- 2009

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

Rabia Muzaffar Ali

BEIT-II
1/12/2009
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Contents

1. Over view of market ………………………………………. pg.03

Types of financial market
 Money market …………………………………… pg.04
 Capital market …………………………………… pg.04
Market infra structure
2. Stock exchange………………………………………………... pg.05
 Introduction…………………………………….. pg.06
 History………………………………………….. pg.06
 Securities……………………………………….. pg.07
 Types of operation……………………………… pg.08
 Trading process in S.E………………………….. pg.09
 Role of S.E……………………………………… pg.10
 Listing of securities in S.E……………………… pg.12
 Ownership of S.E……………………………….. pg.14
 Future of S.E……………………………………. pg.14
 Other types of S.E………………………………. pg.15
3. Functions of stock exchange………………………………. pg.16
4. World major S.E…………………………………………….. pg.21

5. Stock exchange of Pakistan…………………………….. pg.23

 Karachi stock exchange (K.S.E)………………. pg.24
 Lahore stock exchange (L.S.E)………………… pg.30
 Islamabad stock exchange (I.S.E)……………… pg.32
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1. Over view of market

Market

Infra structure Financial market

Money market Capital market

Non security
Security market
market

Stock
exchanges

Clearing & Education Investor Rating

settlement & training productor agency
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Over view of market

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

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

 Money Market:-

In finance, the money market is the global financial market for short-term borrowing
and lending. It provides short-term liquidity funding for the global financial system. The money
market is where short-term obligations such as Treasury bills, commercial paper and bankers'
acceptances are bought and sold.

 Capital Market:-

It is defined as a market in which money is provided for periods longer than a year as
the raising of short-term funds takes place on other markets (e.g., the money market). The capital
market includes the stock market (equity securities) and the bond market (debt).

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

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

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

Stock exchange

Introduction Role

Listing of securities
History

Securities
Owner ships

Types of operators
Future

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

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

2. History of Stock Exchanges

In 11th century France the courtiers de change

was concerned with managing and regulating the debts of agricultural communities on
behalf of the banks. As these men also traded in debts, they could be called the first
brokers.

Some stories suggest that the origins of the term "bourse" come from the Latin bursa
meaning a bag because, in 13th century Bruges, the sign of a purse (or perhaps three
purses), hung on the front of the house where merchants met. However, it is more likely
that in the late 13th century commodity traders in Bruges gathered inside the house of a
man called Van der Burse, and in 1309 they institutionalized this until now informal
meeting and became the "Bruges Bourse". The idea spread quickly around Flanders and
neighboring counties and "Bourses" soon opened in Ghent and Amsterdam.

In the middle of the 13th century, Venetian bankers began to trade in government
securities. In 1351, the Venetian Government outlawed spreading rumors intended to
lower the price of government funds. There were people in Pisa, Verona, Genoa and
Florence who also began trading in government securities during the 14th century. This
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was only possible because these were independent city states ruled by a council of
influential citizens, not by a duke.

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

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

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

 Shares issued by companies.

 Debentures.
 Bonds.

To be able to trade a security on a certain stock exchange, it has to be listed there.

Usually there is a central location at least for recordkeeping, but trade is less and less
linked to such a physical place, as modern markets are electronics networks, which gives
them advantages of speed and cost of transactions. Trade on an exchange is by members
only. The initial offering of stocks and bonds to investors is by definition done in the
primary market and subsequent trading is done in the secondary market.

A stock exchange is often the most important component of a stock market.

Supply and demand in stock markets is driven by various factors which, as in all free
markets, affect the price of stocks.

There is usually no compulsion to issue stock via the stock exchange itself, nor must
stock be subsequently traded on the exchange. Such trading is said to be off exchange or
over the counter. This is the usual way that derivatives and bonds are traded. Increasingly,
stock exchanges are part of a global market for securities
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Shares:-
The total authorized capital in the company is divided into small units and each is
individually called “Share”. You can buy large or small lots to match the amount of money
you want to invest. When the company does well, its shares can rise in value. If the
company hits a bad patch, its share can fall in value. The shares are considered as the main
source to raise company’s capital.

Share Holder:-
The people who provide finance to company by purchasing shares are called shareholders.

Types of shares:-
1. Preference Shares:

These are shares whose holders have preferential rights in respect of the payment of
dividend and repayment of capital in the event of winding up. The rate of dividend on these
shares is fixed. There are further two types of preference shares.

 Cumulative preference shares: If the profit if company is not enough to pay dividend on
any kind of shares at the end of financial year than the right of dividend on these shares
accumulates until all arrears of unpaid dividend have been paid.
 Non-Cumulative preference shares: These are the shares on which if dividend is not paid
out of current years profit in any year then it is never paid.

2. Ordinary Shares:

These shares are the shares on which dividend is not paid at fixed rate. Ordinary
shareholders receive the dividend proportionally out of profit earned by the company after
the payment of fixed dividend on preference shares.

3. Deferred Shares:

The share issued to promoters of the company is called deferred or founders shares. The
dividend on these shares is paid after the payment of dividend on all other types of shares.

4. Types of operators on stock exchange

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

1. Brokers:
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A broker is a member of the stock exchange. He buys and sells the securities on the behalf
of the outsiders who are not the members. He charges brokerage for his services. He does
not specialize in any particular security. He buys sells all types of securities according to the
orders placed by his clients.

2. Jobbers:

The jobber is a member of stock exchange but he buys and sells securities on his own
behalf. He is a dealer in securities. He usually specializes in one type of security. His
income comes from the profit or price difference in the purchase and sale of securities. A
jobber normally deals for himself but he is not prohibited from buying and selling securities
on the behalf of others.

3. Bulls:

A bull is a speculator who expects a rise in prices. Therefore, he buys securities with a view
to sell them in future at a higher price thereby make profit. When the conditions in the stock
exchange are dominated by bulls, it is called a “bullish market”. When the prices fall and
bulls have to sell at loss, it is called “bull liquidation”.

4. Bears:

A bear is a speculator expects fall in prices. Therefore, he sells securities for future delivery.
He sells securities, which he does not possess. He sells with the hope to buy the securities at
lower price before the date of delivery. The efforts of bears to bring down the prices
artificially are known as “bear raids”. When bears dominate the market, it is called a
“bearish market”. When prices are rise and bears have to make purchases to meet their
commitments, it is called “bear covering”.

5. Trading procedure on Stock Exchange

In order to purchase or sell securities on a stock exchange, the following steps have to
be taken:

1. Selection of Broker:

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

2. Placing the order:

There are three parties involved in the dealing of shares:

 The Stock Broker

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 The Client
 The Jobber

The stock broker simply acts as agent and contacts the particular jobber in the stock
exchange on behalf of the client. He does not disclose to the jobber whether he is a buyer or
seller of shares. He therefore, asks him to quote two prices:

I. The upper prices at which he is ready to sell the shares.

II. The lower prices at which he is ready to buy the shares.

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

3. Preparing the contract note:

The stock broker prepares a contact note, one copy of which is given to the client; second
one to the jobber and the third remains with the broker. The contact note generally contains
the following information:

 Name and the address of the stockbroker.

 The name and address of the jobber.
 The type and price of the share.
 The commission of the broker.
 The date of transaction

4. Settlement:

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

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

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

Stock exchanges have multiple roles in the economy, this may include the following:

1. Raising capital for businesses:

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

2. Mobilizing savings for investment:

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

3. Facilitating company growth:

Companies view acquisitions as an opportunity to expand product lines, increase

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

5. Corporate governance:

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

corporation (2001), One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002),
MCI WorldCom (2002), Parmlat (2003), American International Group (2008), Lehman
Brothers (2008), and Satyam Computer Services (2009) were among the most widely
scrutinized by the media.

6. Creating investment opportunities for small investors:

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

7. Government capital-raising for development projects:

Governments at various levels may decide to borrow money in order to finance

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

8. Barometer of the economy:

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

9. Regulation of companies:

The stock exchange exercises a wholesome influence on the management of companies. A

company that wants to be listed on stock exchange must bind itself to the rules and
regulations prescribed by the stock exchange.

10. Employment Opportunities:

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

7. Listing of Securities on Stock Exchange

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All securities are not dealt on stock exchange. Only those securities are sold or purchased
which are included in trading list of the stock exchange. In order to get a security listed on
stock exchange for trading purposes, the company issuing such a security must make an
application along with following prescribed documents.

1) Copies of memorandum, articles, prospects, directors’ report, balance sheet and

agreement with underwriters.

2) Specimen copies of shares, debentures, certificates, letter of allotment and acceptance,

etc.

3) Particulars regarding capital structures.

4) A statement showing the distribution of shares.

5) Particulars of dividends and each bonus declared since its incorporation.

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

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

After the scrutiny of application, if the stock exchange authorities are satisfied, they call
upon the company to execute the ‘listing agreement’. The listing agreement contains the
following conditions and obligations:

1) The company must be fair to all the applicants for shares. In the case of over
subscription, no undue preference will be shown to any particular class of applicants.

2) To notify stock exchange about the date of the board meeting at which decision of
dividend is taken.

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

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

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

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

7) To comply with all the requirements of the listing agreement and not to commit any
breach of any condition.

8) To notify the stock exchange of any occasion this will result in redemption or
cancellation of any listed security.

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

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

8. Ownership of Stock Exchange

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

9. The future of stock exchanges

The future of stock trading appears to be electronic, as competition is continually growing
between the remaining traditional New York Stock Exchange specialist system against the
relatively new, all Electronic Communications Networks, or ECNs. ECNs point to their
speedy execution of large block trades, while specialist system proponents cite the role of
specialists in maintaining orderly markets, especially under extraordinary conditions or for
special types of orders. UK based exchanges such as PLUS Markets are increasing
competition with traditional exchanges.

The ECNs contend that an array of special interests profit at the expense of investors in
even the most mundane exchange-directed trades. Machine-based systems, they argue, are
much more efficient, because they speed up the execution mechanism and eliminate the
need to deal with an intermediary.

Historically, the 'market' (which, as noted, encompasses the totality of stock trading on all
exchanges) has been slow to respond to technological innovation, thus allowing growing
pure speculation to continue. Conversion to all-electronic trading could erode/eliminate the
trading profits of floor specialists and the NYSE's "upstairs traders", who, like in September
and October 2008, earned billions of dollars selling shares they did not have, and days later
buying the same amount of shares, but maybe 15 % cheaper, so these shares could be
handed to their buyers, thereby making the market fall deeply.

William Lupine, founder of the Instinet trading system and the Optima system, has been
quoted as saying "I'd definitely say the ECNs are winning... Things happen awfully fast
once you reach the tipping point. We're now at the tipping point."
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One example of improved efficiency of ECNs is the prevention of front running, by which
manual Wall Street traders use knowledge of a customer's incoming order to place their
own orders so as to benefit from the perceived change to market direction that the
introduction of a large order will cause. By executing large trades at lightning speed without
manual intervention, ECNs make impossible this illegal practice, for which several NYSE
floor brokers were investigated and severely fined in recent years Under the specialist
system, when the market sees a large trade in a name, other buyers are immediately able to
look to see how big the trader is in the name, and make inferences about why s/he is selling
or buying. All traders who are quick enough are able to use that information to anticipate
price movements.

ECNs have changed ordinary stock transaction processing (like brokerage services before
them) into a commodity-type business. ECNs could regulate the fairness of initial public
offerings (IPO’s), oversee Hambrecht's Open IPO process, or measure the effectiveness of
securities research and use transaction fees to subsidize small- and mid-cap research efforts.

However, believe the answer will be some combination of the best of technology and
"upstairs trading" — in other words, a hybrid model.

Trading 25,000 shares of General Electric stock (recent quote: $7.54; recent volume:
216,266,000) would be a relatively simple e-commerce transaction; trading 100 shares of
Berkshire Hathaway Class A stock (recent quote: $72,625.00; recent volume: 877) may
never be. The choice of system should be clear (but always that of the trader), based on the
characteristics of the security to be traded.

Even with ECNs forming an important part of a national market system, opportunities
presumably remain to profit from the spread between the bid and offer price. That is
especially true for investment managers that direct huge trading volume, and own a stake in
an ECN or specialist firm. For example, in its individual stock-brokerage accounts,
"Fidelity Investments runs 29% of its undesignated orders in NYSE-listed stocks, and 37%
of its undesignated market orders through the Boston Stock Exchange, where an affiliate
controls a specialist post."

10. Other types of exchanges

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

Function of SE

Main activities Function as

An organization

In favor of investor

In favor of companies
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The functions of stock exchange are as following

1. Main activities:

 To promote the savings and for them to be canalized towards of carrying through
investment projects that otherwise wouldn’t be possible you need that the issuing
institution of the securities to be admitted for quoting. The negotiations will be
done on the primary market.
 To provide liquidity to the investors. The investor can recuperate the money
invested when needed. For it, he has to go to the stock exchange market to sell the
securities previously acquired. This function of the stock market is done on the
secondary market.

2. Functions as an organization are:

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

 To provide official information about the quantities that are negotiated and of the
quoted prices.
 To fix the prices of the securities according to the fundamental law of the offer
and the demand.

Specifying a bit more and centering on the two main agents that intervene in the market, investors
and companies, we could do the following classification:

3. Functions in favor of the investor:

 It permits him the access to the profitable activities of the big companies.
 It offers liquidity to the security investments, through a place in which to sell or
buy securities.
 It permits for the investor to have a political power in the companies in which he
invests its savings due that the acquisition of ordinary shares gives him the right
(among other things) to vote in the general shareholders meetings of the company
in question.
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 It offers the possibility of diversifying your portfolio by enlarging the field of

strategy of investments due to alternative options, as could be the derived market,
the money market, etc.

4. Function in favor of the companies:

 It supplies them with the obtaining of long-term funds that permits the company to
make profitable activities or to do determine projects that otherwise wouldn’t be
possible to develop for lack of financing. Also, this funding signifies a less cost
than if obtained at other channels.
 The securities quoted at the stock exchange market usually have more fiscal
purpose advantages for the companies.
 It offers to the company’s free publicity, which in other way would suppose
considerable expenses. The institution is objecting of attention of the media
(television, radio, etc.) in case any important change in its owners (the share
holders).

5. Constant following of the quotations.

Therefore we can see how the stock exchange market supposes a great advantage to the
companies, but there are also some inconveniences to have in mind:

 First of all, they need of a series of conditions to be apt to enter to the quotations, not all
the companies that apply can do it.
 The issuing of shares may suppose a loss of power for the founders of the company.
Anyway, this is very relative because it will depend on the grade of atomization on the
participations of the new shareholders and of the percentage of shares that the founders
keep over the total capital of the company.
 If for example a 49% of the share capital is in hands of the founders, these could loose the
control of in case the other 51% would be in hands of one main shareholder. However,
this rarely happens, due that the share capital that usually goes to the stock market tends
to be distributed between a great number of shareholders that acquire modest
participations in respect to that of the capital of the company the founders may still keep
control with share capital is distributed between a great number of participants.
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 Now then, the property of these shares implies the possession of certain rights over the
company in which you participate.

These are: political rights, among which appears the possibility of participating in the general
share holders meetings and in the administration of the company by means of the execution of
your rights to vote; and the economic right, which embraces the possibility of receiving
dividends, preferential rights of subscription, the transmission of shares (selling) and the right to
the liquidity value.

This last implies that at the moment in which the company is liquidated, what remains is
proportionally divided between the shareholders.

5. The possession of all these rights is what reduces the power of the founders.

• The shares may pass to be property of unknown people to the founders. At the moment in
which they are object of quotations at the stock exchange market any supplier of capital
may have them. If it’s a company that previously knew all its shareholders, considering
this as an asset of value to the company. The stock market quotation may generate an
important change that will not always be positive.
• The companies that are quoted at the stock market offer a better transparency, in a way
that the general public may have access to any information related to their evolution and
activities.
• This makes them have a greater control and to supervise every movement done.
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3. Major stock exchange

World major SE

Regions

America Africa Asia Europe

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

Region Stock Exchange (millions Turnover
USD) (millions USD)

Africa Johannesburg Securities Exchange 690,797.5 210,180.8

Americas NASDAQ 2,847,535.2 19,343,868.3

Americas São Paulo Stock Exchange 1,032,518.4 361,959.0

Americas Toronto Stock Exchange 1,432,877.0 798,193.1

Americas New York Stock Exchange 10,842,001.9 12,158,620.6

Asia-
Australian Securities Exchange 1,066,513.2 560,912.8
Pacific

Asia-
Bombay Stock Exchange 1,082,572.0 171,176.2
Pacific

Asia-
Hong Kong Stock Exchange 1,945,517.7 970,227.6
Pacific

Asia-
Korea Exchange 727,125.3 1,050,473.8
Pacific

Asia-
National Stock Exchange of India 1,019,109.0 506,652.3
Pacific

Asia-
Shanghai Stock Exchange 2,142,756.8 3,315,768.5
Pacific

Asia-
Shenzhen Stock Exchange 596,320.2 1,701,256.8
Pacific

Asia- Tokyo Stock Exchange 3,478,602.5 2,675,983.3

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Pacific

Europe Euro next 2,605,097.6 1,195,962.2

Europe Frankfurt Stock Exchange (Deutsche Börse) 1,204,292.0 1,589,736.7

Europe London Stock Exchange 2,560,491.1 2,321,518.5

Madrid Stock Exchange (Bolsas y Mercado’s

Europe 1,178,525.6 1,040,751.1
Españoles)

Europe Milan Stock Exchange (Bursa Italiana) 636,674.8 565,759.3

Europe Nordic Stock Exchange Group OMX1 781,146.3 503,049.9

Europe Swiss Exchange 992,356.4 520,867.5

4. Stock exchange of Pakistan

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Pakistan stock
exchange

Karachi stock
exchange (KSE)

Lahore stock
exchange (LSE)

Islamabad stock
exchange (ISE)

1. Karachi Stock Exchange

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

 History:-

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

 Trading:-

The exchange has

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

 Growth:-

The KSE is the biggest and most liquid exchange in Pakistan and in 2002, it was declared
as the “Best Performing Stock Market of the World”. As of December 20, 2007, 671 companies
were listed with the market capitalization of Rs. 4364.312 billion (US$ 73 Billion) having listed
capital of Rs. 717.3 billion (US$ 12 billion). On December 26, 2007, the KSE 100 Index reached
its ever highest value and closed at 14,814.85 points.

Foreign buying interest had been very active on the KSE in 2006 and continued in 2007.
According to estimates from the State Bank of Pakistan, foreign investment in capital markets
total about US$523 Million. According to a research analyst in Pakistan, around 20pc of the total
free float in KSE-30 Index is held by foreign participants.
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KSE has seen some fluctuations since the start of 2008. One reason could be that it is the
election year in Pakistan, and stocks are expected to remain dull. KSE has set an all time high of
15,000 points, before settling around the 14,000 mark.

Karachi stock exchange Board Of Directors (2007) announced plans to construct a 40

story high rise KSE building, as a new direction for future investment.

Disputes between investors and members of the Exchange are resolved through
deliberations of the Arbitration Committee of the Exchange.

KSE began with a 50 shares index. As the market grew a representative index was
needed. On November 1st, 91 the KSE-100 was introduced and remains to this day the most
generally accepted measure of the Exchange. Karachi Stock Exchange 100 Index (KSE-100
Index) is a benchmark used to compare prices overtime, companies with the highest market
capitalization are selected. To ensure full market representation, the company with the highest
market capitalization from each sector is also included.

In 1995 the need was felt for an all share index to reconfirm the KSE-100 and also to
provide the basis of index trading in future. On August the 29th, 1995 the KSE all share index
was constructed and introduced on September, 18, 1995.

 2008 Karachi Stock Exchange Crisis

 April 20:-

Karachi Stock Exchange achieved a major milestone when KSE-100 Index

crossed the psychological level of 15,000 for the first time in its history and peaked 15,737.32
on 20 April, 2008. Moreover, the increase of 7.4 per cent in 2008 made it the best performer
among major emerging markets.

 May 23:-

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

 July 17 :-

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

 July 16 :-
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KSE-100 Index dropped one-third from an all-time high hit in April, 2008 as rising
pressure on shaky Pakistan's coalition government to tackle Taliban militants exacerbates
concern about the country's economic woes.

 August 18:-

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

 August 28 :-

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

 December 15:-

Trading resumes after the removal of floor on stock prices that was set on August 28 to
halt sharp falls.

 KSE Stock indices:-

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

 KSE 100 Index

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

 History:-

The index was launched in late 1991 with a base of 1,000 points. By 2001, it had grown to
1,770 points. By 2005, it had skyrocketed to 9,989 points. It then reached a peak of 12,285 in
February 2007. KSE-100 index touched the highest ever benchmark of 14,814 points on
December 26, 2007, a day before the assassination of former Prime Minister Benazir Bhutto,
when the index nosedived. The index recovered quickly in 2008, reaching new highs near 15,500
in April. However, by November 22, 2008 during the global financial crisis of 2008, it had fallen
to 9,187.
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 Top 30 KSE 100 Index companies:-

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

Weight age
Number Company Name Market Capitalization (PKR)
(%)
1 OGDCL 14.14 550,948,930,000
2 MCB 7.17 279,583,150,000
3 National Bank Of Pakistan 5.43 211,726,900,000
4 Pakistan Petroleum 5.06 197,201,080,000
5 Standard Chartered Bank 4.41 171,704,800,000
6 PTCL 4.28 166,810,800,000
7 United Bank Limited 4.13 161,025,160,000
8 Jahangir Siddiqui &Company 2.66 103,600,000,000
9 Pakistan State Oil 2.08 81,034,440,000
10 Allied Bank Limited 2.01 78,371,670,000
11 Nestle Pakistan 1.93 75,280,250,000
12 Pakistan Oilfields 1.71 66,824,220,000
13 Fuji Fertilizer Company 1.68 65,607,390,000
14 ABN AMRO 1.63 63,666,370,000.
15 Engro Chemical 1.45 56,492,990,000
16 Arif Habib Securities 1.40 54,660,000,000
17 NIB Bank 1.27 49,320,250,000
18 Kot Addu Power Company 1.19 46,565,400,000
19 EFU General Insurance 1.16 45,300,000,000
20 Bank Of Punjab 1.13 43,869,030,000
21 Fuji Fertilizer Bin Qasim 1.06 41,474,480,000
22 Bank Alfalfa 1.03 39,975,000,000
23 Adam jee Insurance 1.01 39,258,300,000
24 Pakistan Tobacco Company 0.99 38,707,280,000
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25 Sui Northern Gas Pipeline 0.98 38,300,100,000

26 Hub Power Company 0.98 38,128,240,000
27 Dawood Hercules Chemicals 0.91 35,549,620,000
28 Habib Metropolitan Bank 0.91 35,354,280,000
29 EFU Life Assurance 0.89 34,750,000,000
30 Lucky Cement 0.86 33,593,480,000

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

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

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

 At the end of 13 July, 2007, KSE-30 Index has reached its highest ever level of 17,162.45.

 Market Indices:-

KSE began with a 50 shares index. As the market grew a representative index was
needed. On November 1, 1991 the KSE-100 was introduced and remains to this date the most
generally accepted measure of the Exchange. The KSE-100 is a capital weighted index and
consists of 100 companies representing about 90 percent of market capitalization of the
Exchange. In 1995 the need was felt for an all share index to reconfirm the KSE-100 and also to
provide the basis of index trading in future. On August 29,1995 the KSE all share index was
constructed and introduced on September 18, 1995.

 Monthly Performance:-
Market monthly performance during the period January 2006 to April 2009 is given under with
high rated index showing in bold text. The highest ever closing for KSE 100 Index was achieved
at 15,676.34 points on 18 April, 2008.

Following a staggering loss of 42 per cent in four months (April 2008 to August 2008),
the regulators had put planks under the KSE-100 index at 9,144 points on August 28, 2008 to
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prevent a further fall. The floor was finally removed on December 15, 2008 that had brought the
bourse to a virtual halt for more than 100 days.

Number Volume Index Date

1 402,639,040 9,672.47 02/01/2006
2 805,494,080 10,497.07 01/02/2006
3 761,960,000 11,473.99 01/03/2006
4 387,000,896 11,573.94 03/04/2006
5 331,884,928 11,572.94 02/05/2006
6 251,317,072 10,183.77 01/06/2006
7 152,448,096 9,603.71 03/07/2006
8 284,526,880 10,507.09 01/08/2006
9 171,682,624 10,170.97 01/09/2006
10 224,694,528 10,616.24 02/10/2006
11 310,985,696 11,011.13 01/11/2006
12 172,052,400 10,388.19 01/12/2006
13 39,200,120 10,066.68 03/01/2007
14 480,905,216 11,349.44 01/02/2007
15 229,188,400 11,207.64 01/03/2007
16 73,447,224 11,277.13 02/04/2007
17 431,508,448 12,433.76 02/05/2007
18 460,166,784 12,933.66 01/06/2007
19 471,708,992 13,929.70 02/07/2007
20 326,983,008 13,689.03 01/08/2007
21 179,963,648 12,233.14 03/09/2007
22 367,242,752 13,737.74 01/10/2007
23 328,071,488 13,932.41 01/11/2007
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24 137,879,220 13,925.59 03/12/2007

25 375,074,240 13,666.85 01/01/2008
26 151,358,160 13,974.40 01/02/2008
27 196,083,660 14,816.50 03/03/2008
28 218,399,820 15,210.17 01/04/2008
29 257,965,456 14,956.82 02/05/2008
30 169,125,456 12,281.20 02/06/2008
31 60,751,820 12,221.53 01/07/2008
32 72,835,000 10,171.39 01/08/2008
32 23,691,000 9,210.15 01/09/2008
34 1,560,000 9,178.97 06/10/2008
35 457,000 9,183.14 03/11/2008
36 102,000 9,187.10 01/12/2008
37 75,434,000 5,753.18 01/01/2009
38 177,668,000 5,333.95 02/02/2009
39 85,351,000 5,681.29 02/03/2009
40 207,282,000 6,931.90 01/04/2009
41 123,539,000 7,062.25 04/05/2009

2. Lahore Stock Exchange

Lahore Stock Exchange (Guarantee) Limited is Pakistan's second largest stock exchange after the
Karachi Stock Exchange. It is located Lahore, Pakistan.

 History of LSE:-
Lahore Stock Exchange was established in October 1970 and is the second largest
stock exchange in the country with a market share of around 12-16% in terms of daily traded
volumes. LSE has 519 companies, spanning 37 sectors of the economy, that are listed on the
Exchange with total listed capital of Rs. 555.67 billion having market capitalization of around Rs.
3.64 trillion. LSE has 152 members of whom 81 are corporate and 54 are individual members.
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Activities of Lahore Stock Exchange (LSE) have increased significantly in all operational areas
since its inception. Over the years, LSE has successfully met various challenges and has now
emerged, fully geared and positioned to aggressively compete with its fellow Exchanges,
contributing towards the growth of Capital Markets in Pakistan.

The LSE was the first stock exchange in Pakistan to use the internet and currently 50% of its
transactions are via the internet.

The Lahore Stock Exchange has opened branches in the industrial cities of Faisalabad and Sialkot
for trading. The Sialkot branch is referred to as the "Sialkot Trading Floor".

 LSE Index
 LSE-25:
The Lahore Stock Exchange Twenty Five company index also calculates the performance of
stocks assuming that all rights issues and bonus share issues only increase the listed capital. In the
case of bonuses or rights the prices of the shares are not adjusted as they are in the case of the
LSETRI. However, the LSE25 assumes that dividends paid out by a component company are not
reinvested. In summary, in the LSE25, no price adjustments are made when any component
company issues cash dividends.
The Lahore Stock Exchange Total Return Index calculates the performance of stocks assuming
that all payouts are reinvested in the index on the ex-date. The LSETRI assumes that if a
component company issues bonus shares or announces a rights issue it will increase the listed
capital. Additionally, the LSETRI also assumes that all pay-outs by a component company are
100% reinvested in the index. Therefore, the LSETRI is adjusted against such payouts announced
by any of index constituents on its ex-date allowing the index value to remain comparable over
time.

 LSE's Membership Structure

Corporate Members
Private Limited Banks or their Individual
Year Public Limited Total
Companies Subsidiaries Members
Companies

2000 26 3 6 3 118 118

2001 26 6 5 3 118 118
2002 26 5 6 3 118 118
2003 26 6 4 3 118 118
2004 44 4 5 3 118 118
2005 26 7 5 3 118 118
2006 22 6 7 3 118 118
2007 24 5 4 3 118 118

 Sialkot Trading Floor (STF):

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Is one of the two branch offices of Lahore Stock

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

 Facilities at Sialkot Trading Floor

 Online Trading Terminals (TWS).

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

3. Islamabad Stock Exchange

Islamabad Stock Exchange is one of the three stock exchanges of Pakistan and is located in the
capital of Islamabad.

 History:-

The Islamabad Stock Exchange (ISE) was incorporated as a guarantee limited Company on 25th
October, 1989 in Islamabad Capital territory of Pakistan with the main object of setting up of a
trading and settlement infrastructure, information system, skilled resources, accessibility and a
fair and orderly market place that ranks with the best in the world. The purpose for establishment
of the stock exchange in Islamabad was to cater to the needs of less developed areas of the
northern part of Pakistan.

The ISE Towers comprise twin 22 storey towers with unique and inspiring amenities, offer
futuristically and aesthetically designed offices with panoramic views, is being constructed over a
piece of land measuring 5600 square yards in the heart of Islamabad at Jinnah Avenue (Blue
Area) which is the hub of all business and commercial activities in Islamabad. The building is
facing 400 feet wide Jinnah Avenue on one side and has another entrance from 100 feet wide
Nazimuddin Road, besides breathtaking scenic view of the Margalla Hills and the city from the
building.
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 Islamabad Stock Exchange Building, Register Companies and Members:-

At present there are 119 members out of which 93 are corporate bodies including commercial and
investment banks, DFIs and brokerage houses. The other 26 Members are individual persons who
are well educated, enterprising and progressive minded. The affairs of the Exchange are governed
by the Board of Directors. The Board of Directors consists of ten directors, of which five are
elected member directors and four are non-member directors nominated by the SECP while the
managing director by virtue of his office is the tenth director of the Board. In order to protect the
interest of the investing public, an Investors Protection fund has been established by the
Exchange.

Since the inception of automated trading system (ISECTS), the trade volume has been
multiplying day by day and the average daily turnover has now crossed the figure of 1 million
shares. Now all the listed securities are traded through the ISECTS. The system of physical
handling of shares and securities has been phased out and majority of the scrip’s are settled
through Central Depository Company of Pakistan Limited.

At the moment there are 241 companies/securities listed on the Exchange with an aggregate
capital of Rs. 389.512 billion. The market capitalization stood at Rs. 2,275.00 billion as on 04-04-
2007 . The pace of listing has remained slow as the economy of the Country is under consistent
pressure due to internal as well as external factors.

In comparison with major financial markets around the World, the functioning of capital market
in Pakistan is still very much in its infancy and lacks advanced technology.
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References:-

 Internet
 Print media
 Electronic media