STOCK EXCHANGE

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DEFINITIONThe securities regulation act of 1956 defined stock exchange as:

“An association, organization, or a individual which is established for

the purpose of assisting, regulating, and controlling business in buying,

selling and dealing in securities.”

HISTORY2 | P a g e

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The stock exchange was established by “East India Company” in 18th

century. In India it was established in 1850 with 22 stock brokers

opposite to town hall Bombay. This stock exchange is known as oldest

stock exchange of Asia. In Europe the first Stock Exchange (SE) came to

operation in Scandinavian countries. Later on London became the

leader because of British Empire.

MEANINGThe Stock Exchange is nothing but more than a giant, globally

networked, organized market place where everyday huge sums of

money are moved back and forth, in total 60 Trillion Euro are traded a

year. However this all is done not by products or cash but Securities.

This comes under treasury sector, which provides service to stock

brokers and traders to trade stocks, bonds and securities. Securities are

rights to assets in form of share. Stock exchanges helps the companies

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to raise their fund. Therefore the companies needs to list themselves in

the Stock Exchange and the shares will be issued which is known as

equity or a ordinary share and these shareholders are the real owners

of the company the Board of Directors of the Company are elected out

of these Equity Shareholders only.

STOCK EXCHANGE IN PAKISTANThere are three stock exchanges in Pakistan:

1: Karachi Stock Exchange (KSE) – August 14, 1947

2: Lahore Stock Exchange (LSE) – October 1970

3: Islamabad Stock Exchange (ISE) – 25 October, 1989

Karachi S.E is the oldest and largest in Pakistan.

FUNCTIONS OF STOCK EXCHANGE

Provide central and convenient meeting place for sellers and

buyer of securities.

Increase the marketability and liquidity of securities.

Contribute to stability of prices of securities.

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Equalization of price of securities.

Smoothen price movement.

Help the investors to know the worth of their holdings.

Promote the habit of saving and investment.

Help capital formation.

Help companies and government to raise funds from the

investors.

Provide forecasting service.

WORKING OF STOCK EXCHANGEThe terminology involved can be a bit baffling, the basic concept of

investing isn't all that complicated. You can buy something with your

money: a little piece of a company as shares of stock, or some real

estate, or something else. Or you can lend your money to an

organization and have it agree to pay you back, with interest, over a

specified time. When it comes to investing, you can own, or you can

loan. Stocks are merely investments that represent a piece of

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ownership in a company. The more shares of stock in one company that

you have, the bigger a piece of the company you own. Owning stock

makes you a shareholder in the company. The word stock is commonly

used interchangeably with the phrase common stock. There are

different kinds of stocks, such as blue-chip stock, which refers to stock

of well-established companies like General Motors and Exxon, and

growth stock, which is that of companies on their way up.

All corporations have stock, but not all corporate shares are sold to the

public. A company may sell stock, or little pieces of itself, to raise

money. When it sells stock through an initial public offering (IPO),

it goes public. When a company goes public, it no longer controls who

can purchase its stock.

EXAMPLE:

If you buy stock in the Disney Corporation, you're buying a tiny, tiny

piece of a huge company. Shares of stock usually are sold in groups of

100, which are called round lots. Groups of less than 100 shares are

called odd lots. If you buy 100 shares of stock from a company that has

a million shares of stock outstanding, you can figure that you own one

thousandth of the company. Regardless of whether you buy 10 Disney

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shares or 10,000, you're still a shareholder in the company. As long as

the company makes a profit, you're entitled, as a shareholder, to share

and benefit from it.

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