ICM Stock Brokers Study Guide 2010

8/8/2019 ICM Stock Brokers Study Guide 2010

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ICM Stock Brokers' Certification

SSttoocckk BBrrookkeerrss''

CCeerrttiiffiiccaattiioonn

Study and Reference Guide

Firs t Edi t ion

InstituteofCapitalMarkets2010.


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SSttoocckkBBrrookkeerrss''

CCeerrttiiffiiccaattiioonnEExxaamm

Study and Reference Guide

FIRSTEDITION:2010


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3

Copyright2010

INSTITUTEOFCAPITALMARKETS

Allrightsreserved

Thisisan

educational

manual

only

and

the

Institute

of

Capital

Markets

(ICM)

accepts

no

responsibilityforpersonsundertakingtradingorinvestmentsinwhateverform.

While every effort has been made to ensure its accuracy, no responsibility for loss

occasionedtoanypersonactingorrefrainingfromactionsasaresultofanymaterialin

thispublicationcanbeacceptedbytheICMoritsmembers.

ICMhaspreparedthisstudyguidewiththebestintentforreferencepurposeonlyand

thisdocumentshallnotbeconsideredasanultimateauthorityonthesubjectortopass

the ICM qualifications. Readers are encouraged to study additional relevant material

andasrecommendedbyICM.

Thistrainingmaterial issolelyforthepurposeofreferencingandthematterprovided

here may not be taken as any empirical theory on the subject which is dynamic and

evolvingwith latest researchanddevelopments.Whilesomeofthecontenthasbeen

taken from thirdparty sources, their efforts and work on the topic are highly

acknowledged. ICM and its member institutions accept NO responsibility for the

informationinthisdocument.

Foranycomments,suggestionsandinformation,[email protected]


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TABLEOFCONTENTS

1. OBJECTIVEOFTHEEXAMINATION. 052. TARGETAUDIENCE..053. SYLLABUSSTRUCTURE.054. EXAMSPECIFICATION. 065. ASSESSMENTSTRUCTURE.066. SUMMARYSYLLABUS077. RECOMMENDEDREADINGS 178. ACRONYMS. 199. ELEMENT1 INTRODUCTIONTOMARKETS.2010.ELEMENT2 REGULATORYFRAMEWORK. 3011.ELEMENT3 PRIMARYMARKET 3412.ELEMENT4 SECONDARYMARKET. 4013.ELEMENT5 CLEARING,DELIVERY,SETTLEMENTANDDEPOSITORY... 5914.ELEMENT6 STOCKBROKERSANDTHEIRCLIENTS. 9015.ELEMENT7 COMMODITYEXCHNAGEANDDERIVATIVES 10316.ELEMENT8 INVESTORPROTECTION.. 12817.ELEMENT9 ECONOMICSANDFINANCE 13818.GLOSSARY.. 168


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OBJECTIVEOFTHEEXAMINATION

ThisCertificationExamisspecificallydesignedtomeettheminimumqualificationneeds

of the capital market participants at brokerage houses with client interaction and to

ensure that they are competent to provide buying & selling services to stock market

investors.

TARGETAUDIENCE

ThisexamisbyandlargemandatedforBrokers,AgentsofBrokers,EquityTradersand

SalesStaffofBrokersandBrokerageFirms.

SYLLABUSSTRUCTURE

The unit is divided into elements. These are broken down into a series of learning

objectives. Each learning objective begins with one of the following prefixes: know,

understand,beable tocalculateandalsobeable toapply.Thesewords indicate thedifferentlevelsofskilltobetested.Learningobjectivesprefixed:

know require the candidate to recall information such as facts, rules andprinciples

understand require the candidate to demonstrate comprehension of an issue,fact,ruleorprinciple

beabletocalculaterequirethecandidatetobeabletouseformulaetoperformcalculations

beabletoapplyrequirethecandidatetobeabletoapplytheirknowledgetoagiven

set

of

circumstances

in

order

to

present

aclear

and

detailed

explanation

of

asituation,ruleorprinciple


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EXAMINATIONSPECIFICATIONS

Each examination paper is constructed from a specification that determines the

weightingsthatwillbegiventoeachelement.Thespecificationisgivenbelow.

Itisimportant

to

note

that

the

numbers

quoted

may

vary

slightly

from

examination

to

examinationasthereissomeflexibilitytoensurethateachexaminationhasaconsistent

levelof difficulty.However, the numberof questions tested in each element will not

changebymorethanplusorminus2.

ExaminationSpecification100multiplechoicequestions

ElementNo. Elements Questions

1 IntroductiontoMarkets 10

2 RegulatoryFramework 10

3

Primary

Market

10

4 SecondaryMarket 20

5 Clearing,Delivery,SettlementandDepository 106 StockBrokersandtheirClients 10

7 CommodityExchangeandDerivatives 108 InvestorProtection 10

9 EconomicsandFinance 10Total 100

ASSESSMENTSTRUCTURE

Thiswillbeaonehourexaminationof100MultipleChoiceQuestions. Allquestionswillcarryequalmarks. Therewillbenonegativemarking.


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SUMMARYSYLLABUS


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ELEMENT 1

INTRODUCTIONTOMARKETS

Oncompletion,thecandidateshould:

1.1 knowtheProducts,ParticipantsandFunctionsofthecapitalmarkets

1.2 knowtheroleoftheSecuritiesMarketandFinancialSystemincluding: StockExchanges StockBrokers Retail/Commercialbanks InvestmentBanks Pension/Mutualfunds InsuranceCompanies

Fund

managers

/

Asset

Management

Companies

Custodians IndustryTradeBodies

1.3 understandtherelationshipofSecuritiesMarketandEconomicDevelopment

1.4 knowtheInvestorPopulationincludingretailandinstitutionalinvestors

1.5 understandtheroleandfunctionsofPrimaryMarket

1.6 understandtheroleandfunctionsofSecondaryMarket


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ELEMENT 2

REGULATORYFRAMEWORK


2.1 understandthescope,corefunctionsandpowersoftheSecuritiesandExchangeCommissionofPakistan(SECP)asconferredinSECPAct,1997

2.2 understandtheSECPRegulations,RulesandProcedures,PowersandFunctions,

Appeals,Jurisdictionsincluding:

Functionalresponsibilityandpowers Approvalaccordingbody Powertocallforinformation Enforcementandinvestigativepowers

2.3

understandthe

key

elements

of

the

Securities

and

Exchange

Ordinance,

1969

2.4 knowtheSecuritiesandExchangeRules,1971

2.5 understandandinterprettheSECPDirectivestoBrokersonConductofBusiness,

InvestorWarnings,etc.

2.6 knowthesectionsoftheCompaniesOrdinance,1984thatarerelevanttocapital

markets

2.7 knowtheSECPCodeofCorporateGovernance2002inthelightoflisting

regulationsofstockexchanges

2.8 know the listing regulations of the Karachi, Lahore and Islamabad Stock

Exchangesandshouldbeabletoapplythedifferencesintheseregulations

2.9 knowtheCentralDepositoriesAct,1997andRegulations

2.10 knowtheNationalClearingCompanyofPakistanLimitedRegulations


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ELEMENT 3

PRIMARYMARKET


3.1 understandthefunctionsandprocessesofthePrimaryMarketincluding

IssueofShares Prospectus/OfferingDocuments PreInitialPublicOfferandPrivatePlacement InitialPublicOffering

3.2 knowthegeneralrequirementsandprocedureforcompaniestolistshareson

theKarachi,Lahoreand/orIslamabadStockExchanges

3.3 knowtherequirementsfordelistingfromthestockexchanges3.4 understandthefactorsleadingtolistedcompaniesbeingsuspendedorplacedon

theDefaultersCounter


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ELEMENT 4

SECONDARYMARKET


4.1 knowtheroleandimportanceoftheStockExchange4.2 understandtheStockTradingprocessthroughstockexchangesincluding:

ElectronicTradingTerminals EntryofQuotesandOrders Price/TimePriority OrderTypes TransactionandOrderReports

4.3 knowtheTradingCycle4.4 understandtheProductsavailableonthestockexchangesincluding:

EquityInstrument DebtInstrument

4.5 understandtheDerivatives/FuturesContractsavailableonthestockexchangesincluding:

DeliverableFuturescontracts CashSettledFutures

Index

Futures

contracts

4.6 knowthecompositionandtypesoftheIndexes4.7 knowtheprocessofdisseminatinganddealingwithCorporateActionsand

Announcements

4.8 knowtheStockandMarketIndicatorsandOutcomesincluding: Turnover,growthanddistribution MarketCapitalization LiquidityandFinancing TransactionCosts


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ELEMENT 5

CLEARING,DELIVERY,SETTLEMENTandDEPOSITORY


5.1 knowtherole,functionsandworkingofaClearingHouseofanExchange

5.2 knowtheRiskManagementandTypesofRisksinClearing&Settlement

5.3 knowtheprocessofClearingHouseDepositsandCreditRiskincludingthe

CapitalAdequacyrequirementsandExposureLimits

5.4 understandtheMarginrequirementsandshouldbeabletocalculate VaR(ValueatRisk) MarketRisk ImpactCost LiquidityRisk AcceptableCollateraltomeetMarginRequirements Haircuts MarktoMarket(VariationMargin)&MarginCalls SpecialMargins

5.5 knowtheroleandfunctionsofDepository,thebookentrysystemandits

advantagestothecapitalmarket

5.6 knowthedifferentservicesofferedbyaDepositoryandTypesofAccounts

5.7 understandtheworkingmechanism,benefits,elementsandaccountstructureof

CentralDepositorySystem(CDS)

5.8 knowthemaintenanceofsubaccountsandparticipantaccountinCDS

5.9 understandthefunctionsandprocessofSettlementincluding:

SettlementCycle DeliveryversusPayment InstitutionalDeliverySystem(IDS) PayinandPayout SettlementofFuturesContractsincludingDeliverableandCashSettled

Futures


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ELEMENT 7

COMMODITYMARKETSandPRODUCTS


7.1 understandthefunctioningofaregulatedcommoditiesmarket

7.2 knowtheNationalCommodityExchangeLimitedandthelistedproducts

7.3 understand thebasic featuresandpricingmechanismof thedifferent typesofcontractstradedontheNCEL,includingdeliveryandsettlement

7.4 understand the requirements for becoming a broker at the commoditiesexchange

7.5 knowactsthatmayleadtosuspensionorcancellationofregistration


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ELEMENT 8

INVESTORPROTECTION


8.1 knowtherequirementsofFairDealingincluding:

Risks&RewardsofInvesting BestPrice MaintenanceofRecords TimeStamps RecordingofTelephoneCalls AccountStatements&ContractNotes Misstatements&Misselling/FalseSelling

8.2

know

the

process

and

handling

of

Investor

Complaints

8.3 knowtheInvestorProtectionFundofstockexchanges


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ELEMENT 9

ECONOMICSANDFINANCE


9.1 knowtheTaxationlawsrelevanttocapitalmarketsincluding:

IncomeTax CapitalGainTax CapitalValueTax CorporationTax

9.2 understandandinterprettheFinancialStatementsandconductbasicFinancial

StatementAnalysisincluding:

Revenueandprofitgrowth EarningsandDistributions BookvalueandIntrinsicvalue

9.3 understandandbeabletoapplybasicmathematicsandstatisticsincluding:

Mean,MedianandMode Dispersionandregressionanalysis

9.4 understandandbeabletoapplybasicfinancialmathematicsincluding:

Timevaluemoney,annuitiesandperpetuities Calculationsofannuitiesandperpetuities Present&futurevalueofcashflows

9.5 knowPrincipalFactorsAffectingStockMarkets&Pricesincluding:

BusinessCyclesanditsIndicators EffectoftheBusinessCycle MoneyMarkets EquitiesMarkets Price/Earnings&Price/Bookvaluemultiples Dividend/CapitalgainYield

9.6 knowtheMacroeconomicindicatorsincluding:

GDP MoneySupply TheRoleofStateBankofPakistan International/RegionalEconomiesandMarkets


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RECOMMENDEDREADINGS

The next section of this study guide covers a brief extract from some of the below

mentioneddocuments.Candidatesareadvised to study the respectivedocuments (in

detailandoriginal)whichareavailable freetodownload from ICM'swebsiteand/or

therespective

organization's

websites.

1. AntiMoneyLaunderingOrdinance20072. AntiMoneyLaunderingRegulations20083. AntiMoneyLaunderingRules20084. BondAutomatedTradingSystem(BATS)Regulations20095. BrokerAgentsRegistrationRules20016. CDCAct19977. CDCRegulations8. CodeofCorporateGovernance20029. DirectivetoBrokersonConductofBusinessFebruary7,200310.IncomeTaxOrdinance200111.ISE/KSE/LSEListingRegulations12.KSEInvestorProtectionFundRegulations13.KSECashSettledFutureContractRegulationsOctober200814.KSEMembersDefaultManagementRegulationsSep200915.KSEDeliverableFutureContractRegulationsApril200916.GeneralRegulationsofKSEAmendedAugust20,200917.KarachiAutomatedTradingSystem(KATS)RegulationsMarch199818.KSEInvestorProtectionFundRegulations19.MarginTradingRegulationsOctober200420.NCCPLProcedure200321.NCCPLRegulations200322.NCELGeneralRegulationsMay200723.NCELCommodityExchangeandFuturesContractsRulesMarch200524.RegulationsGoverningOvertheCounterMarketSeptember200925.RegulationsGoverningSystemAuditofBrokersofExchanges200426.SECPAct199727.Securities&ExchangeOrdinance196928.ShortSellingRegulations200229.StockExchangeMembers(InspectionofBooksandRecord)Rules,200130.

Securities

&

Exchange

Rules

1971


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ACRONYMS

CDC CentralDepositoryCompanyofPakistanLimited

CDS CentralDepositorySystem

IDS InstitutionalDeliverySystem

ISE

IslamabadStock

Exchange

(Guarantee)

Limited

KSE KarachiStockExchange(Guarantee)Limited

LSE LahoreStockExchange(Guarantee)Limited

MUFAP MutualFundsAssociationofPakistan

NBFC NonBankingandFinanceCompanies

NCCPL NationalClearingCompanyofPakistanLimited

NCCS NationalClearingandSettlementSystem

NCEL NationalCommodityExchangeLimited

SECP Securities&ExchangeCommissionofPakistan

SBP StateBankofPakistan


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ELEMENT 1

INTRODUCTIONTOMARKETS


1.1 knowtheProducts,ParticipantsandFunctionsofthecapitalmarketsHistorically, worldwide, buyers and sellers were individual investors, such as wealthy

businessmen,with long familyhistories toparticularcorporations.Overtime,markets

havebecomemore "institutionalized";buyersand sellersare largely institutions (e.g.,

pensionfunds,insurancecompanies,mutualfunds,indexfunds,exchangetradedfunds,

hedgefunds,investorgroups,banksandvariousotherfinancialinstitutions).Theriseof

theinstitutionalinvestorhasbroughtwithitsomeimprovementsinmarketoperations.

INVESTOR

An investor isanypartythatmakesan Investment.However,thetermhastakenona

specific meaning in finance to describe the particular typesof people and companies

thatregularlypurchaseequityordebtsecuritiesforfinancialgain.

EQUITYINVESTOR

In Equities, "Investor" means a person, not being Member, his agent or

representative, who, has purchased or sold any of the securities listed at the

Exchange.[InvestorsProtectionFundRegulations]

A

person

is

generally

involved

in

buying

and

holding

of

shares

orstock

on

astock

marketin anticipation of income fromdividendsandcapital gainas the value of the

stockrises. Italsoreferstoanactivityofacquisitionofequityparticipationinaprivate

company or a startup company; when this investment is in infant companies, it is

generallyunderstoodtobehigherriskthaninvestmentinalreadylistedcompany.

SPECULATION

Speculationmeanspurchasingriskyinvestmentsthatholdthepossibilityoflargeprofits,

butalsohaveahigherthanaveragepossibilityoflossandtheinvestorwithnointention

toholditforlongerterm.

Speculation, inthenarrowsenseoffinancialspeculation, involvesthebuying,holding,

selling and shortselling of stocks, TFCs, bonds, commodities, currencies, collectibles,

realestateoranyvaluablefinancialinstrumenttoprofitfromfluctuationsinitspriceas

opposed to buying it for income via methods such as dividends or interest and/ or

capitalgains.Speculatorsinanassethavenointentiontohavelongtermexposure.

INSTITUTIONALINVESTOR


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An institutional investor is an investor, such as a bank, insurance company, pension

fund,ormutualfundthatisfinanciallysophisticatedandmakeslargeinvestments,often

heldinverylargeportfoliosofinvestments.Becauseoftheirsophistication,institutional

investors may often participate in private placements of securities, in which certain

aspects

of

the

securities

laws

may

not

be

applicable.

RETAILINVESTOR

Aretailinvestorisanindividualinvestorpossessingsharesofagivensecurityorunitsof

amutualfund.Retailinvestorscanbedividedintotwocategoriesofshareownership.

An investorwhoholdsshares inhisDepositoryaccountof thesecurities, italsoincludeinvestorshavingphysicalcopiesoftheirsharesascertificates

Aninvestorwhohaspurchasedtheunitsofamutualfundorfunds


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1..2 knowtheroleoftheSecuritiesMarketandFinancialSystemincluding: stockexchanges stockbrokers retail/commercialbanks investmentbanks pension/mutualfunds insurancecompanies fundmanagers/assetmanagementcompanies custodians industrytradebodies

RETAIL/COMMERCIAL

BANKS

ACommercialBank isatypeoffinancial intermediaryandatypeofbank.Commercial

bankingisalsoknownasbusinessbanking.Itisabankthatprovideschequingaccounts,

savingaccounts,moneymarketaccountsandacceptstimedepositsaswell.

Retail banking refers to banking in which banking institutions execute transactions

directly with consumers, rather than corporations or other banks. Services offered

include:savingsandchequingaccounts,mortgages,personal loans,debitcards,credit

cards,andsoforth.Mostbanksofferbothcommercialandretailbankingservices.

Retailand

Commercial

Banks

in

Pakistan

are

regulated

by

the

State

Bank

of

Pakistan.

INVESTMENTBANKS

An investmentbankisafinancialinstitutionthatraisescapital,tradesinsecuritiesand

manages corporate mergers and acquisitions. Investment bank generates profits by

raisingmoneythrough issuingandsellingsecuritiesinthecapitalmarketsandthrough

providingadviceandservicesontransactionssuchasmergersandacquisitions.

A majority of investment banks offer strategic advisory services for mergers,

acquisitions, divesture, Initial Public Offerings, Private Placement, or advice on other

financial

transactions

in

the

international

markets

including

issuance

of

Global

DepositoryReceipts(GDRs),EurobondsandSukuk(anIslamicBond).

PENSION/MUTUALFUNDS

Amutual fund isaprofessionallymanaged typeofCollective InvestmentSchemethat

pools money from many investors and invests it in stocks, bonds, money market

instrumentsofdifferentmaturities,and/orothersecurities.Themutualfundhasafund


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manager that trades the pooled money on the basis of the investment policy of the

mutualfundandasapprovedbytheinvestmentcommittee.

Apensionfundisapoolofassetsforminganindependent legalentitythatarebought

withthecontributionstoapensionplanfortheexclusivepurposeoffinancingpension

plan

benefits.

INSURANCECOMPANIES

InsuranceisdefinedundersubsectionxxviiofSection2ofthe InsuranceCompanies

Ordinance2000.

Insurancemeansthebusinessofenteringintoandcarryingoutpoliciesorcontracts,

bywhatevernamecalled,whereby,inconsiderationofapremiumreceived,aperson

promisestomakepaymenttoanotherpersoncontingentuponthehappeningofan

event,specifiedinthecontract,onthehappeningofwhichthesecondnamedperson

suffersloss,andincludesreinsuranceandretrocession:

Provided that a contract of life insurance shall be deemed to be a contract of

insurancenotwithstandingthatitmaynotcomplywiththedefinitionsetoutinthis

clause;

Aninsurerisacompanysellingtheinsurance;aninsuredisthepersonorentitybuying

the insurance. Insurance isdefinedastheequitabletransferoftheriskofa loss,from

one entity to another, in exchange for a premium, and can be thought of as a

guaranteedsmallloss/expensetopreventalarge,possiblydevastatingloss. Insurance

companiesareoneofthemajorinvestorinequitymarkets.

ASSETMANAGEMENT

COMPANIES

(AMCs)/

FUND

MANAGERS

Asset management company means a company which offers investment

schemesundertrustdeedsandissuesredeemablesecurities;undersection2(ac)

oftheSecurities&ExchangeOrdinance1969

Assetmanagement servicesmean the servicesprovidedformanagement of

collective investment schemes; defined under Section 2 (iii) of the NBFC Rules

2003

Collective investment scheme means a closedend fund and an openend

scheme;defined

under

Section

2(xii)

of

the

NBFC

Rules

2003

Openend schememeans a scheme constituted byway of a trust deed that

continuouslyoffersforsaleitsunitsasspecifiedintheconstitutivedocumentthat

entitletheholderofsuchunitsondemandtoreceivehisproportionate shareof

thenetassetsoftheschemelessanyapplicablecharges;definedunderSection2

(xxxvii)oftheNBFCRules2003


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Closedendschememeansaschemeconstitutedbywayoftrusttoraisefunds

through issue of certificates to thepublicfor investing in securities including

moneymarketinstrumentsforadefiniteorindefiniteperiodbutwhichdoesnot

continuouslyoffercertificatesentitlingtheholderofsuchcertificates,toreceive,

ondemand,

his

proportionate

share

of

the

net

assets

of

the

closed

end

scheme;

definedunderSection2(x)oftheNBFCRules2003

Acompany that invests itsclients'pooled fund intosecurities thatmatch itsdeclared

financial objectives. Asset management companies provide investors with more

diversificationand investingoptions thantheywouldhaveby themselves.AMCsoffer

theirclientsmorediversificationbecausetheyhavealargerpoolofresourcesthanthe

individualinvestor. Poolingassetstogetherandpayingoutproportionalreturnsallows

investorstoavoidminimum investmentrequirementsoftenrequiredwhenpurchasing

securitiesontheirown,aswellastheabilitytoinvestinalargersetofsecuritieswitha

smallerinvestment.

Mutual funds and pension plans are run by Asset Management Companies. These

companiesearnincomebychargingmanagementfeestotheirclients.

STOCKBROKERS

A"Broker"meansanypersonengaged inthebusinessofeffectingtransactionsinsecuritiesfortheaccountofothers;[S&EOrdinance,1969]

Astockbrokerorstockbrokerisaregulatedprofessionalwhobuysandsellssharesand

other securities through market makers or Agency Only Firms on behalf of investors.

Stockbroker isamemberoftheExchangeand isauthorizedtodeal inscripsof listedcompaniesonbehalfoftheirclients/investors.

Stockbrokercanbeanindividualmemberorbodycorporate.Tobuyandsellsharesofa

particularcompany,aninvestorhastocontacthisstockbroker.Abrokerbuysandsells

securitiesonbehalfofthe investorandchargescommissionfortheservicesrendered.

The stock brokersjob is to assist clients in meeting their investment objectives by

handlingordersforstocks,maintainingaccountrecordsandproviding informationand

advisoryservice.

Therearethreetypesofstockbrokingservice.

- Executiononly; which means that the broker will only carry out the client'sinstructionstobuyorsell.

- Advisorydealing;wherethebrokeradvisestheclientonwhichsharestobuyandsell,butleavesthefinaldecisiontotheinvestor.

- Discretionarydealing;where thestockbrokerascertains theclient's investmentobjectivesandthenmakesalldealingdecisionsontheclient'sbehalf.


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CUSTODIAN

A "Custodian"means a Banking Companywithin themeaning of the BankingCompanies Ordinance, 1962 (LVII of 1962), or a Central Depository Company

approvedby

the

SECP,

which

is

appointed

to

be

acustodian

under

the

rules;

[NBFCRules,2003]

Custodianisatrustcompany,bankorsimilarfinancialinstitutionresponsibleforholding

andsafeguardingthesecuritiesownedwithinamutualfund.Amutualfund'scustodian

may also act as the mutual fund's transfer agent, maintaining records of shareholder

transactionsandbalances.Sinceamutualfundisessentiallyalargepooloffundsfrom

manydifferent investors, itrequiresathirdpartycustodiantoholdandsafeguardthe

securitiesthataremutuallyownedbyallthefund's investors.Thisstructuremitigates

the risk of dishonest activity by separating the fund managers from the physical

securitiesandinvestorrecords.

STOCKEXCHANGES

The "stock exchange" means any person who maintains or provides a

market place or facilities for bringing together buyers and sellers of

securities or for otherwise performing with respect to securities the

functions commonly performed by a Stock Exchange, as that term is

generally understood, and includes such market place and facilities;

[Securities&ExchangeOrdinance,1969]

A stock exchange is a corporation or mutual organization which provides "trading"

facilities

for

stock

brokers

and

traders,

to

trade

stocks

and

other

securities.

Stock

exchangesalsoprovide facilities for the issue and redemptionof securitiesaswell as

other financial instruments and capital events including the payment of income and

dividends. The securities traded on a stock exchange include: shares issued by

companies, unit trusts and 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,buttradeisnowlessandlesslinkedtosuchaphysicalplace,asmodern

markets are electronic networks, which gives them advantages of speed and cost of

transactions.Tradeonanexchangeisbymembersonly.Theinitialofferingofstocksand

TFCs/bonds to investors is by definition done in the primary market and subsequent

tradingisdone

in

the

secondary

market.

Astock

exchange

isoften

the

most

important

componentofastockmarket.Supplyanddemandinstockmarketsisdrivenbyvarious

factorswhich,asinallfreemarkets,affectthepriceofstocks.

Stocknottradedviathestockexchangeitself,aresaidtobetradedofftheexchangeor

OvertheCounter(OTC).


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more efficient firm. Thus, a free market in corporate control, by providing financial

discipline, isexpectedtoprovidethebestguaranteeofefficiency intheuseofassets.

Similarly, the ability to effect changes in the management of listed companies is

expectedtoensurethatmanagerialresourcesareusedefficiently.

Efficientand

well

organized

securities

markets

may

also

reduce

the

costs

of

acquiring

information. Effectively, doing so by generation and dissemination of firm specific

information that efficient stock prices reveal. Stock markets are efficient if prices

incorporateallavailableinformationquicklyintothem.Reducingthecostsofacquiring

information isexpectedto facilitateand improvetheacquisitionof informationabout

investment opportunities and thereby improves resource allocation in the economy.

Stockpricesdeterminedinexchangesandotherpubliclyavailableinformationmayhelp

investor make better investment decisions and thereby ensure better allocation of

fundsamongcorporationsandasaresultahigherrateofeconomicgrowth.

Securitiesmarket liquidity isexpectedtoreducethedownsideriskofstockpricesand

costsof investing inprojectsthatdonotpayofffora longtime.Witha liquidmarket,

theinitialinvestorsdonotloseaccesstotheirsavingsforthedurationoftheinvestment

projectbecausetheycaneasilyandquicklyselltheirstakeinthecompany.Thus,more

liquid securities markets could ease investments in long term, thereby improving the

allocationofcapitalandenhancingprospects for longtermgrowth. It is important to

point out, however, that, the greater liquidity in the securities markets may have

adverse effect on the economic growth of the country as the initial investor may, in

difficult circumstances either for short term or longer term, be able to withdraw his

investmentthathasbeencommittedforthelongertimeperiodinitially.Thebehaviour

of such an investor may influence the other investors as well and resulting in sharp

declinein

economic

activity

and

growth.

Nowadays,theabsenceofawelldevelopedstockmarket isaseriousdisadvantagefor

anyeconomyaseaseofequitygenerationisessentialfortheemergenceandgrowthof

firms.


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1.5 knowthebasicsofTheSecondaryMarketSecondary

Market

When there is a sale/ purchase transaction ofexisting shares,between two investors

throughtheirBrokersontheStockMarketitisknownasatransactionintheSecondary

Market.

AdvantagesofSecondaryMarket(asopposedtoPrimaryMarket):

Subjecttoavailabilityofawillingsellerattherightprice,anynumberofsharescanbebought.

SellercaneasilydisposeofliquidsharesinthemarketDisadvantagesofSecondaryMarket(asopposedtoPrimaryMarket):

BuyerhastopaytheMarketPriceoftheshare,whichisdeterminedonthebasisofdemandandsupply

TaxCreditisnotavailableonsuchtransactions ThebuyerhastopayTransferFeeoneverysuchsharehebuys


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ELEMENT 2

REGULATORYFRAMEWORK

Oncompletion,

the

candidate

should:

2.1 understand the scope, core functions and powers of the Securities andExchangeCommissionofPakistan(SECP)asconferredinSECPAct,1997

PARTVI:POWERSANDFUNCTIONS SECPAct1997

In order to understand the Powers and Functions of SECP candidates are advised to

refertoSection20ofSECPAct1997.

Oncompletion,

the

candidate

should:

2.2 understandtheSECPRegulations,RulesandProcedures,PowersandFunctions,Appeals,Jurisdictionsincluding:

Functionalresponsibilityandpowers Approvalaccordingbody Powertocallforinformation Enforcementandinvestigativepowers

PARTVIII:ENFORCEMENTANDINVESTIGATION SECPAct1997

To understand the Securities & Exchange Commission of Pakistan (SECP) Rules,

Regulations and Procedures, Powers, Functions, Appeals and Jurisdictions candidates

areadvisedtorefertheSection29to33ofSECPAct1997.


2.3 understandthekeyelementsoftheSecuritiesandExchangeOrdinance,1969

Candidatesare

advised

to

refer

the

following

sections

of

the

Securities

and

Exchange

Ordinance,1969

- Section2- Section15Ato15E- Section16- Section17


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- Section18- Section18A- Section19

Oncompletion,

the

candidate

should:

2.4 knowtherelevantsectionsofSecuritiesandExchangeRules,1971To know the relevant sections of Securities and ExchangeRules, 1971 candidates are

advisedtorefertheSection3and4ofSecuritiesandExchangeRules,1971


2.5

understand

and

interpret

the

SECPs

Directives

to

Brokers

on

Conduct

ofBusiness,InvestorProtection,etc.

Asenvisaged for capital markets development in Pakistan, the three stock exchanges

adjusted their board and management structures, promoted the corporatization of

memberbrokersandcreated investorprotectionfunds. SECPhasalwaysbeen issuing

mostoftherulesthatthestockexchangeswererequiredtoadopt,like,tradereporting

rules including penalties for insider trading, inspection rules, licensing standards for

traders and agents, listing requirements and guidelines, and model contractual

agreements.

SECP,

from

time

to

time,

also

issues

directives

to

exchanges,

their

members,

CDC,

National Clearing Company and other regulated entities on conduct of business and

investorprotection.TheSECPdirectiveshavebeenamajordrivingforceforintroducing

regulatoryreformsatexchanges.

Regulatory directives outline the statutory requirements and provide format of

comprehensivepracticesas requiredby regulators. Theprofessionalsareexpected to

understandthesedirectivesandactintheprudentmanneraccordingly.Alsothisisthe

responsibilityof thebrokingagent toacquaint themselves regularlyon thedirectives.

ThesedirectivesareusuallyavailableonthewebsitesofSECPandstockexchangessoon

after

their

issuance.

The

websites

of

the

exchanges

are

regularly

updated

in

order

to

keepabreastthemarketparticipantswiththeregulatorychangestakingplace.

Detailed guidelines on the brokers conduct of business are provided in the Third

ScheduleoftheBrokersandAgentsRegistrationRules,2001andshallbediscussed in

detailinElement6ofthisstudyguide.


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2.6 know the relevant sections of the Companies Ordinance, 1984 to capitalmarkets

CompaniesOrdinance,1984

To know the relevant sections of the Companies Ordinance, 1984 to capital markets,

candidates are advised to refer to the following sections in the original Ordinance

availableatICM'saswellasSECP'swebsite.

Part V: Provides information about the Prospectus,Allotment, Issue and Transfer of

SharesandDebentures,Depositsetc.

Pleaserefersection52to88ofCompaniesOrdinance,1984.

PartVI: Provides information about the Share Capital andDebentures, theirNature

NumberingandCertificateofShares.

PleasereferSection89to95AofCompaniesOrdinance,1984.


2.7 know the listing regulations of the Karachi, Lahore and Islamabad StockExchangesandshouldbeabletoapplytheseregulations

ListingRegulationsofKSECandidates are advised to refer to the Listing Regulations of Karachi Stock Exchange

(KSE)availableatICMaswellasonthewebsiteofKSE.

ListingRegulationsofLSECandidatesareadvisedtorefertotheListingRegulationsofLahoreStockExchange(LSE)

availableatICMaswellasonthewebsiteofLSE.

ListingRegulationsofISECandidatesareadvisedtorefertotheListingRegulationsof IslamabadStockExchange

(ISE)available

at

ICM

as

well

as

on

the

website

of

ISE.


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manycasesdetailedfinancialinformationisnotdisclosedandtheneedforaprospectus

is waived. Finally since the placements are private rather than public, the average

investorisonlymadeawareoftheplacementusuallyafterithasoccurred.

INITIALPUBLICOFFERING

Initialpublicoffering(IPO),alsoreferredtosimplyasa"publicoffering"or"flotation,"is

whenacompanyissuescommonstockorsharestothepublicforthefirsttime.Theyare

often issuedbysmaller,youngercompaniesseekingcapitaltoexpand,butcanalsobe

donebylargeprivatelyownedcompanieslookingtobecomepubliclytraded.

Inan IPOthe issuermayobtain theassistanceofanunderwriting firm,whichhelps it

determinewhattypeofsecuritytoissue(commonorpreferred),bestofferingpriceand

timetobringittomarket.

AnIPOcanbeariskyinvestment.Fortheindividualinvestor,itistoughtopredictwhat

thestockorshareswilldoonitsinitialdayoftradingandinthenearfuturesincethere

isoftenlittlehistoricaldatawithwhichtoanalyzethecompany.Also,mostIPOsareof

companiesgoingthroughatransitorygrowthperiod,andtheyarethereforesubjectto

additionaluncertaintyregardingtheirfuturevalue.However, inordertomakemoney,

calculatedrisksneedtobetaken.

It is also defined as the selling of securities to the public in the primary market. It is

whenanunlistedcompanymakeseitherafreshissueofsecuritiesoranofferforsaleof

itsexistingsecuritiesorboth forthefirsttimetothepublic.Thispaveswayfor listing

andtradingofthe issuerssecurities.Thesaleofsecuritiescanbeeitherthroughbook

buildingorthroughnormalpublicissue.

BOOKBUILDINGPROCESS

Book Building is basically a process used in IPOs for efficient price discovery. It is a

mechanismwhere,duringtheperiodforwhichtheIPOisopen,bidsarecollectedfrom

investorsatvariousprices,whichareaboveorequaltothefloorprice.Theofferpriceis

determinedafterthebidclosingdate.

CUTOFFPRICE

In

a

Book

building

issue,

the

issuer

is

required

to

indicate

either

the

price

band

or

a

floor

price intheprospectus.Theactualdiscovered issuepricecanbeanyprice intheprice

bandoranypriceabove the floorprice.This issueprice iscalledCutOffPrice.The

issuer and lead manager decides this after considering the book and the investors

appetiteforthestock.

FLOORPRICE


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Floorpriceincaseofbookbuildingistheminimumpriceatwhichbidscanbemade.

PRICEBAND

The prospectus may contain either the floor price for the securities or a price band

withinwhich

the

investors

can

bid.

The

cap

should

not

be

more

than

120%

of

the

floor

price.Thepricebandcanalsoberevised.Itisuptothecompanytodecideontheprice

orthepriceband,inconsultationwithMerchantBankers.

NORMALPUBLICISSUE

Inthis issue,Priceatwhichsecuritieswillbeallotted isknown inadvanceto investor.

Thedemand isknownonlyat thecloseofthe issue.Thenormalpublic issuesarenot

followednowaday.

MINIMUMNUMBEROFDAYS

Thebookshouldbekeptopenforatleastthreedays.

RATINGS

It isanother importantcriteriontobeconsideredforan IPO.Thegrade isnothingbut

therankgiventotheIssuerbythethirdpartycompanieslikeStandard&Poor,Moodys,

JCRVIS,PACRA,Etc.

RIGHTISSUE

Rights Issue is an issue of securities when a listed company which proposes to issue

freshsecuritiestoitsexistingshareholdersasonarecorddate.Therightsarenormally

offeredinaparticularratiotothenumberofsecuritiesheldpriortotheissue.Thisroute

isbestsuitedforcompanieswhowouldliketoraisecapitalwithoutdilutingstakeofits

existingshareholders.

PREFERENTIALISSUE

A Preferential issue is an issue of securities or of convertible securities by a listed

company

to

a

select

group

of

persons,

which

is

neither

a

rights

issue

nor

a

public

issue.

Thisisafasterwayforacompanytoraiseequitycapital.


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3.2 knowthegeneralrequirementsandprocedureforcompaniestolistsharesontheKarachi,Lahoreand/orIslamabadStockExchanges

Candidates are advised to refer the following regulations of the listing regulations of

relevantexchanges;availableatICM'saswellasrelevantexchange'swebsite.

- Regulation3- Regulation4- Regulation5

Oncompletion,

the

candidate

should:

3.3 knowtherequirementsfordelistingfromthestockexchangesCandidates are advised to refer the following regulations of the listing regulations of

relevantexchanges;availableatICM'saswellasrelevantexchange'swebsite.

Regulation30Bto30D


3.4 understandthefactorsleadingtolistedcompaniesbeingsuspendedorplacedontheDefaultersCounter

Generally,a listedcompanymaybedelisted,suspendedorplacedontheDefaulters

Counter, under Regulation 32 of Listing Regulations of the Exchanges, for any of the

followingreasons:

a) If its securities are quoted below 50 per cent of face value for a continuousperiodofthreeyears.Providedthat ifthesharesofthecompanyquotedat50

percent

or

above

of

their

face

value

then

such

a

rate

is

maintained

for

a

continuousperiodofthirtyworkingdays.

b) Ifithasfailedtodeclaredividendorbonus:i. forfiveyearsfromthedateofdeclarationoflastdividendorbonus;orii. inthecaseofmanufacturingcompanies,forfiveyearsfromthedateof

commencementofproduction;and


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iii. for fiveyears from thedateofcommencementofbusiness inall othercases

c) ifithasfailedtoholditsannualgeneralmeetingforacontinuousperiodofthreeyears

d) ifithasgoneintoliquidationeithervoluntarilyorundercourtorder;e) if it has failed to pay the annual listing fees as prescribed in the regulations

payableto theExchange foraperiodof2yearsofpenalty imposedunder the

regulationsoranyotherduespayabletotheExchange;

f) ifithasfailedtocomplywiththerequirementsofanyoftheseregulations;i. IfthecompanyforanyreasonwhatsoeverrefusestojointheCDSafterits

securitieshavebeendeclaredeligiblesecuritiesbytheCDC.

g) no company which has been delisted or suspended shall be restored and itsshares

re

quoted

until

it

removes

the

causes

of

delisting/suspension

and

receivestheassentoftheBoardfortherestoration

NocompanyisdelistedorplacedonDefaultersCounter,undertheListingRegulations,

unlesssuchcompanyhasbeengivenanopportunityofbeingheard.

Fordetails,pleaserefertothelistingregulationsofrelevantexchanges.


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ELEMENT 4

SECONDARYMARKET


4.1 knowtheroleandimportanceoftheStockExchangeAs discussed earlier, a stock exchange is a corporation or mutual organization which

provides "trading" facilities for stock brokers and traders, to trade stocks and other

securities. Stock exchanges also provide facilities for the issue and redemption of

securitiesaswellasother financial instruments including thepaymentof incomeand

dividends. The securities traded on a stock exchange include shares issued by

companies,unittrusts,pooled/collectiveinvestmentproductsandTFCs/bonds.

To

be

able

to

trade

a

security

on

a

certain

stock

exchange,

it

has

to

be

listed

there.

Usuallythere isacentral locationat leastforrecordkeeping,butnowtrade is lessand

less linkedtosuchaphysicalplace,asmodernmarketsareelectronicnetworks,which

gives themadvantagesofspeedandcostof transactions.Tradeonanexchange isby

membersonly.Theinitialofferingofstocksandbondstoinvestorsisbydefinitiondone

intheprimarymarketandsubsequenttradingisdoneinthesecondarymarket.Astock

exchange is often the most important component of a capital market. Supply and

demandinstockmarketsisdrivenbyvariousfactorswhich,asinallfreemarkets,affect

thepriceofstocks.

Ashare/securitynottradedonanexchange,usuallyduetoan inabilitytomeetlisting

requirements.For

such

securities,

broker/

dealers

negotiate

directly

with

one

another

over computer networks and by phone, and their activities are monitored by the

Exchange.Overthecounter(OTC)stocksareusuallyveryriskysincetheyarethestocks

thatarenotconsideredlargeorstableenoughtotradeonamajorexchange.Theyalso

tendtotradeinfrequently,makingthebidaskspreadlarger.Also,researchaboutthese

stocksismoredifficulttoobtainasmostofthemareunlisted.

RoleandImportanceofaStockExchange

Stockexchangesprovideanumberofservicesandfunctionswithinthefinancialsystem;

In

short

they

monitor

and

provide

the

marketplace

for

a

corporation

lookingto

raise

fundsbygoingpublic

Many individualsandcompaniestendtobelievethatoncefundinghasbeenobtained,

their goal is accomplished and the importance of further involvement with the stock

exchangeisminimal. Onthecontrarytheimportanceofthestockexchangeliesinthe

factthatitallowsinvestorstomaintainliquidityfortheirinvestments. Whenastockis

listedonamajorexchange, itallowsany shareholder to sellhisorher sharesalmost


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TRANSACTIONSANDORDERREPORTS:KSE100TradeScreenofKATS(CourtesyKSE)

TRANSACTIONSANDORDERREPORTS:OutstandingTradesReportofKATS(CourtesyKSE)Daily Trade log

Outstanding

orders log

Terminal Code

Daily Trade log

Exchange

Status


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TRANSACTIONSANDORDERREPORTS:TradeLogReportofKATS(CourtesyKSE)UnifiedTradingSystem(UTS):

TRANSACTIONANDORDERREPORTS:MainWindowofUnifiedTradingSystem(UTS)

Company

SymbolClient CodeTotal Purchased

uantity Total PurchaseAmount

Average

Purchase Rate

Market Watch

divided into

five pages

Search Symbol

feature

Header labels

Scroll Bar

When coloured

green indicates

real-time increase

in value

When coloured

yellow indicates

real-time decreasein value


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TRANSACTIONANDORDERREPORTS:MarketSummaryofUTS

TRANSACTIONANDORDERREPORTS:BuyOrderinUnifiedTradingSystem

TRANSACTIONANDORDERREPORTS:SellOrderofUnifiedTradingSystem(UTS)

Market Type

Save current

market summary

Refresh for up-to-date information

Print the current market

summary

Header row labels


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TRANSACTIONANDORDERREPORTS:WaterFallTickerofUnifiedTradingSystem(UTS)

TRANSACTIONANDORDERREPORTS:OrderBookofUnifiedTradingSystem(UTS)

Order symbolAccount number View Buy and Sell

ordersType of Market

Heading of all

columns


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4.3 knowtheTradingCycleTRADINGCYCLE

All stock exchanges in the country have introduced computerized trading system to

provide a fair, transparent, and efficient market mechanism to facilitate the market

participants,includingtheinvestors.ThesystembeingoperatedatKSEiscalledKarachi

AutomatedTradingsystem(KATS);LSEiscalledTradingWorkstations(TWS)whileISEis

calledUltra.

Thetradingsystemcomprisesofvariousdistinctsegments,whichare:

T+2SettlementSystems:In

the

T+2

Settlement

systems,

purchase

and

sale

of

securities

isnetted

and

the

balance

issettledontheseconddayfollowingthedayoftrade.

BenefitofT+2SettlementSystems:Itreducesthetimebetweenexecutionandsettlementoftrades,whichinturnreduces

themarketrisk.Italsoreducessettlementrisk,asthesettlementcycleisshorter.

ProvisionallyListedCounter:The shares of companies, which are not already listed and which make a minimum

publicofferingofaspecifiedamount,which ispresentlyRs.150million, tradeonthis

counter from the date of publication of prospectors/offering document. When the

company

completes

the

process

of

dispatch/credit

of

allotted

shares

to

subscriber

through CDC, it is officially listed and placed on the T + 2 counter. Trading on the

provisionallylistedcounterthencomestoanend andalltheoutstandingtransactions

aretransferredtotheT+2counterwitheffectfromthedateofofficiallisting.

T+1/SpotTransactions:Spottransactionsimplydeliveryuponpayment.Normallyinspottransactionsthetrade

issettledwithin24hours.

FuturesContract:Afuturescontractinvolvespurchaseandsaleofsecuritiesatsomefuturedate(normally

within

one

calendar

month),

at

a

price

fixed

today.

The

number

and

names

of

companiestobetradedontheFuturescounteraredeterminedeverysixmonthsbased

ontheeligibilitycriteriaapprovedbytheSECP inthisregardandwhicharenotifiedto

themarketparticipantsinadvance.


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OTCMarket:Inordertoencourageenterprisingpromoterstosetupnewindustriesorexpandtheir

existing enterprises by raising finance in a cost effective way through listing

mechanismwithcomparativelylesserrequirements,anOver theCounter(OTC)market

has

been

also

made

operative.

The

OTC

market

operates

under

the

Regulations

GoverningOvertheCounterMarketoftheKarachiStockExchangenotifiedSeptember

17,2009.


4.4 understandtheProductsavailableonthestockexchangesincluding: EquityInstrument DebtInstrument

Equity instrumentstradedontheexchangesare inthe formofsharesthatprovesthe

ownership interest of common and preferred stock holders in a company. The

ownership interest is representedbyshares reflecting theassetsandearnings.Equity

instrumentstradedonthelocalstockexchangesare:

OrdinaryShares PreferenceShares SharesRights DeliverableFuturesContracts CashSettledFuturesContracts StockIndexFuturesContracts ClosedendMutualFunds

Debt instruments are the written promise to repay a debt. Examples include bills of

exchange,TreasuryBills,TFCs,bonds,notes,CDs,etc.

Inordertofacilitatethe institutionsdealing inmoneymarketsKarachiStockExchange

has introduced Bond Automated Trading System (BATS). Currently, Term Finance

Certificates

TFCs

have

been

introduced

for

trading

on

the

BATS

but

later

Bonds,TreasuryBillsandotherdebtinstrumentswillalsobetraded.


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instrument with actual delivery of the underlying instrument occurring. Settlement

occurs30daysafterthecontractispurchased.

For further details, candidates are advised to refer to the "Regulations Governing

DeliverableFuturesContract"ofKSEavailableatICM'saswellasKSE'swebsite.

CASHSETTLED

FUTURES

The Cash Settled Futures Contract is a standardized contract, to buy or sell a certain

underlying instrumentatacertaindate inthefuture,atspecifiedprice.Allsettlement

occurspurelyoncashbasis.Dependingonthecontract,settlementoccurs30,60&90

daysafterthecontractispurchased.

Forfurtherdetails,candidatesareadvisedtorefertothe"RegulationsGoverningCash

SettledFuturesContract"ofKSEavailableatICM'saswellasKSE'swebsite.

INDEXFUTURESCONTRACTS

StockIndexFuturesaretradedinanumberofcontracts.Eachcontractistobuyorsella

fixedvalueoftheindex.StockIndexFuturesContractoccurs90daysafterthecontract

ispurchased.

Forfurtherdetails,candidatesareadvisedtorefertothe"RegulationsGoverningIndex

FuturesContract"ofKSEavailableatICMaswellasonthewebsiteofKSE.


4.6 knowthecompositionandtypesoftheoftheIndexesMovementsofstockexchangeindicesarepopularlyconsideredaskeyindicatorsofthe

economyofacountry.Stockexchangeindicesarenotonlybarometersoftheeconomy

andpublicopinionofthestateofeconomy,butarealsousedbymanytechnicalanalysts

toforecastandevaluatemarkettrendsandbasetheiropiniononthefuturedirectionof

themarket.

Itisoftenmoreimportantforobserversoftheindextonottotakeitatfacevaluebutto

alsoexploredeeper into theconstituentsof the indexand thepolicy followedby the

indexmanagers

in

its

maintenance.

Onaverybasiclevel,anystockmarketindexissimplyanumericalvaluethatmeasures

the change in the market. In Pakistan, the main objective for the construction of an

indexistotracktheperformanceofthevariouslistedstocksaccordingtotheirmarket

capitalization.Ingeneral,acapitalweightedindexiscomposedofabasketofsecurities,

whichcapturesthechangeinmarketcapitalizationduetothevariationinprices.


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KSE100

KSE100isthemostrecognizedindexoftheKSE,representingalmostallsectorsofthe

KSE and includes the largest companies on the basis of their market capitalization. It

representsapproximately85%ofthemarketcapitalizationoftheExchange.

For further details, candidates are advised to refer to the Index Brochure of KSE100

IndexofKSEavailableatICMaswellasonthewebsiteofKSE.

KSE30

TheKSE30Indexwasintroducedin2006andisbasedontheFreeFloatMethodology.

Theindexincludesonlythetop30mostliquidcompanieslistedontheKSE.

For further details, candidates are advised to refer to the Index Brochure of KSE30


KMI30

(KSE

Meezan

Index)

TheKMI30 indexwas introduced inSeptember2008andcomprisesof30Companies

thatqualitytheKMIShariahscreeningcriteriaandisweightedbyfloatadjustedmarket

capitalization.There isa12%caponweightsof individualsecurities,whilerebalancing

oftheIndexisdonebiannually.AtotalreturnIndexbasedonfreefloatmethodology

For further details, candidates are advised to refer to the Index Brochure of KMI30


KSEAllShares

TheAllShareIndexconsistsofallthecompanieslistedontheKSE.

LSE25

The Lahore Stock Exchange's LSE25 index also calculates the performance of stocks

assumingthatallrightsissuesandbonusshareissuesonlyincreasethelistedcapital.In

thecaseofbonusesorrightsthepricesofthesharesarenotadjustedastheyareinthe

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

adjustmentsaremadewhenanycomponentcompanyissuescashdividends.

Forfurther

details,

candidates

are

advised

to

refer

to

the

Index

Brochure

of

LSE

25

Index

ofLSEavailableatICM'saswellasLSE'swebsite.

LSETotalReturnIndex

The LSE Total Return Index calculates the performance of stocks assuming that all

payouts are reinvested in the index on the exdate. The LSETRI assumes that if a

componentcompanyissuesbonussharesorannouncesarightsissueitwillincreasethe


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Manycompanieshaveadominantshareholder,whichmaybeagovernmententity,a

family,oranothercorporation.Manystockmarket indicessuchastheKSE100adjust

forthesebycalculatingonafreefloatbasis,i.e.themarketcapitalizationtheyuseisthe

valueofthepubliclytradablepartofthecompany.

Note

that

market

capitalization

is

a

market

estimate

of

a

company's

value,

based

on

perceivedfutureprospects,economicandmonetaryconditions.Stockpricescanalsobe

moved by speculation about changes in expectations about profits or about mergers

and acquisitions. Market capitalization is only a rough measure of the true size of a

market.

LIQUIDITY

Market liquidity is an investment term that refers to an asset's ability to be easily

convertedthroughanactofbuyingorsellingwithoutcausingasignificantmovementin

thepriceandwithminimumlossofvalue. Money,orcashonhand,isthemostliquid

asset. Anactofexchangeofa less liquidassetwithamore liquidasset isalsocalled

liquidation. Liquidityalsoreferstoabusiness'abilitytomeetitspaymentobligations,in

termsofpossessingsufficientliquidassets.

A liquidassethassomeormoreof the following features. Itcanbesoldrapidly,with

minimal loss of value, any timewithin markethours. The essentialcharacteristic of a

liquidmarketisthattherearereadyandwillingbuyersandsellersatalltimes.

An illiquid asset isan asset which is not readily saleable due touncertainty about its

valueorlackingamarketinwhichitisregularlytraded.Theliquidityofaproductcanbe

measured as how often it is bought and sold; this is known as volume. Often

investments

in

liquid

markets

such

as

the

stock

exchange

or

futures

markets

areconsideredtobemoreliquidthaninvestmentssuchasrealestate,basedontheirability

to be converted quickly. Some assets with liquid secondary markets may be more

advantageoustoown,sobuyersarewillingtopayahigherpricefortheassetthanfor

comparableassetswithoutaliquidsecondarymarket.

Amarketasawhole isconsidereddeeply liquid iftherearereadyandwillingbuyers

and sellers in large quantities. This is related to a market depth, where sometimes

orderscannotstronglyinfluenceprices.

TRANSACTIONCOSTS

Ineconomicsandrelateddisciplines,atransactioncost isacost incurred inmakingan

economicexchange.Forexample,mostpeople,whenbuyingorsellingastock,mustpay

acommissiontotheirbroker;thatcommission isatransactioncostofdoingthestock

deal. When rationally evaluating a potential transaction, it is important to consider

transactioncoststhatmightprovesignificant.


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ELEMENT 5

CLEARING,DELIVERY,SETTLEMENTandDEPOSITORY


5.1 knowtherole,functionsandworkingofaClearingHouseofanExchange

AClearingHouse isanorganization/companyaffiliatedwithaStockexchangethrough

whichbrokers,financial institutions,andotherpartiessettletrades.ClearingCompany

handlesthevalidation,deliveryandsettlementofsecuritiestransactions.

ClearingandSettlement isoneof themost importantaspects in theoperationof the

securities

business.

It

is

the

process

of

reporting,

matching,

correcting

securities

transactionandtheultimatedeliveryorreceiptofnetbalances.

NationalClearingandSettlementSystem (NCSS) isanelectronic systemdeveloped to

replace the individualClearingHousesofPakistans three stockexchangesbya single

entity. This system is operated by National Clearing Company of Pakistan Limited

(NCCPL),whichhasbeenregisteredasaseparatelegalentity.TheoperationofNCSShas

rapidlygainingacceptanceandnowmajorityofthesecuritieshavebeen inducted into

thesystemforsettlementpurpose.

NCSSprovidesstabilitytothemarketbycappingthesystemicrisktoagreatextent. It

has

also

improved

efficiency

of

the

settlement

process

by

introducing

a

consolidated

andgeographicalneutralclearingandsettlementsystem.NCSS,withitstechnologically

advance features such as automated Pay and Collect functionality, introduced

transparencyandefficiencyintheclearingprocess.


5.2 knowtheRiskManagementandTypesofRisksinClearing&Settlement

An efficient settlement system diminishes risks inherent in the settlement system. It

constantlymonitors

and

enhances

risk

measures

to

pre

empt

market

failures.

Ittracks

the record and performance of members and their net worth. It monitors members

exposures and collects margins and disables the license of members if the limits are

breached.

Therearebasicallytwotypesofrisksinvolvedinthesettlementsystem

1. CounterPartyRisk.


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2. SystemicRisk.CounterPartyRisk: Itariseswhenamemberdoesntdischargehis/herobligationsfully

intimeoranytimethereafter.This leadstotworisksreplacementcostriskpriorto

settlementandprincipalriskatthetimeofsettlement.

Replacementcostrisk:Whenoneofthepartiestothetransactionfailstodelivertheir

obligations, the nondefaulting party tries to replace the original transaction for his

client at current market price. So he loses the profit, that would have accumulated

betweenthedateoforiginaltransactionanddateofreplacementtransaction,hadthe

counterpartywouldnothavedefaulted,butnottheprincipalbecausebythattimehe

has not delivered his obligations. This risk is lessened by reducing time gap between

tradingandsettlementandbylegallybindingnettingsystems.

The Principal Risk: This risk arises when one party delivers obligations and the other

party doesnt. This risk is rare in current day market scenario wherein the clearing

corporation

makes

sure

that

delivery

versus

payment

mechanism

works

properly.Clearingcorporationactsasathirdpartytoeverytransactionanddeliversthesecurities

tothebuyeruponreceivingthefundsandtransfersfundstotheselleruponreceiving

thesecurities.

Liquidity Risk: When one of the parties defaults his/her obligations the other party

looksforreplacement.But ithas toarrange funds/securitiesbyborrowing fromother

membersandwhichmaynotbeavailableatthatpointintime.

ThirdParty risk: This arisesnotbecauseof thedefaultsby theoriginalpartiesof the

tradebutbyathirdpartyforexamplefailureofclearingbank,custodianetc.Allowing

partiesto

have

accounts

with

multiple

clearing

banks

reduces

this

risk.

SystemicRisk:Thisriskarisesbecauseofoperationalriskslikeerrors,fraudsandoutages

andsystemicriskforexamplefailureofoneparttodeliverobligationsmayleadtothe

failureofotheranditmayleadtocontagion/dominoeffectandeventothecomplete

failureofthesettlementsystemitself.


5.3 know the process of Clearing House Deposits and Credit Risk including theCapital

Adequacy

requirements

and

Exposure

Limits

Clearing denotes all activities from the time a commitment is made for a transaction

untilitissettled.Clearingisnecessarybecausethespeedoftradesismuchfasterthan

thecycletimeforcompletingtheunderlyingtransaction.


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Someoftheprimaryreasonsofliquidityrisksare:

Wideningbid/offerspread Makingexplicitliquidityreserves LengtheningholdingperiodforVaRcalculations

Liquidity risk' arises from situations in which a party interested in trading an asset

cannot do it because nobody in the market wants to trade that asset. Liquidity risk

becomesparticularly important topartieswhoareabout toholdorcurrentlyholdan

asset,sinceitaffectstheirabilitytotrade.

Liquidityriskisfinancialriskduetouncertainliquidity.Aninstitutionmightloseliquidity

ifitscreditratingfalls,itexperiencessuddenunexpectedcashoutflows,orsomeother

eventcausescounterpartiestoavoidtradingwithorlendingtotheinstitution.Afirmis

also exposed to liquidity risk if markets on which it depends are subject to loss of

liquidity.

Liquidity

risk

tends

to

compound

other

risks.

ACCEPTABLECOLLATERALTOMEETMARGINREQUIREMENTS

HAIRCUTS

Ahaircut isa percentage that is subtracted from theparvalueof theassets that are

being used as collateral. The size of the haircut reflects the perceived risk associated

withtheholdingofthoseassets.

Forexample,Treasurybills(whichareseenasfairlysafe)mighthaveahaircut

of1%,whileformutualfunds(whichareseenaslesssafe)thehaircutmightbe

ashigh

as

30%.

In

other

words,

aRs.

1,000

treasury

bond

will

be

accepted

as

collateralforaRs.990 loan,whileaRs.1,000mutualfundmightonlyallowa

Rs.700loan.

MARKTOMARKET(VARIATIONMARGIN)&MARGINCALL

Marktomarketorfairvalueaccountingreferstotheaccountingstandardsofassigning

avaluetoapositionheldinafinancialinstrumentbasedonthecurrentfairmarketprice

forthe instrumentorsimilar instruments. FairvalueaccountinghasbeenapartofUS

GenerallyAcceptedAccountingPrinciples(GAAP)sincetheearly1990s.Theuseoffair

valuemeasurementshasincreasedsteadilyoverthepastdecade,primarilyinresponse

toinvestor

demand

for

relevant

and

timely

financial

statements

that

will

aid

in

making

betterinformeddecisions.

When the margin posted in the margin account is below the minimum margin

requirement,thebrokerorexchangeissuesamargincall. Theinvestorsnoweitherhas

to increase themargin thattheyhavedeposited,ortheycancloseout theirposition.

They can do this by selling the securities, options or futures if they are long and by


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buyingthemback iftheyareshort. Iftheydon'tdoanyofthisthebrokercansellhis

securitiestomeetthemargincall.

The minimum margin requirement, sometimes called the maintenance margin

requirement,istheratiosetfor:

(StockEquity

Leveraged

Amount)

to

Stock

Equity

were

60%:

StockEquity:Rs.50x1000=Rs.50,000

LeveragedAmountoramountborrowed:(Rs.50x1000)x(160%)=Rs.20,000

Sothemaintenancemarginrequirementusestheabovevariablestoformaratiothat

investorhastoabidebyinordertokeeptheaccountactive.

Let's say the maintenancemargin requirement is reduced from60% to25%. At what

pricewould the investorbegettingamargincall?LetPbe theprice,so1000P inour

caseistheStockEquity.

(StockEquity

Leveraged

Amount)

divided

by

Stock

Equity

=25%

(1000PRs.20,000) = 0.25

1000P

(1000PRs.20,000) = 250P

P = Rs.26.67

So if the stock price drops from Rs.50 to Rs.26.67, investors will be called to add

additionalfundstotheaccounttomakeupforthelossinstockequity.


5.5 knowtheroleandfunctionsofDepository,thebookentrysystemanditsadvantagestothecapitalmarket

Once the transaction of purchase or sale of security is executed, the same gets

completionondeliveryandsettlementthereof. Ifacompanyhasnotyetbeenentered

intheCentralDepositorySystem(CDS),thedeliveryofitssharesisperformedmanually

inphysicalform,otherwisethesameisdoneelectronicallythroughCDSasoperatedby

aseparatecompanynamelyCentralDepositoryCompanyofPakistanLimited(CDC).

Thesystemofelectronicbookentryofsecurities i.e.CDShasbeensetuptoeliminate

physical maintenance and transfer of securities. This system is in line with the

international practice and has replaced the manual system of physical handling and


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settlementofsharesatstockexchanges. WithintheCDS,transferofsharesfromone

accounttoanotheraccounttakesplaceelectronically.

The CDS is managed by the Central Depository Company of Pakistan Limited (CDC),

which has been sponsored by the stock exchanges and leading local and foreign

financial

institutions.

Established

under

the

Central

Depositories

Act,

1997,

CDC

has

emergedfromanelementarysettlementagencytoafullfledgeddepository. CDChas

madethetradingandsettlementofsecuritiesinthestockmarketstransparent,reliable

efficientandsecureineliminatingrisks.

FollowingarethecoreadvantagesoftheCDS:

Electronicbookentrysystem Recordsandtransferssecuritieselectronically. Nophysicalchangeofhandsofsecurities. Strictconfidentiality Noriskofdamaged,lost,forgedandduplicatesecurities. Simpleprocedureinvolvedinpledgingofsecurities. Nodelaysindelivery,settlementandtransferofsecuritiesduetospeed. Instantaneous credit of entitlements (Bonus, dividend Paid, Rights, etc) to

investors.

Significantlyreducesthecostofinvestors.


5.6

knowthe

different

services

offered

by

aDepository

and

Types

of

Accounts

An investor can use any of the three types of CDC accounts, which are described as

belowwiththeirfeatures:

SUB ACCOUNT

Abrokermayopen,maintainandoperateanynumberofsubaccountsherequireson

behalf of his clients. A specific subaccount is used for keeping securities belonging

individuallytothatparticularclientofthebroker.

GROUPCLIENTACCOUNT

Thisaccountisusedforkeepingsecuritieswhicharebeneficiallyownedbythebrokers

clientswhoarenotwillingtoutilizethe facilityofopeningseparatesub account.The

broker groups all such clients in their group accounts. The detailed break up of the

securitiesheldbyeachclientofagroupaccountismaintainedbythebrokerinhisback

office.


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Issuers/Registrars

The issuersofcapitalwhosesecuritiesareconverted fromphysical toelectronicbook

entrysystemplayasignificantroleinCentralDepositorySystem. Theywillalsohave

directaccesstotheCDS. AfterasecurityisdeclaredeligibleforthepurposeofCentral

Depository

System,

necessary

software

and

CDS

connection

is

provided

to

that

particularissueruponsigningtheIssuersAgreementwithCDC. Thesharesareentered

intoCDSonlyafterproperverificationbythese issuersortheirregistrar. Thisprocess

eliminates the problem of fake/duplicate/lost/stolen share certificates as issuers

thoroughlycheckthembeforeapprovingforCDS.

EligiblePledgee

Any person, company, corporation or institution on the Board from time to time,

determines in this behalf, may apply to the CDC for recognition by the CDC for the

purposeofadmissiontotheCDSasanEligiblePledgeebyanapplicationwhich;isonthe

mostcurrentversionoftherelevantAdmissionForm;andcomplieswiththeadditionalrequirementsforapplicationforadmissiontotheCDS.

UponadmittingapersonasanEligiblePledgeewhopursue theabove regulation, the

CDCshallopenanEligiblePledgeeAccountonbehalfoftheEligiblePledgee.TheCDC

possesses the right to establish additional Eligible Pledgee Accounts on the behalf of

suchEligiblePledgeeonrequest.

AnAccountHolderoraParticipant,actingeitheronhisownbehalforonbehalfofhis

client,canplacesecuritiesunderpledgetoanEligiblePledgee.Incaseofpledgethrough

subaccount

prior

written

authorization

from

sub

Account

Holders/clients

is

required.

Placing those securities under pledge will result in the securities being flagged as no

longeravailableforhandlinguntiltheyarereleasedfrompledge.

CDS ACCOUNTSTRUCTURE

TheAccountHoldersofCDCareabletosettletheirtransactionswithintheCDSthrough

fivetypesofaccounts,namely:

MainAccount:EachAccountHolderinthesystemisallocatedamainaccountbyvirtue

ofbeinganAccountHolderintheCDS.Thisaccountismainlyusedasatransitaccount

formovementofsecurities.Anysecuritycominginormovingoutofanaccountholder'sfamilyofaccountspassthroughthisaccount.

HouseAccount:UsedforsecuritiesownedbeneficiallybyAccountHolders.


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Theregistrarafterverificationofthebalanceeitherapprovesorrejectsthetransaction

withinfivedaysfromthereceiptofthedocuments.

UpdateCDCnomineeshareholdingintheMember'sRegister. Preparesharecertificate(Jumbocertificate). Returntherelevantdocumentsandsharecertificatestotheapplicant.

FreeTransfer Bookentrytransferofsecuritieswithoutanyassociatedcashmovement.

ThisisaunilateraltransactioninwhichanAccountHoldercandeliversecuritiestoany

otherAccountHolder inCentralDepositorySystem.Althoughthebeneficialownership

ofsecuritieschangesassecuritiesmovefromoneaccounttoanother,thereisnostamp

dutyinvolvedandthetransferisinstantaneous.

Pledge/ Release/ Call Pledging securities in favour of a lender, which can only be

Released/Calledbythelender.Thisfunctiongreatlybenefitsthefinancialinstitutionsby

reducingriskoffakesharecertificatesandpaperwork.

Stock Borrowing or Lending through the mechanism of transfer with or without

associatedmoneymovementthroughtheDepositorySystem.

Corporate Action In case of Bonus Issues, Rights Entitlements, SubDivision,

Consolidation and any other action that changes the number of securities held in a

participant'saccountorinvolvesthedeterminationofentitlementtobeneficialowners,

CDCprovidesrelevantdetailsofaccountholdersandsubaccountholderstotheissuer.

TheCDCalsoprovidesdetailsforthepurposeofNoticeofGeneralMeetingsandOther

Notices/Communications.

DeliveryVersusPayment Bookentrytransferofownershipofasecurityinexchangefor

paymenttosettleatransaction.

DVP(DeliveryVersusPayment)isabilateraltransaction.

ThedelivererofthesecuritiesinitiatestheDVPrequestonCDSspecifyingthedetailsof

securitiesandpayment.

Upon acceptance of the receiver CDS debits deliverer's securities account and credit

receiver'ssecuritiesaccount;CDSdebits receiver'scashaccountandcreditdeliverer's

cashaccount.

Cash only Movement: Movement of cash from one account to another with out any

associatedsecuritiesmovement


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Annexure:

(i) BoardResolution

(ii) StandardAccountOpeningForm

GuidelinesforOpening/UpdatingSubAccountsinCDS

Asmentioned

above,

each

Sub

Account

bears

the

account

opening

details

as

provided

by theSubAccountholderat the timeofopeningtheSubAccount.Participant,while

enteringtheaccountopeningdetails(registrationdetail)inCDS,shouldensurethatthe

details being entered are correct and complete in every respect. In the event where

such details are inaccurate or incomplete, the Participant should not enter such

informationintheCDSandinformtheclientaccordingly.

AParticipantbeing suppliedwithachange in theaccountopeningdetailsby theSub

Account Holder, shall ensure that such a change is reflected in the respective Sub

Account,whereallowed. Hence, it istheresponsibilityofthe Participanttoensure

that the account opening details of SubAccount holders are updated and no

discrepanciesexist. AnyupdatingrequirespriorapprovalfromCDC.

For the convenience of the Participants, there is a four fold Account Setup screen in

CDS:

1. AccountDetails2. AccountHolderDetails3. JointAccountHolderDetails4. NomineeDetails1) AccountDetails:

ShareHolderCategoryshouldbeproperlyselected:o Iftheaccounttitleisofanindividualthencategoryshouldbeselected

asindividual

o If the account is corporate then shareholder category should becorrectlyusedinrelationwiththecorporateentity

o Iftheshareholdercategoryis,Othersthenitistobeensuredthatadescriptionofotherisproperlyentered

o OtherCategoryshouldnotbeenteredforindividualo CategoryofMutualFundshouldbeMutualFundo Shareholder Category of Public Limited Company or Private Limited

CompanyshouldbeJointStockCompany.

ItisworthmentioningthataftertheintroductionofWithholdingTax,theimportanceof

correctly inserting the Share Holder Category ID has become more significant and

thereforerequiresspecialattentionfromtheParticipant.


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AccountTitleshouldbeproperlyenteredasperCNIC;upto60characterscanbeenteredinthetextbox(forindividuals).

o Usingadditionalidentificationsymbols/prefix/suffixtoA/cTitleisnotallowed.There isanadditionalfieldtobeused forenteringallback

officecodesorotherdetailsinstead.

o Title account is not allowed to be amended once entered. For anynecessary correction Participant are required to open a new Sub

Accountoringenuinecasespriorwrittenapprovalforupdateshould

besoughtfromCDCsubjecttoprovisionofsupportingdocumentsas

evidence.

Father/Husbandname fieldshouldbeproperlyselected.(Bydefault, it isHusbandsname), incaseofchange inmaritalstatuspriorwrittenapproval

to update should be sought from CDC subject to provision of supporting

documentsasevidence.

ContactNameshouldbeproperlyentered.o Contactpersoncanonlybetheaccountholderhim/herself(oranyof

thejointaccountholder(s),except for aperson inwhosename the

PowerofAttorneyisissuedbytheaccountholder(s).

Zakatstatusshouldbeproperlyselected,especially in individualaccountsetup,e.g.

o TitleofindividualA/cshouldmatchwithappropriateZakatStatus.Incaseofmismatch,theParticipantshouldaskforclarification.

Forexample

an

individual

account

by

the

title

of

Justin

Dean

shouldnothave MuslimZakatPayablestatus. ItwillbeNon

Musliminsuchcases. DividendMandatefieldshouldbecorrectlyfilled(ifopted):

o Bankaccountno.iscorrectlyfilled.o BankName,Branch&Cityiscorrectlyfilled.o Only Common acronyms of Bank(s) are acceptable (e.g. MCB, HBL

etc.)

2) AccountHolderDetails: Mailing Address is properly filled: Every address has essential components

like:

o HouseNumbero StreetNumbero BlockNumbero PhaseNumbero MohallahName


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o AreaNameo CityNameo CountryName(Otherthan Pakistan)o PostCode/Office

Telephone

No.

correct

telephone

number

should

be

entered.

FaxNo.shouldbeproperlyentered. Emailaddressshouldbeproperlyenteredandprovidedinappropriatesyntax,

(ifoptbyclient).

OccupationCodeshouldbeproperlyentered:o In case of individual, ensure that the occupation code applicable to

individualsischosen.

o Pleasecheck forLogical Errors likeOccupation Code HouseWife forMale

individual

account.

ResidentStatusshouldbecorrectlyfilled:Change inResidentialStatus isnotallowed.Foranycorrection/change,openingofanewaccountisrequired.

Passportdetailsshouldbeproperlyentered:o PassportNo.shouldbeproperlyfilled.o Dateofissueshouldbeproperlyfilled.o Placeofissueshouldbeproperlyfilled.o Dateofexpiryshouldalsobeentered.

ForanynecessarycorrectionParticipantarerequiredtoopenanewSubAccountorin

genuinecasespriorwrittenapprovalforupdateshouldbesoughtfromCDCsubjectto

provisionofsupportingdocumentsasevidence.

CNICNo./UINshouldbeproperlyenteredinnewformat.AnyupdateinCNIC/PassportNo./NICOP/registrationno.isnotallowed.Incaseofanychange,prior

intimation to CDC is required along with certified true copy of relevant

documents.Also,pleasenotethataccountsalreadyopenedwitholdNICmustbe

regularized.

NTN

Number

should

be

correctly

entered

(if

opted).

3) JointHolderDetails: EnsurethatfieldofJointAccountHolder(s)isproperlyentered(ifapplicable).

Subsequent to opening sub account addition, deletion and updation ofjoint

accountholderisnotallowed.Incaseofanychange,anewaccountisrequired

tobeopened.


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Accountholdercannotbeajointholderofhis/heraccount. Only3JointHoldersareallowedinoneaccount.4) NomineeDetails(Nottobeenteredincaseofjointaccount): EnsurethatNamefieldofNomineeisproperlyentered. EnsurethatfieldofCNICisproperlyfilledwithCNICnumber. Ensurethatincaseofforeigner,fieldofPassportNumberisproperlyentered. EnsurethatfieldofPlaceofIssueisproperlyentered. EnsurethatfieldofPassportIssueDateisproperlyentered.

IVR,WEBandSMSActivation

Participantsareadvisedtooffer freeofcost IVR/WebandSMSservicesto theirsub

accountholders.

Whiledoing

so,

following

fields

should

be

correctly

filled

out:

Mother'sMaidenName(mandatoryforIVRactivation) DateofBirth(mandatoryforIVRactivation) MobileNumber(mandatoryforSMSactivation) EmailAddress(mandatoryforwebactivation)

Theaboveinformationisnecessaryforactivationoftheseservicestobeavailedbysub

accountholderson24/7basis.Itisthereforeimportantthattheduecareistakenwhile

enteringinformationagainstsaidfields.

Impactof

Incorrect

Account

Opening

Details

Incorrect or incomplete account opening details can have serious consequences with

respecttorightsandobligationsofsubaccountholdersaswellasissuersparticularlyin

thefollowingmatters:

Establishmentofownershipofsecurities Distributionofentitlement(otheroffersfromtheIssuer) DeductionofTaxandZakat ReceiptofStatutorynoticesfromtheIssuer Attendanceinmeeting,personallyorbyproxy ReportingtotheStateBankofPakistanforthepurposeofdeclaringthedetails

ofnonresidentshareholdersonreparablebasis

Directors'ReportonPatternofShareholding Righttosuccessionortransfer/transmission Receiptofaccountsandothernotices/informationfromtheIssuer

MaintenanceofRelevantAuthoritiesfromSubAccountHolders


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Participantsshouldguidetheirclientatthetimeofopeningofsubaccountforproviding

nominee relationship tobeentered in their registrationdetails.Nominee shallnotbe

acceptedincaseofajointaccount.Undersection80oftheCompaniesOrdinance1984,

nominee can be a spouse, father, mother, sister, brother and off springs (including a

step or an adopted child). Where no nomination has been made, a succession

certification

issued

by

the

court

shall

decide

as

to

the

distribution

of

assets

of

the

deceasedamongstthelegalheirs.

GuidelineforPledgingofSecurities

Where required, participants shall only pledge securities owned by their subaccount

holders directly from the sub accounts in favour of eligible pledge through a pledge

transaction inCDS,provided that proper authorization in this regard hasbeen obtain

from concerned subaccount holders by the Participants. Movements of securities

fromSubaccountstothehouseaccountofaParticipant forpledgepurpose isstrictly

prohibited. Pledgeofbookentrysecurities in favourofanEligiblePledgeedoesnot

resultin

change

of

title,

which

remain

vested

in

the

name

of

the

pledger

who

enjoy

all

rightsandbene

ICM Stock Brokers Study Guide 2010

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