "e@,i"es that notice o! a gene"al /eeting -e given -# the iss,e" to its sha"eholde"s at least 1: da#s -e!o"e the /eeting$ 'he de+osito"# will +"od,ce a list o! -ene!icial owne"s containing the "elevant details$ 'his will ena-le the iss,e" o" its a++ointed "egist"a" to iss,e notices o! /eetings to the "ight +eo+le$ !.3.d*nd%" 'he 2D2 will +"e+a"e a list o! -ene!icial owne"s who a"e to "eceive entitle/ents !"o/ the iss,e"$ 'his "e+o"t will -e +"e+a"ed on the last da# -e!o"e the sta"t o! the -ook clos,"e +e"iod anno,nced -# the conce"ned co/+an#$ 'hese lists will -e sent to the conce"ned iss,e" o" his a++ointed RQ 'A and dividends will -e dis+atched acco"dingl#$

EMBA 03 PROJECT

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&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

/'n-% Shar*%" In case o! -on,s sha"es ,+on "ecei+t o! in!o"/ation !"o/ the iss,e" the de+osito"# will inc"ease the +ositions held -# each +a"tici+ant -# the a/o,nt o! -on,s sha"e iss,ed$ R.,h&% I%%-*%" %ill -e dealt with in a /anne" si/ila" to -on,s sha"es$ Bene!icial owne"s will -e c"edited a,to/aticall# with thei" entitle/ents$ 'his will ens,"e that t"ading in L,n+aid "ightsL can sta"t i//ediatel#$ Shar* S-6Ad.3.%.'n B C'n%'0.da&.'n" In the case o! sha"e s,-I division ( consolidation the 2D2 wilt calc,lates the new sha"e -alances which the sha"eholde"s in the De+osito"# S#ste/ will -e entitled to -ased on thei" existing sha"e holdings$ &n the date when the s,-Idivision o" consolidation is a++"oved -# the iss,e" a +"og"a/ will -e ",n which will "e+lace the old -alances with the new sha"e -alances calc,lated a-ove$

M.%('n(*1&.'n%
%hen one -,#s o" sells the whole +"ocess will -e exactl# the sa/e as it is toda#$ Sec,"ities will contin,e to -e -o,ght and sold th"o,gh -"oke"s and the"e will -e no change in the existing t"ading +"actices$ 'he onl# change will -e at the ti/e o! settle/entK instead o! +h#sical delive"ies elect"onic -ook ent"# settle/ent will -e /ade$ As o++osed to /ost /isconce+tions t"ading activities and othe" +"actices like ?-adla -o""owing o" lending o! sha"es sho"t selling and -lank selling a"e inde+endent o! the wo"kings o! the 2DS$ 'his s#ste/ is si/+l# an elect"onic vehicle to !acilitate the delive"#
EMBA 03 PROJECT Page 1<

&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

settle/ent and t"ans!e" o! sec,"ities$ '"ading +"actices in sec,"ities will "e/ain as the# we"e -e!o"e$ Investo"s will still inst",ct thei" -"oke"s to -,# o" sell settle/ent and clea"ing will contin,e as +e" the existing s#ste/$ Elect"onic -ook ent"# delive"ies will still -e /ade -# the +a"tici+ants and not -# the 2D2 sta!!$ 'he"e a"e g"o,+ acco,nts which will "e+lace the c,""ent ?-ena/i? acco,nts$ 'he 2D2 will not check sho"t selling o" -lank selling$ It is not the 2D2Ls >o- to inte"!e"e in t"ansactions onl# to ens,"e that delive"ies a"e /ade on ti/e and that +a#/ents a"e /ade$ A+a"t !"o/ these the"e will not -e an# change in the +"actices o" /al+"actices at the stock /a"ket

S*(-r.&2 and ('n5.d*n&.a0.&2


St"ict con!identialit# is one o! the ke# !eat,"es o! 2DS$ 3o ,na,tho"i.ed +e"son will have access to in!o"/ation incl,ding 2D2 e/+lo#ees$ 4egal sa!eg,a"ds will also ens,"e that st"ict con!identialit# is /aintained$ Sec,"it# /eas,"es have -een i/+le/ented at va"io,s levels$ IB6 RSQ<BBB is accessi-le th"o,gh a se"ies o! +asswo"ds$ 'he 4ocal A"ea 3etwo"k E4A3FRR as well as the %ide A"ea 3etwo"k E%A3F have -een e@,i++ed with so+histicated +"otective /echanis/s to sec,"e the enti"e s#ste/ against +i"ac# o" -"each o! con!identialit#$ A se"ies o! checks have -een installed in the netwo"k so as to "est"ict ,na,tho"i.ed access and /ini/i.e sec,"it# "isk$ In addition -ack,+s o! the data will -e /ade dail# to "ed,ce data loss "isk$ 'he s#ste/ is connected to a UPS with !,"the" -ack,+ -# two stand-# gene"ato"s$ 'he data-ase also /aintains a,dit t"ails and log

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&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

"e+o"ts dail#$ 'he"e is a disaste" "ecove"# +"og"a/ in the event o! dis",+tion o! se"vice to the ,se"s$

Cn.D-* 5*a&-r*% '5 &h* C!S


'he"e a"e so/e ,ni@,e !eat,"es to the 2DS in Pakistan which have -een i/+le/ented in Pakistan$ A lot o! c"edit !o" this goes o the !o"eign cons,ltant Al-e"t Ande"son who had lea"nt a lot !"o/ the !ailed 'a,",s +"o>ect in England$ &ne ,ni@,e !eat,"e is that +a"tici+ants will -e a-le to inte"act inde+endentl# with the 2DS with no involve/ent whatsoeve" o! the 2D2 e/+lo#ees$ 'hei" >o- will -e si/+l# to kee+ the s#ste/ ,+ and ",nning$ A+a"t !"o/ that all -,#ing selling +ledging o! sha"es will -e done -# the +a"tici+ants as +e" the inst",ctions o! thei" clients$ Anothe" ,ni@,e !eat,"e is that the sha"es that a"e to -e de+osited will not -e sent to the 2D2 -,t to the "egist"a"s who will check to see that all is in o"de" inti/ate the 2D2 and the sha"es will -e "egiste"ed$ 'he +a"tici+ant has a "eco"d o! the sha"es and the owne" is iss,ed a sli+ o! +a+e" which shows his owne"shi+$ 'his "ed,ces the wo"k load on the 2D2 and also allows the/ to concent"ate /o"e on the task at hand /aintaining the de+osito"#$ 'he second and +e"ha+s /ost ,ni@,e !eat,"e o! the 2D2 is that all sha"es that a"e de+osited with the de+osito"ies a"o,nd the wo"ld a"e then sec,"ed in a va,lt$ 'he n,/-e" o! sha"es kee+s on inc"easing as #ea"s go -# and additional s+ace is needed$ 3ot onl# is this a hassle with sec,"it# conce"ns +lag,ing the /anage/ent -,t it also a
EMBA 03 PROJECT Page 1;

&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

g"eat additional cost$ In the de+osito"# s#ste/ that has -een inco"+o"ated in Pakistan the need !o" a va,lt has -een eli/inated -eca,se the sha"es once the# have -een "egiste"ed with the 2D2 a!te" the a++"oval o! the "egist"a"s will -e dest"o#ed$ I! so/e sha"eholde" decides to withd"aw his sha"es !"o/ the 2D2 late" on he will -e iss,ed a >,/-o ce"ti!icate !o" all the sha"es that he owns$ In othe" wo"ds even i! he owns a /illion sha"es he will have >,st one ce"ti!icate denoting his owne"shi+ with all the "elevant details$ A/ong othe" things this has cont"i-,ted s,-stantiall# to "ed,cing ex+enses !o" the 2D2$

Th* maE'r 4a).%&an. .nd.(*%"


In Pakistan the /ain index /onito"ed -# investo"s is the KSE :BBS o" KSE =BS$ 'his index /onito"s the +e"!o"/ance o! the :BB and =B to+ t"aded co/+anies ERes+ectivel#F in the Pakistan$ 'he indexCs !oc,s on the -iggest and the /ost li@,id Pakistani co/+anies also known as T-l,e chi+sC /eans it is the one news"eade"s and news+a+e"s "e!e" to when the# talk a-o,t the +e"!o"/ance o! the stock /a"ket$ B,t the st"ong "et,"ns /ade -# ce"tain co/+anies within this index /eans that in "ecent #ea"s it has -eco/e heavil# do/inated -# th"ee /a>o" secto"s: -anks oils and ce/ent$ KSE AllISha"e indexS lite"all# /eas,"es the +e"!o"/ance o! all the sha"es listed on the Ka"achi Stock ExchangeCs /ain /a"ket$ So it incl,des the KSE :BBS KSE =BS and K6I =BS co/+anies and
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&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

othe" /edi,/ and s/alle" co/+anies in a va"iet# o! ind,st"ies s,ch as /edia -,ilding and const",ction and technolog# and etc$ Beca,se o! the do/inance o! a !ew /a>o" Pakistani co/+anies the KSE AllISha"eS is still heavil# in!l,enced -# the +e"!o"/ance o! co/+anies in the KSE :BBS and KSE =BS !o" exa/+le the KSE :BBS and KSE =BS togethe" /ake ,+ the /a>o" +e"centage o! the KSE AllISha"eS index -# /a"ket ca+itali.ation$ I! #o, want to get the !,ll +ict,"e o! what is going on in the Pakistani stock /a"ket #o, need to not onl# look at the +e"!o"/ance o! the KSE AllISha"eS and KSE :BBS -,t also the KSE =BS index which cove"s the /a>o" !"ee !loat co/+anies in the /a"ket$

L.%&.n, '5 S*(-r.&.*%


All co"+o"ate sec,"ities like sha"es stocks -onds de-ent,"e etc$ a"e not allowed to -e dealt with in the stock exchange$ Eve"# stock exchange /aintains a list containing the na/es o! selected co/+anies whose sec,"ities can -e t"aded in that stock exchange$ 'his list is called To!!icial t"ade listC Unlisted sec,"ities cannot -e dealt in the stock exchange$'he co/+an# which wants its sec,"ities to -e t"aded in a "ecognised stock exchange sho,ld a++l# to the stock exchange and get its na/e incl,ded in the To!!icial t"ade listC$

M*an.n, '5 L.%&.n,

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&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

'he incl,sion o! the na/e o! a co/+an# in the o!!icial t"ade list o! a stock exchange is called TlistingC$ Ea"lie" listing o+tional$ 4isting is now /ade co/+,lso"# !o" all +,-lic co/+anies howeve" s,->ect to ce"tain exe/+tions$

Ad3an&a,*% '5 L.%&.n,


4isting gives the co/+an# a highe" stat,s$ It ena-les a co/+an# to en>o# the con!idence o! the investing +,-lic$ B# widening the /a"ket !o" the sec,"ities it hel+s the co/+an# to "aise the !,t,"e !inance easil#$ It +"ovides +"ice contin,it# !o" sec,"ities$ It !acilitates the co""ect eval,ation o! sec,"ities in te"/s o! thei" "eal wo"th$

C0a%%.5.(a&.'n '5 0.%&*d %*(-r.&.*%


4isted sec,"ities /a# -e classi!ied into two catego"ies: EiF 2lea"ed Sec,"ities EiiF 3onIclea"ed Sec,"ities 2lea"ed sec,"ities a"e the sec,"ities in which !o"wa"d t"ading can -e done$ So the# a"e also known as Msec,"ities on !o"wa"d listN$ 3oI clea"ed sec,"ities a"e t"aded in s+ot t"ansactions$ 'he# a"e called Tsec,"ities in cash listC$

Fa(&'r% A55*(&.n, In3*%&'r% In&*r*%& .n &h* KSE


In addition to the !acto"s -"ie!l# /entioned a-ove the !ollowing !acto"s have and will contin,e to have a +ositive i/+act on the /a"ket incl,ding:

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1 'he !o"/ation o! the 2ent"al De+osito"# 2o/+an# E2D2F in :GGA and its "ole in c"eating a t"ans+a"ent e!!icient and sec,"e envi"on/ent !o" the exchange o! sec,"ities$ 'he in!"ast",ct,"e +"ovided -# the 2D2 and develo+/ent o! the 2ent"al De+osito"# S#ste/ E2DSF have /ade +,-lic o!!e"ings and t"ading e!!ective and e!!icient !o" iss,e"s and investo"s$ 'he /e"e evidence that nea"l# <:P o! &il ( 5as Develo+/ent 2o"+o"ation E&5D2F and =AP o! So,the"n S,i 5as 2o"+o"ationCs ESS52F Initial P,-lic &!!e"ings EIP&F we"e s,-sc"i-ed ,sing the 2DS highlights thei" contin,ed e!!o"t towa"ds "evol,tioni.ing the !inancial /a"ket$ ; 'he divest/ent +olic# o! the 5ove"n/ent o! Pakistan E5&PF -# +,-lic o!!e" o! sha"es o! state owned ente"+"ises te"/ed MP"ivati.ation !o" Peo+leN have ke+t investo"s inte"ests alive in the e@,ities /a"ket$

O4ERATORS AT STOCK EXCHANGE M*m6*r% '5 %&'() *+(han,* a8 ?'66*r%


Do--e"s a"e sec,"it# /e"chants dealing in sha"es de-ent,"es as inde+endent o+e"ato"s$ 'he# -,# and sell sec,"ities on thei" own -ehal! and t"# to ea"n th"o,gh +"ice changes$ Do--e"s cannot deal on -ehal! o! +,-lic and a"e -a""ed !"o/ taking co//ission$ In India the# a"e called 'a"avaniwalas$

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68 /r')*r%
B"oke"s a"e co//ission agents who act as inte"/edia"ies -etween -,#e"s and selle"s o! sec,"ities$ 'he# do not +,"chase o" sell sec,"ities on thei" -ehal!$ 'he# -"ing togethe" the -,#e"s and selle"s and hel+ the/ in /aking a deal$ B"oke"s cha"ge a co//ission !"o/ -oth the +a"ties !o" thei" se"vice$ B"oke"s a"e ex+e"ts in esti/ating t"ends o! +"ice and can e!!ectivel# advice thei" clients in getting a !",it!,l gain$ B"oke"s get o"de"s !"o/ investing +,-lic and exec,te the o"de"s th"o,gh Do--e"s and the# a"e entitled to a +"esc"i-ed sale o! -"oke"age$

N'nAm*m6*r% a(&.n, 5'r m*m6*r%"


So/e nonI/e/-e"s with li/ited "ights a"e allowed to ente" the ho,se and to act on -ehal! o! /e/-e"s$ 'he"e a"e two t#+es o! s,ch agents$

A. R*m.%*r
7e acts as an agent o! a /e/-e" o! a stock exchange$ 7e o-tains -,siness !o" his +"inci+al i$e$ the /e/-e" and gets a co//ission !o" that se"vice$ I:;GI I:GBI

/. A-&h'r.F*d (0*r)
'he a,tho"i.ed cle"ks a"e /e"e e/+lo#ees o! the /e/-e"s a++ointed -# the /e/-e" o! stock exchange$ 'he a,tho"ised cle"ks t"ansact -,siness on -ehal! o! thei" e/+lo#e"s on the !loo" o! the stock exchange$ 'he# a"e +aid a sala"# +l,s a co//ission

F-n(&.'n% '5 %&'() *+(han,*

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A0&h'-,h &h* %&'() *+(han,* mar)*& ha% m-0&.10* 5-n(&.'n%G .&% ma.n a(&.3.&.*% ar* &:'"
o

'o +"o/ote the savings and !o" the/ to -e canali.ed towa"ds o! ca""#ing th"o,gh invest/ent +"o>ects that othe"wise wo,ldnCt -e +ossi-le #o, need that the iss,ing instit,tion o! the sec,"ities to -e ad/itted !o" @,oting$ 'he negotiations will -e done on the +"i/a"# /a"ket$ 'o +"ovide li@,idit# to the investo"s$ 'he investo" can "ec,+e"ate the /one# invested when needed$ )o" it he has to go to the stock exchange /a"ket to sell the sec,"ities +"evio,sl# ac@,i"ed$ 'his !,nction o! the stock /a"ket is done on the seconda"# /a"ket$

O&h*r 5-n(&.'n% '5 &h* %&'() *+(han,* mar)*& a% an 'r,an.Fa&.'n ar*"


o

'o g,a"antee the legal and econo/ic sec,"it# o! the ag"eed cont"acts$ 'o +"ovide o!!icial in!o"/ation a-o,t the @,antities that a"e negotiated and o! the @,oted +"ices$ 'o !ix the +"ices o! the sec,"ities acco"ding to the !,nda/ental law o! the o!!e" and the de/and$

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&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

S+eci!#ing a -it /o"e and cente"ing on the two /ain agents that inte"vene in the /a"ket investo"s and co/+anies we co,ld do the !ollowing classi!ication:

F-n(&.'n% d'n* 62 &h* %&'() *+(han,* mar)*& .n 5a3'r '5 &h* .n3*%&'r"
o

It +e"/its hi/ the access to the +"o!ita-le activities o! the -ig co/+anies$ It o!!e"s li@,idit# to the sec,"it# invest/ents th"o,gh a +lace in which to sell o" -,# sec,"ities$ It +e"/its !o" the investo" to have a +olitical +owe" in the co/+anies in which he invests its savings d,e that the ac@,isition o! o"dina"# sha"es gives hi/ the "ight Ea/ong othe" thingsF to vote in the gene"al sha"eholde"s /eetings o! the co/+an# in @,estion$ It o!!e"s the +ossi-ilit# o! dive"si!#ing #o," +o"t!olio -#

enla"ging the !ield o! st"ateg# o! invest/ents d,e to alte"native o+tions as co,ld -e the de"ived /a"ket the /one# /a"ket etc$

.&h r*%1*(& &' &h* 5-n(&.'n d'n* 62 &h* %&'() *+(han,* mar)*& .n 5a3'r '5 &h* ('m1an.*%"
o

It s,++lies the/ with the o-taining o! longIte"/ !,nds that +e"/its the co/+an# to /ake +"o!ita-le activities o" to do dete"/ine +"o>ects that othe"wise wo,ldnCt -e +ossi-le to

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&ANALYSIS OF THE 'ARACHI STOC' EXCHAN(E) #*$#

develo+ !o" lack o! !inancing$ Also this !,nding signi!ies a less cost than i! o-tained at othe" channels$
o

'he sec,"ities @,oted at the stock exchange /a"ket ,s,all# have /o"e !iscal +,"+ose advantages !o" the co/+anies$ It o!!e"s to the co/+an#Cs !"ee +,-licit# which in othe" wa# wo,ld s,++ose conside"a-le ex+enses$ 'he instit,tion is o->ecting o! attention o! the /edia Etelevision "adio etc$F in case an# i/+o"tant change in its owne"s Ethe sha"e holde"sF$

Th*r* a0%' *+.%&% a ('n%&an& 5'00':.n, 7n*:%1a1*r%8 '5 &h* D-'&a&.'n%.


'he"e!o"e we can see how the stock exchange /a"ket s,++oses a g"eat advantage to the co/+anies inconveniences to have in /ind:

-,t the"e a"e also so/e

)i"st o! all the# need o! a se"ies o! conditions to -e a+t to ente" to the @,otations not all the co/+anies that a++l# can do it$ 'he iss,ing o! sha"es /a# s,++ose a loss o! +owe" !o" the !o,nde"s o! the co/+an#$ An#wa# this is ve"# "elative -eca,se it will de+end on the g"ade o! ato/i.ation on the +a"tici+ations o! the new sha"eholde"s and o! the +e"centage o! sha"es that the !o,nde"s kee+ ove" the total ca+ital o! the co/+an#$ I! !o" exa/+le a 9GP o! the sha"e ca+ital is in hands o! the !o,nde"s these co,ld loose the cont"ol o! in case the othe" *:P wo,ld -e in hands o! one /ain sha"eholde"$ 7oweve" this

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"a"el# ha++ens d,e that the sha"e ca+ital that ,s,all# goes to the stock /a"ket tends to -e dist"i-,ted -etween a g"eat n,/-e" o! sha"eholde"s that ac@,i"e /odest +a"tici+ations in "es+ect to that o! the ca+ital o! the co/+an# the !o,nde"s /a# still kee+ cont"ol with sha"e ca+ital is dist"i-,ted -etween a g"eat n,/-e" o! +a"tici+ants$

3ow then the +"o+e"t# o! these sha"es i/+lies the +ossession o! ce"tain "ights ove" the co/+an# in which #o, +a"tici+ate$

'hese a"e: +olitical "ights a/ong which a++ea"s the +ossi-ilit# o! +a"tici+ating in the gene"al sha"e holde"s /eetings and in the ad/inist"ation o! the co/+an# -# /eans o! the exec,tion o! #o," "ights to voteK and the econo/ic "ight which e/-"aces the +ossi-ilit# o! "eceiving dividends +"e!e"ential "ights o! s,-sc"i+tion the t"ans/ission o! sha"es EsellingF and the "ight to the li@,idit# val,e$ 'his last i/+lies that at the /o/ent in which the co/+an# is li@,idated what "e/ains is +"o+o"tionall# divided -etween the sha"eholde"s$

Th* 1'%%*%%.'n '5 a00 &h*%* r.,h&% .% :ha& r*d-(*% &h* 1':*r '5 &h* 5'-nd*r%.

'he sha"es /a# +ass to -e +"o+e"t# o! ,nknown +eo+le to the !o,nde"s$ At the /o/ent in which the# a"e o->ect o! @,otations at the stock exchange /a"ket an# s,++lie" o! ca+ital /a# have the/$ I! itCs a co/+an# that +"evio,sl# knew all its sha"eholde"s conside"ing this as an asset o! val,e to the co/+an#$ 'he stock

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/a"ket @,otation /a# gene"ate an i/+o"tant change that will not alwa#s -e +ositive$

'he co/+anies that a"e @,oted at the stock /a"ket o!!e" a -ette" t"ans+a"enc# in a wa# that the gene"al +,-lic /a# have access to an# in!o"/ation "elated to thei" evol,tion and activities$ 'his /akes the/ have a g"eate" cont"ol and to s,+e"vise eve"# /ove/ent done$

O&h*r F-n(&.'n '5 &h* %&'() *+(han,*" 1. Ra.%.n, (a1.&a0 5'r 6-%.n*%%*%
'he Stock Exchange +"ovides co/+anies with the !acilit# to "aise ca+ital !o" ex+ansion th"o,gh selling sha"es to the investing +,-lic$

;. M'6.0.F.n, %a3.n, 5'r .n3*%&m*n&


%hen +eo+le d"aw thei" savings and invest in sha"es it leads to a /o"e "ational allocation o! "eso,"ces -eca,se !,nds which co,ld have -een cons,/ed o" ke+t in idle de+osits with -anks a"e /o-ili.ed and "edi"ected to +"o/ote -,siness activit# with -ene!its !o" seve"al econo/ic secto"s s,ch as ag"ic,lt,"e ind,st"# +"od,ctivit# levels and !i"/s$ co//e"ce and "es,lting in a st"onge" econo/ic g"owth and highe"

>. Fa(.0.&a&.n, ('m1an2 ,r':&h

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2o/+anies view ac@,isitions as an o++o"t,nit# to ex+and +"od,ct lines inc"ease dist"i-,tion channels hedge against volatilit# inc"ease its /a"ket sha"e o" ac@,i"e othe" necessa"# -,siness assets$ A takeove" -id o" a /e"ge" ag"ee/ent th"o,gh the stock /a"ket is one o! the si/+lest and /ost co//on wa#s !o" a co/+an# to g"ow -# ac@,isition o" !,sion$

4. R*d.%&r.6-&.'n '5 :*a0&h


Stocks exchanges do not exist to "edist"i-,te wealth$ 7oweve" -oth cas,al and +"o!essional stock investo"s th"o,gh dividends and stock +"ice inc"eases that /a# "es,lt in ca+ital gains will sha"e in the wealth o! +"o!ita-le -,sinesses$

5. C'r1'ra&* ,'3*rnan(*
B# having a wide and va"ied sco+e o! owne"s co/+anies gene"all# tend to i/+"ove on thei" /anage/ent standa"ds and e!!icienc# in o"de" to satis!# the de/ands o! these sha"eholde"s and the /o"e st"ingent ",les !o" +,-lic co"+o"ations i/+osed -# +,-lic stock exchanges and the gove"n/ent$ 2onse@,entl# it is alleged that +,-lic co/+anies Eco/+anies that a"e owned -# sha"eholde"s who a"e /e/-e"s o! the gene"al +,-lic and t"ade sha"es on +,-lic exchangesF tend to have -ette" /anage/ent "eco"ds than +"ivatel#I held co/+anies Ethose co/+anies whe"e sha"es a"e not +,-licl# t"aded o!ten owned -# the co/+an# !o,nde"s andQo" thei" !a/ilies and hei"s o" othe"wise -# a s/all g"o,+ o! investo"sF$ 7oweve" so/e wellIdoc,/ented cases a"e known whe"e it is alleged that the"e

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has -een conside"a-le sli++age in co"+o"ate gove"nance on the +a"t o! so/e +,-lic co/+anies EPets$co/ E1BBBF En"on 2o"+o"ation E1BB:F &ne$'el E1BB:F S,n-ea/ E1BB:F %e-van E1BB:F Adel+hia E1BB1F 62I %o"ld2o/ E1BB1F o" Pa"/alat E1BB=F a"e a/ong the /ost widel# sc",tini.ed -# the /ediaF$

@. Cr*a&.n, .n3*%&m*n& '11'r&-n.&2 '5 %ma00 .n3*%&'r


As o++osed to othe" -,sinesses that "e@,i"e h,ge ca+ital o,tla# investing in sha"es is o+en to -oth the la"ge and s/all stock investo"s -eca,se a +e"son -,#s the n,/-e" o! sha"es the# can a!!o"d$ 'he"e!o"e the Stock Exchange +"ovides the o++o"t,nit# !o" s/all investo"s to own sha"es o! the sa/e co/+anies as la"ge investo"s$

7. G'3&. Ca1.&a0 Ra.%.n, 5'r d*3*0'1m*n& 1r'E*(&


5ove"n/ents at va"io,s levels /a# decide to -o""ow /one# in o"de" to !inance in!"ast",ct,"e +"o>ects s,ch as sewage and wate" t"eat/ent wo"ks o" ho,sing estates -# selling anothe" catego"# o! sec,"ities known as -onds$ 'hese -onds can -e "aised th"o,gh the Stock Exchange whe"e-# /e/-e"s o! the +,-lic -,# the/ th,s loaning /one# to the gove"n/ent$ 'he iss,ance o! s,ch -onds can o-viate the need to di"ectl# tax the citi.ens in o"de" to !inance develo+/ent altho,gh -# sec,"ing s,ch -onds with the !,ll !aith and c"edit o! the gove"n/ent instead o! with collate"al the "es,lt is that the gove"n/ent /,st tax the citi.ens o" othe"wise "aise additional !,nds to /ake an# "eg,la" co,+on +a#/ents and "e!,nd the +"inci+al when the -onds /at,"e$

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=. /ar'm*&*r '5 &h* *('n'm2


At the stock exchange sha"e +"ices "ise and !all de+ending la"gel# on /a"ket !o"ces$ Sha"e +"ices tend to "ise o" "e/ain sta-le when co/+anies and the econo/# in gene"al show signs o! sta-ilit# and g"owth$ An econo/ic "ecession de+"ession o" !inancial c"isis co,ld event,all# lead to a stock /a"ket c"ash$ 'he"e!o"e the /ove/ent o! sha"e +"ices and in gene"al o! the stock indexes can -e an indicato" o! the gene"al t"end in the econo/#$

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A/OCT KARACHI STOCK EXCHANGE

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ANALYSIS

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CCRRENT RATIO"
A liquidity ratio that measures a company s ability to pay short!term obligations. "he #urrent $atio formula is%

Also &no'n as (liquidity ratio() (cash asset ratio( and (cash ratio(.

#CICK RATIO"
An indicator of a company s short!term liquidity. "he quic& ratio measures a company s ability to meet its short!term obligations 'ith its most liquid assets. "he higher the quic& ratio) the better the position of the company. "he quic& ratio is calculated as%

Also &no'n as the (acid!test ratio( or the (quic& assets ratio(.

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4EST"

ECONOMICAL

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SOCIO ECONOMIC B TECHNOLOGICAL"

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S OT" S&r*n,&h%"

Investing in Bonds 7olding la"ge !inancial "eso,"ces 4a"gest stock exchange o! Pakistan$ 5ood co/+etitive skills Ex+e"t e/+lo#ees 5ove"n/ent s,++o"t E!!icient !,nctioning Relations 2o/+etitive advantages Innovative

*a)n*%%*%"

&+e"ating P"o-le/s E6ostl# I' "elatedF 7igh E/+lo#ee 2ost De+endenc# 4osses Backwa"d technolog# as co/+a"e to othe" stock exchange o! wo"ld S,-standa"d wo"king conditions

O11'r&-n.&2"

7aving /ost weak co/+etito"s 2,sto/e" '",st Inte"national Sco+e )ast 6a"ket 5"owth

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Thr*a&"

5ove"n/ent Policies Econo/ic 2"isis Adve"se De/og"a+hic 2onditions 6is/anage/ent E!!ect o! 5lo-ali.ation )"ee 6a"ket Econo/# Political Insta-ilit# In!lation

KEY ISSCES FACE! /Y THE KARACHI STOCK EXCHANGE"


)ollowing a"e the ke# iss,es which a"e !aced -# the Ka"achi Stock ExchangeK 'he /anage/ent along with the stakeholde"s is wo"king ha"d to "esto"e the vol,/es and li@,idit# to the /a"ket which is the -iggest challenge o! KSE 'o /ini/i.e the !"a,d,lent t"ansactions as the# cannot -e eli/inated 7igh in!lation envi"on/ent$ As a "es,lt +"o!ita-ilit# declined d"iven +"i/a"il# -# "even,e cont"action 'ax Iss,es$ 2a+ital gains 'ax Anothe" o-vio,s iss,e is the high inte"est "ate envi"on/ent ove" last eighteen /onths Boa"d Based Investo" Pa"tici+ation 2"oss -o"de" listings o! co/+anies &+ening o! o!!ices in othe" "egion and cities$

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UP&R'ER * )&R2ES 6&DE4 D&ES 3&' REA44Y APP4Y &3 KSE BU' I' %I44 BE I324UDED I3 '7E )I3A4 PRESE3'A'I&3

C'n(0-%.'n
In co/+a"ison to ea"lie" #ea"s c,""entl# the stock /a"ket is

conside"ed a via-le invest/ent aven,e !o" individ,al and instit,tional investo"s$ 'his "e+o"t has +"esented a histo"# o! the /a"ket its t"ends its "ecove"# since Se+te/-e" 1BB: and !,t,"e ex+ectations o! g"owth$ 7aving anal#.ed alte"native !o"/s o! invest/ents availa-le in Pakistan the KSE toda# +"ovides highe" "et,"ns to investo"s$ Des+ite ce"tain -a""ie"s to g"owth the"e exist st"ong !,nda/entals which acco"ding to anal#sts wo,ld -"ing the index level to :< BBB +oints th,s /aking the stock /a"ket a +"o!ita-le invest/ent o++o"t,nit#

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