Daniyal Raza Business Finance Mb-141005

Stock ExchangeKarachi Stock Exchange (KSE):Karachi Stock Exchange (Guarantee) Limited (KSE), currently the biggest and most liquid stock exchange in Pakistan, was established on September 18, 1947. It was incorporated on March 10, 1949. Only five companies were initially listed with a total paid-up capital of 37 million rupees. The first index introduced in KSE was based on fifty companies and was called KSE 50 index. Trading used to be carried out on open out-cry system.

With growth in number of listed companies and trading activities, a dire need for a true representative index and computerization of trading activities was felt. As a result KSE 100 Index was introduced on November 1, 1991. Computerized trading system called Karachi Automated Trading System (KATS) was introduced in 2002 with a capacity of 1.0 million trades per day and the ability to provide connectivity to an unlimited number of users.

To reconfirm the KSE-100 and to provide the basis of index trading in future, an all-share index was introduced in 1995 which became operational on September 18, 1995. To address the needs of investor community two other indexes were also introduced later on called KSE 30 Index and KMI 30 Index.

Karachi Stock Exchange is located on Stock Exchange Road, in the heart of business district of Karachi. The premises is known as Stock Exchange Building.

KSE 100 index:The KSE-100 Index was introduced in November 1991 with base value of 1,000 points. The Index comprises of 100 companies selected on the basis of sector representation and highest market capitalization, which captures over 90% of the total market capitalization of the companies listed on the Exchange. Out of 33 Sectors, 32 companies are selected i.e. one company from each sector (excluding Open-End Mutual Fund Sector) on the basis of the largest market capitalization and the remaining 68 companies are selected on the basis of largest market capitalization in descending order.

KSE 30 index:The primary objective of the KSE-30 Index is to have a benchmark by which the stock price performance can be compared to over a period of time. In particular, the KSE-30 Index is designed to provide investors with a sense of how large company’s scrip’s of the Pakistan’s equity market are performing. Thus, the KSE-30 Index will be similar to other indicators that track various sectors of country’s economic activity such as the gross national product, consumer price index, etc.

Globally, the Free-float Methodology of index construction is considered to be an industry best practice and all major index providers like MSCI, FTSE, S&P, STOXX and SENSEX have adopted the same. MSCI, a leading global index provider, shifted all its indices to the Free-float Methodology in 2002.

KSE-30 Index is calculated using the “Free-Float Market Capitalization” methodology. In accordance with methodology, the level of index at any point of time, reflects the free-float market value of 30

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Daniyal Raza Business Finance Mb-141005

companies in relation to the base period. The free-float methodology refers to an index construction methodology that takes into account only the market capitalization of free float shares of a company for the purpose of index calculation. Free-float Methodology improves index flexibility in terms of inclusion any stock from all the listed stocks. This improves market coverage and sector coverage of the index. For example, under a Full-Market Capitalization Methodology, companies with large market capitalization and low free-float can be included in the Index. However, under the Free-float Methodology, since only the free-float market capitalization of each company is considered for index calculation, it becomes difficult to include closely held companies in the index while at the same time preventing their undue influence on the index movement

Islamabad Stock Exchange (ISE):Islamabad Stock Exchange is the youngest stock exchange in Pakistan that was established in 1989 whereas trading of shares on this exchange started in 1992. Over the years, the ISE has played a crucial role in the capital formation of the companies and the wealth generation for its investors thereby contributing to the economic development of our country. ISE has its own state-of-the-art ISE Towers situated at 55-B, Jinnah Avenue, Islamabad.

-Regulatory structure of Islamabad stock exchange.

The Islamabad Stock Exchange is a front-line regulator to control the trading activities that takes place at its trading platform. ISE works under the oversight of the Securities and Exchange Commission of Pakistan (SECP), which formulates rules for efficient and transparent trading of securities.

-The corporate structure of ISE.The affairs of ISE are run by a Board of Directors that is headed by a Chairman. The Board has a total number of ten directors including the Chairman and the Managing Director. Five directors of the board are elected from the members of the exchange whereas the four are nominated by the SECP. The Chairman of the Board is elected out of four non-member directors on the board. The Managing Director acts as the chief executive officer of the ISE who is appointed with the prior approval of the SECP and is the tenth director by virtue of his office.

-Members of Islamabad Stock Exchange.

The trading of securities is done through members (brokers) of Islamabad Stock Exchange who buy ‘seats’ or memberships for conducting brokerage business at ISE after meeting the necessary membership criteria as devised by the ISE. The members of the ISE provide a link between investors and the stock market by buying and selling shares on behalf of the investors. The ISE continually monitors all the trading activities of its members to ensure that they are conducting the business within given legal framework. This in turn provides investors with a market they feel confident to use. ISE has 121 members out of which 45 are active members running their brokerage houses.

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Daniyal Raza Business Finance Mb-141005

Lahore Stock Exchange (LSE):Lahore Stock Exchange (LSE) was incorporated in October 1970 under the Securities and Exchange Ordinance, 1969 as a company limited by guarantee. It initially had 83 members and was housed in a rented building in the crowded Bank Square area of Lahore. Inadequacy of space, crowded area and severe limitations of communications cramped its growth. Only a few of all the members were active, and they too had to work through KSE, or be limited to do business in Bonus, Vouchers and Bonds. After construction of its own building located at 19-Khayaban-e-Aiwan-e-Iqbal, Lahore, there was sufficient space, modern facilities, and all the needed communications at this new location. The move could not have been at a more opportune time. The Government of Pakistan had embraced the market economy policy. Deregulation was rapidly underway. Privatization of nationalized, and a part of public sector industries was speedily moving ahead. Asia was identified as the future centre of world growth. Lahore Stock Exchange was prepared to contribute its full share in this growth. 21 new members including 6 corporate members were inducted in 1994, bringing the number of members 150. Some members have converted their individual memberships into corporate memberships. The activities of the Exchange have increased in all areas since inception and it has become a key institution of the financial sector of Pakistan.

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