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Securities MarketMoney and Capital Markets


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Stock exchanges in

PakistanThere are three stock exchanges in pakistan Karachi Stock Exchange (Guarantee) Limited

Lahore Stock Exchange (Guarantee) Limited Islamabad Stock Exchange (Guarantee) Limited

Guarantee Limited these are thecompanies whose members undertake tocontribute a certain sum towards the assetsof the company in the even of its beingwound up to meet the claims of thecreditors (default).


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KSE & its Trading System

The KSE has introduces computerizedtrading system to provide afair,transparent, efficient and costeffective market mechanism tofacilitate the marke participants. The

system being operated at KSE is calledKarachi Automated Trading System(KATS).


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Segments of Trading

systemT+3 Settlement SystemProvisionally Listed CounterSpot/t+1 TransactionsFutures Contract

Odd lots MarketCOT Market


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T+3 Settlement System

T+3 system stands for - Trading plus3rd day settlementIn this system, purchase and sale ofsecurities is netted and the balance issettled on the third day following the

day of trade.


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Example from COT

presentation


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Benefits of T+3

settlement systemIt reduces the time between executionand settlement of trades, which in turnreduces the market risk.It reduces the settlement of risk, asthe settlement cycle is shorter.


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Provisionally ListedCounter

The shares of companies, which are not alreadylisted and which make a minimum public offeringof a specified amount, which is presently Rs. 150

million, are traded on this counter from the dateof publication of prospectus/offering document.When the company completes the process ofdispatch/credit of alloted shares to subscribethrough CDC, it is officially listed and placed onthe T+3 counter. Trading on the provisionallylisted counter then comes to an end and all theoutstanding outstanding transactions aretransferred to the T+3 counter with effect from

the date of official listing.


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Spot/T+1 Transactions

Spot transactions imply delivery uponpayment. Normally in spottransactions the trade is settled within24 hours.


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Futures Contract

A Futures contract involves purchaseand sale of securities at some futuredated (normally within one calendarmonth), at a price fixed at the day oftrading.


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COT Market

Equity repurchase transactions, commonlyknown as Badla are called Carry Over

Trades. These transactions are used in thestock market for temporary financing oftrades by speculators and jobbers. Throughthis mechanism, the purchase transaction,

after its execution, is funded throughborrowing till the next settlement. COTsession is run in the afternoon, after theregular market and before the settlementsession.


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Important concepts tounderstand while tradingin stocksKSE 100 Index

Circuit BreakerEarnings Per Share (EPS)Book Value or Break-up Value

Price Earning (P/E) Ratio


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KSE 100 Index

The KSE 100 Index is a benchmark usedfor ascertaining market direction. The

KSE 100 Index comprises the topcompany form each of the listedsectors on the KSE, in terms of marketcapitalization. The rest of thecompanies are then picked on thebasis of their respective marketcapitalization ranking, without anyconsideration for the sector.


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Circuit Breaker

A circuit breaker refers to a measure used by stockexchanges to avert panic selling or over-exuberant buying. After he stocks price has risen

or fallen by a certain percentage, the exchangemight activate restrictions or trading halts. TheKSE management has imposed a circuit breakerof 7.5% or Rs. 1.50/- whichever is higher for thepurpose of upward price fluctuations in the stockprice from the closing price of the previous dayand a circuit breaker of 5% or Re. 1.00/-,whichever is higher in case of downwardfluctuation in the stock price from the closing

price of the previous day.


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Earnings Per Shares (EPS)

This ratio denotes the companysearning capability for each shareissued and is calculated by dividing thecompanys net profit after tax by itsnumber of shares outstanding.


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Book Value orBreak up Value

This is the ratio which indicates theasset coverage that each equity share

represents in the company. It thusrepresents the net worth of assets thateach shares commands. Boom valueper share is arrived at by dividing totalequity by the number of sharesoutstanding. Shareholders equityincludes paid up capital, reserves andretained earnings ,less losses if any.


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Price Earning (P/E) Ratio

This ratio is calculated by dividingcurrent market price of the share by

its EPS. This ratio is used as a tool forvaluation and indicates whether priceof a share is realistic in line with its

earning. If the share is over pricedthen the ratio will be high, if it isunder priced the ratio will be low.


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Delivery and Settlement

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

completion on delivery and settlementthereof. If a company has note yet beenentered in the Central DepositorySystem(CDS), the delivery of its shares is

performed manually in physical form,otherwise the same is done electronicallythrough CDC as operated by a separatecompany namely Central DepositoyrCompany of Pakistan.


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Central Depository System(CDS)

The system of electronic book-entry of securities i.e.CDS has been established to eliminate physicalmaintenance and transfer of securities. This system isin line with the international practice and hasreplaced the manual system of physical handling andsettlement of shares at stock exchanges. Within theCDS, transfer of shares from one account to anotheraccount takes place electronically. The CDS is managed by the Central DepositoryCompany of Pakistan Limited (CDC), which has beensposored by the stock exchanges and leading lca;and foreign financial institutions.

Established under the Central Depositories Act 1997.


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Advantages of CDS

Electronic book entry systemRecords and Transfers securities electronicallyNo physical change of hands of securitiesStrict confidentialityNo risk of damaged, lost, forged and duplicatesecurities.Simple procedure involved in pledging of securities.No delays in delivery, settlement and transfer ofsecurities due to speed.Instantaneous credit of entitlements to investors.Significantly reduced the cost of investors


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National Clearing &

Settlement SystemClearing and settlement is one of the mostimportant aspects in the operation of the securitiesbusiness.

It is the process of reporting, matching correctingsecurities transactions and the ultimate delivery orreceipt of net balances.NCSS is an electronic system developed to replacethe individual clearing houses of Pakistans threestock exchanges by a single entry.The system is operated by National ClearingCompany of Pakistan Limited (NCCPL) which hasbeen registered as a separate legal entity.


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