Issues of Stock Exchange

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KARACHI STOCK EXCHANGEBY O.NO. 900220 ZAHOOR ALI CA(T)-IV



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stock exchange:

Britannica concise Encyclopedia

Organized market for the sale andpurchase of securities such as stock s

and bonds.



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Barron's Finance & Investment

Dictionary:Organized marketplace in which stocks,

common stock equivalents, and bondsare traded by members of the exchange,acting both as agents (brokers) and asprincipals (dealers or traders). Most

exchanges have a physical locationwhere brokers and dealers meet toexecute orders from institutional andindividual investors to buy and sellsecurities. Each exchange sets its ownrequirements for membership; the New

York Stock Exchange has the moststringent requirements.



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Oxford Dictionary of British

History: The London Stock Exchange

was founded in 1802, providinga mechanism for the increasingvolume and complexity offinancial transactions whichhad developed in the 18th cent.The scale of formal investmentincreased massively in thesecond half of the 19th cent.,with a marked orientation

towards internationaloperations which the city ofLondon retains.



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Gale Encyclopedia of Russian

History:

Stock market exchanges area real or virtual location forthe sale and purchase ofprivate equities. A way for

private enterprises to raiseinvestment funds.



How Does Stock Market

Trading Work?

Stock market trading istypically done via brokers.So, the first step is to seeka reliable investmentbroker. Stock markettrading takes place at aphysical stock exchange,where buyers and sellers ofcompany shares meet andagree on the price at which

the transactions wouldmaterialize.

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Karachi stock exchange:-

The Karachi Stock Exchange or KSE is a stockexchange located in Karachi, Sindh, Pakistan.Founded in 1947, it is Pakistan's largest and oldeststock exchange, with many Pakistani as well as

overseas listings. Its current premises are situatedon Stock Exchange Road, in the heart of Karachi'sBusiness District



History:-

Karachi Stock Exchange is the biggest and mostliquid exchange in Pakistan. It was declared the“Best Performing Stock Market of the World for

the year 2002”. As on May 30, 2008, 654

companies were listed with a marketcapitalization of Rs.3,746.203 billion (US$ 56.334billion) having listed capital of Rs.705.873 billion(US$ 10.615 billion). The KSE 100TM Index closed

at 12130.51 on May 30, 200

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Trading:-

The exchange has pre-market sessions from 09:15am to09:30am and normal trading sessions from 09:30am to03:30pm. It is the second oldest stock exchange in SouthAsia. The Karachi stock exchange has undergone aconsiderable deal of downturn partly due to global financialcrisis and partly on account of domestic troubles. Itremained suspended in excess of 4 months and resumednormal trading only on December 15, 2008. The KSE 100Index and KSE 30 Index after hitting the low around midJanuary has now rebounced and recovered 20-25% till

March 12th 2009.

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Growth:-

The KSE is the biggest and most liquid exchange in Pakistan and in2002 it was declared as the “Best Performing Stock Market of the

World” by “Business Week”. As of December 20, 2007, 671

companies were listed with the market capitalization of Rs. 4364.312billion (US$ 73 Billion) having listed capital of Rs. 717.3 billion (US$

12 billion). On December 26, 2007, the KSE 100 Index reached itsever highest value and closed at 14,814.85 points.

Foreign buying interest had been very active on the KSE in 2006 andcontinued in 2007. According to estimates from the State Bank ofPakistan, foreign investment in capital markets total about US$523Million. According to a research analyst in Pakistan, around 20pc of

the total free float in KSE-30 Index is held by foreign participants. KSE has seen some fluctuations since the start of 2008. One reason

could be that it is the election year in Pakistan, and stocks areexpected to remain dull. KSE has set an all time high of 15,000points, before settling around the 14,000 mark.

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http://en.wikipedia.org/wiki/2002

http://en.wikipedia.org/wiki/State_Bank_of_Pakistan







Karachi stock exchange Board of Directors has recently (2007)announced plans to construct a 40 story high rise KSEbuilding, as a new direction for future investment.

Disputes between investors and members of the Exchange are

resolved through deliberations of the Arbitration Committee ofthe Exchange.

KSE began with a 50 shares index. As the market grew arepresentative index was needed. On November 1st, 91 theKSE-100 was introduced and remains to this day the most

generally accepted measure of the Exchange. Karachi StockExchange 100 Index (KSE-100 Index) is a benchmark used tocompare prices overtime, companies with the highest marketcapitalization are selected. To ensure full marketrepresentation, 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 infuture. On August the 29th, 1995 the KSE all share index wasconstructed and introduced on September 18, 1995.

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http://en.wikipedia.org/wiki/Board_of_Directors


http://en.wikipedia.org/wiki/September_18



http://en.wikipedia.org/wiki/September_18


http://en.wikipedia.org/wiki/Board_of_Directors



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 itshistory and peaked 15,737.32 on 20 April, 2008. Moreover, the increase of7.4 per cent in 2008 made it the best performer among major emergingmarkets. May 23: Record high inflation in the month of May, 2008 resultedin 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 protestat plunging Pakistani share prices. [July 16 : KSE-100 Index dropped one-third from an all-time high hit in April, 2008 as rising pressure on shakyPakistan's coalition government to tackle Taliban militants exacerbatesconcern about the country's economic woes

August 18: KSE 100 Index rose more than 4% after the announcement ofthe resignation of President Perwez Musharaf but Credit Suisse Group

said that Pakistan's Post-Musharraf 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 aplunge that has wiped out $36.9 billion of market value since April

December 15: Trading resumes after the removal of floor on stock pricesthat was set on August 28 to halt sharp falls

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http://en.wikipedia.org/wiki/April_20


http://en.wikipedia.org/wiki/Emerging_markets


http://en.wikipedia.org/wiki/May_23

http://en.wikipedia.org/wiki/Interest_rates


http://en.wikipedia.org/wiki/July_17


http://en.wikipedia.org/wiki/Taliban

http://en.wikipedia.org/wiki/August_18

http://en.wikipedia.org/wiki/Pervez_Musharraf

http://en.wikipedia.org/wiki/Credit_Suisse_Group


http://en.wikipedia.org/wiki/Market_value

http://en.wikipedia.org/wiki/December_15

http://en.wikipedia.org/wiki/December_15

http://en.wikipedia.org/wiki/Market_value


http://en.wikipedia.org/wiki/Credit_Suisse_Group

http://en.wikipedia.org/wiki/Pervez_Musharraf


http://en.wikipedia.org/wiki/Taliban




http://en.wikipedia.org/wiki/Interest_rates

http://en.wikipedia.org/wiki/May_23







The major Pakistani indices:- In Pakistan the main index monitored by investors is the KSE 100™ or KSE

30™. This index monitors the performance of the 100 and 30 top traded

companies (Respectively) in the Pakistan.

The index‟s focus on the biggest and the most liquid Pakistani companies,

also known as „blue chips‟, means it is the one newsreaders and newspapers

refer to when they talk about the performance of the stock market. But thestrong returns made by certain companies within this index means that inrecent years it has become heavily dominated by three major sectors: banks,oils and cement.

KSE All-Share index™ literally measures the performance of all the shareslisted on the Karachi Stock Exchange‟s main market. So it includes the KSE

100™, KSE 30™ and KMI 30™ companies and other medium and smaller

companies in a variety of industries such as media, building andconstruction and technology, and etc.

Because of the dominance of a few major Pakistani companies, the KSE All-

Share™ is still heavily influenced by the performance of companies in theKSE 100™ and KSE 30™, for example, the KSE 100™ and KSE 30™ together

make up the major percentage of the KSE All-Share™ index by market

capitalization.

If you want to get the full picture of what is going on in the Pakistani stockmarket you need to not only look at the performance of the KSE All-Share™

and KSE 100™ but also the KSE 30™ index, which covers the major free float

companies in the market.13



OPERATORS AT STOCK EXCHANGE:-

Members of stock exchange

a) Jobbers

Jobbers are security merchants dealing in shares, debentures asindependent operators. They buy and sell securities on their ownbehalf and try to earn through price changes.Jobbers cannot deal

on behalf of public and are barred from taking commission.InIndia, they are called Taravaniwalas.

b) Brokers

Brokers are commission agents, who act as intermediariesbetween buyers and sellers of securities. They do not purchase or

sell securities on their behalf. They bring together thebuyers andsellers and help them in making a deal. Brokers charge acommission from both the parties for their service. Brokers areexperts in estimating trends of price and can effectively advicetheir clients in getting a fruitful gain. Brokers get orders frominvesting public and execute the orders through Jobbers and they

are entitled to a prescribed sale of brokerage. 14



Non-members acting for members:

Some non-members with limited rights are allowed to enter thehouse and to act on behalf of members. There are two types ofsuch agents.

a. Remiser

He acts as an agent of a member of a stock exchange. He obtainsbusiness for his principal ie., the member and gets a commissionfor that service.

-189- -190-

b.Authorised clerk

The authorised clerks are mere employees of the members,appointed by the member of stock exchange. The authorisedclerks transact business on behalf of their employers on the floorof the stock exchange. They are paid a salary, plus a commission

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Functions of stock exchange:-

Although the stock exchange market has multiplefunctions, its main activities are two:

To promote the savings and for them to be canalizedtowards of carrying through investment projects thatotherwise wouldn‟t be possible you need that theissuing institution of the securities to be admitted forquoting. The negotiations will be done on the primarymarket.

To provide liquidity to the investors. The investorcan recuperate the money invested when needed. Forit, he has to go to the stock exchange market to sell thesecurities previously acquired. This function of thestock market is done on the secondary market.

Other functions of the stock exchange market as anorganization are:

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To guarantee the legal and economic security of theagreed contracts.

To provide official information about the quantities thatare negotiated and of the quoted prices.

To fix the prices of the securities according to thefundamental law of the offer and the demand.

Specifying a bit more and centering on the two main agentsthat intervene in the market, investors and companies, wecould do the following classification:

Functions done by the stock exchange market in favor of theinvestor:

It permits him the access to the profitable activities of thebig companies.

It offers liquidity to the security investments, through aplace in which to sell or buy securities.

It permits for the investor to have a political power in thecompanies in which he invests its savings due that theacquisition of ordinary shares gives him the right (among

other things) to vote in the general shareholdersmeetings 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.

With respect to the function done by the stock exchange market infavor of the companies:

It supplies them with the obtaining of long-term funds thatpermits the company to make profitable activities or to do

determine projects that otherwise wouldn‟t be possible todevelop for lack of financing. Also, this funding signifies a lesscost than if obtained at other channels.

The securities quoted at the stock exchange market usuallyhave more fiscal purpose advantages for the companies.

It offers to the company‟s free publicity, which in other waywould suppose considerable expenses. The institution isobjecting of attention of the media (television, radio, etc.) incase any important change in its owners (the share holders).

There also exists a constant following (newspapers) of thequotations.

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Therefore we can see how the stock exchange market supposes agreat advantage to the companies, but there are also someinconveniences 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 itwill depend on the grade of atomization on the participations ofthe new shareholders and of the percentage of shares that thefounders keep over the total capital of the company.

If for example a 49% of the share capital is in hands of thefounders, these could loose the control of in case the other 51%would be in hands of one main shareholder. However, this rarelyhappens, due that the share capital that usually goes to the stockmarket tends to be distributed between a great number ofshareholders that acquire modest participations in respect to thatof the capital of the company the founders may still keep controlwith share capital is distributed between a great number ofparticipants.

Now then, the property of these shares implies the possession ofcertain rights over the company in which you participate.

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are: political rights, among which appears the possibility of participating in thegeneral share holders meetings and in the administration of the company bymeans of the execution of your rights to vote; and the economic right, which

embraces the possibility of receiving dividends, preferential rights ofsubscription, the transmission of shares (selling) and the right to the liquidityvalue.

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

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 themoment in which they are object of quotations at the stock exchange marketany 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. Thestock market quotation may generate an important change that will not alwaysbe 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 totheir evolution and activities.

This makes them have a greater control and to supervise every movementdone

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Other Function of the stock

exchange: 1. Raising capital for businesses

The Stock Exchange provides companies with the facility to raise capitalfor expansion through selling shares to the investing public.

2. Mobilizing saving 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 beenconsumed, or kept in idle deposits with banks, are mobilized andredirected to promote business activity with benefits for several economicsectors such as agriculture, commerce and industry, resulting in astronger 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 itsmarket share, or acquire other necessary business assets. A takeover bidor a merger agreement through the stock market is one of the simplestand most common ways for a company to grow by acquisition or fusion.

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4. Redistribution of wealth

Stocks exchanges do not exist to redistribute wealth. However, bothcasual and professional stock investors, through dividends andstock 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 generallytend to improve on their management standards and efficiency inorder to satisfy the demands of these shareholders and the morestringent rules for public corporations imposed by public stock

exchanges and the government. Consequently, it is alleged thatpublic companies (companies that are owned by shareholders whoare members of the general public and trade shares on publicexchanges) tend to have better management records than privately-held companies (those companies where shares are not publiclytraded, often owned by the company founders and/or their familiesand heirs, or otherwise by a small group of investors). However,some well-documented cases are known where it is alleged thatthere has been considerable slippage in corporate governance onthe part of some public companies (Pets.com (2000), EnronCorporation (2001), One.Tel (2001), Sunbeam (2001), Webvan (2001),

Adelphia (2002), MCI WorldCom (2002), or Parmalat (2003), areamong the most widely scrutinized by the media).22



6. Creating investment opportunity of smallinvestor

As opposed to other businesses that require huge capital outlay,

investing in shares is open to both the large and small stockinvestors because a person buys the number of shares they canafford. Therefore the Stock Exchange provides the opportunity forsmall investors to own shares of the same companies as largeinvestors.

7. Govt. capital- raising for development project Governments at various levels may decide to borrow money in order

to finance infrastructure projects such as sewage and watertreatment works or housing estates by selling another category ofsecurities known as bonds. These bonds can be raised through theStock Exchange whereby members of the public buy them, thus

loaning money to the government. The issuance of such bonds canobviate the need to directly tax the citizens in order to financedevelopment, although by securing such bonds with the full faith andcredit of the government instead of with collateral, the result is thatthe government must tax the citizens or otherwise raise additionalfunds to make any regular coupon payments and refund the principal

when the bonds mature.23



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 generalshow signs of stability and growth. An economic recession,depression, or financial crisis could eventually lead to astock market crash. Therefore the movement of shareprices and in general of the stock indexes can be anindicator of the general trend in the economy.

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Major stock exchanges

Major Stock Exchanges : Year ended 31 December 2011.



Stock market trading can also takeplace online. This process is muchfaster and less complicated thantrading in the physical stock market.

Online stock market trading involvesthe real time placement of buying andselling orders for stocks. Thetransaction is completed when thetrading system is able to match bids

and a confirmation is received.

On February 8, 1971, NASDAQ, the world'sfirst electronic stock exchange, started itsoperations.



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Ethical Guide to the Stock

Market:

The world's increasingawareness of social andenvironmental responsibilitiestouches all aspects of daily life,including stock marketinvestment. An ethical guide tothe stock market may benecessary if moral standardsdrive your investmentdecisions, rather than profit.



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Strategies:

Three strategies that can be usedfor ethical stock market investinginclude themes, preference and

ethical screening. You can chooseto invest with socially preferredcompanies (preference), particularindustries or stock market sectorswith positive worldly influence

(thematic) or companies with highsocial or environmental standards(ethical screening).



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How to Practice Ethical Stock

Market Investing:

Ethical stock marketinvesting, also called"socially responsible"investing, means investing

in companies and funds thatsupport ethical policies. Theextent of ethical investingranges from simplyinvesting in companies that

don't harm people or theenvironment to investing inthose that provide productsand services that helpothers.



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Instructions:

1 Get written reports about where your investments go when

you have a mutual or retirement fund. Get a copy of theprospectus to see what the policies are. Ask for details fromyour financial advisor. Check out investment details even ifthe fund is billed as "green" or ethical.

2 Research all the companies in which you invest. Generally,

weapon manufacturers, tobacco companies and companies

well-known for exploiting their employees or theenvironment are generally considered unethical. Othercompanies may engage in unethical practices that are moredifficult to spot on the surface.



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3

Evaluate the services or products that a company offers.Don't invest in a company that deals in illegal or unethicalactivities, even if the company performs charitable orcommunity services or donates to worthy causes.

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Read Multinational Monitor to find companies that engagein unethical activity.

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Make a list of companies that you don't want to invest in.Give it to your financial advisor and keep it visible whenyou invest.



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6

Look for companies that offer products or services thatsupport environmental issues, promote health or help

people in other ways.

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Check out lists of ethical investments fromEthicalInvesting.com or Sensible-Investment.com.



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Islamic Finance and the Stock

Market: In order to discuss what should be

the role of stock market within anIslamic framework, we have toidentify which of its existing formsand practices are acceptable to

Islam and which will have to bemodified to make them consistentwith Islamic principles.



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Related Areas:

The Stock Market will play a pivotal role inthe Islamic financial system, but, in order toprovide a continuous pricing mechanism, willhave to be insulated from major shocks andcrashes. A major shock would have moreeffect on the Islamic system, because itsentire capital resources, both short-term and

long-term, are equity-based and not debt-based.

Thus an operational framework to insulatethe market from major shocks is vital if the

Islamic financial system is to be brought intobeing. For this purpose, there are three key

areas of the market that need to beconstantly reviewed.

1. Speculation,

2. Information disclosure standards; and

3. The regulations guiding operations andtrading practices



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The Regulatory Environment

The regulations guiding operations and trading practices requiretwo types of restrictions which must be imposed on the market ifit is to operate safely.

1. Those which ensure an adequate flow of information about thebusiness whose securities are being traded.

2. Those which control the trading practices in the market. Thesedefine the role of brokers and dealers, set margin limits andcontrol fees and commissions.

The most important regulation is the margin requirement, that is,the extent to which credit can be used to finance stock purchases,for excessive use of credit can have a bad effect on the market.

There is also a set of regulations which sets limits to issue pricesof new stocks, determines the role of underwriters and describesthe procedure for allocating new securities among prospectiveshareholders (ballots, rights issues, etc.)



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Qur’an describes ……..

Islam enjoins its followers to honour their contracts and prohibits themfrom gaining from coercion or deceit. The Qur’an describes those who aresuccessful, both in this world and the next, as “those who faithfully observe

their pledges and covenants” (23:8). A number of verses in The Qur’an

command Muslims, and indeed all mankind, to refrain from coercion anddeceit:

“ And eat not up your property among yourselves in vanity, nor seek by it togain the hearing of judges that you may knowingly devour a portion of theproperty of others wrongfully” (2:188). “Lo! those who devour the wealth of

orphans wrongfully do but swallow fire into their bellies and they will soonbe enduring burning flame” (4:10).



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Market Stabilization Fund

Market crashes are not alwayscaused by speculative trading ordeterioration in economicconditions. Purely psychologicalfactors can be responsible. Even

after appropriate safeguards todiscourage speculation and toreform the regulatory environmentare introduced, disruptions will stillbe able to occur.

Drawbacks of Stock Market



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Drawbacks of Stock Market

Trading

1. It offers lower leverage than otherforms of trading, such as forextrading.

2. The short selling of stocks isdifficult, since stock prices do notappreciate significantly in a shortspan of time. As a result, there is await period before you can bookhealthy profits.

3. It is open for limited hours in a

day.



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Solutions ….. 1. The main business of the

company is not in violation ofShariah. Therefore, it is notpermissible to acquire theshares of the companies

providing financial services oninterest, like conventionalbanks, insurance companies,or the companies involved insome other business notapproved by the Shariah, such

as the companiesmanufacturing, selling oroffering liquors, pork, harammeat, or involved in gambling,night club activities,pornography etc.



2. If the main business of thecompanies is halal, likeautomobiles, textile, etc. but theydeposit there surplus amounts ina interest-bearing account or

borrow money on interest, theshare holder must express hisdisapproval against suchdealings, preferably by raisinghis voice against such activities

in the annual general meeting ofthe company.



3. If some income from interest-bearing accounts is included inthe income of the company, theproportion of such income in thedividend paid to the share-holder

must be given charity, and mustnot be retained by him. Forexample, if 5% of the wholeincome of a company has comeout of interest-bearing deposits,

5% of the dividend must be givenin charity.



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4. The shares of a company arenegotiable only if the company ownssome non-liquid assets. If all theassets of a company are in liquid

form, i.e. in the form of money thatcannot be purchased or sold, excepton par value, because in this case theshare represents money only and themoney cannot be traded in except atpar.





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JAZAK ALLAH….

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Issues of Stock Exchange