Stock exchange

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 exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts, derivatives, pooled investment products and 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 electronic 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 (see stock valuation).
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.

There are three Stock Exchanges in Pakistan, namely

1. Karachi Stock Exchange; formed in 1947,
2. Lahore Stock Exchange; formed in 1971,
3. Islamabad Stock Exchange; formed in 1989.

Out of all the three Exchanges, the Karachi Stock Exchange is the premiere Stock Exchange of the country, with over 700 listed companies. It was established soon after the creation of Pakistan.

History of Stock Exchange

In 11th century France the courtiers de change were 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 neighbouring 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 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.

The role of stock exchanges

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

Raising capital for businesses

The Stock Exchange provide companies with the facility to raise capital for expansion through selling shares to the investing public.

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.

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, 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.

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.

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 bubble in the early 2000s, and the subprime mortgage crisis in 2007-08, are classical examples of corporate mismanagement. Companies like Pets.com (2000), Enron Corporation (2001), One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), Parmalat (2003), American International Group (2008), Lehman Brothers (2008), and Satyam Computer Services (2009) were among the most widely scrutinized by the media.

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.
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 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, 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.

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.

Means of Financing

Financing a company through the sale of stock in a company is known as equity financing.

Alternatively, debt financing (for example issuing bonds) can be done to avoid giving up shares of ownership of the company. Unofficial financing known as trade financing usually provides the major part of a company's working capital (day-to-day operational needs).

Sole Proprietorship/Partnership
If you start a business using your own money, you have formed a sole proprietorship. You own the entire business yourself. If three people pool their money together and start a business as a team, they have formed a partnership. The three people own the business, sharing the profit and decision-making.

Corporations
Any business that wants to sell shares of stock to a number of different people does so by turning itself into a corporation. The process of turning a business into a corporation is called incorporation.

What is Share or Stock?

A share of stock is the smallest unit of ownership in a company. If you own a share of a company’s stock, you are a part owner of the company.

You have the right to vote on members of the board of directors and other important matters before the company. If the company distributes profits to shareholders, you will likely receive a proportionate share.

One of the unique features of stock ownership is the notion of limited liability. If the company loses a lawsuit and must pay a huge judgment, the worse that can happen is your stock becomes worthless. The creditors can’t come after your personal assets. That’s not necessarily true in private-held companies.

Stock Types

There are two types of stock:
· Common stock
· Preferred stock

Most of the stock held by individuals is common stock.

Common Stock
Common stock represents the majority of stock held by the public. It has voting rights, along with the right to share in dividends.

When you hear or read about “stocks” being up or down, it always refers to common stock.

Preferred Stock
Despite its name, preferred stock has fewer rights than common stock, except in one important area – dividends. Companies that issue preferred stocks usually pay consistent dividends and preferred stock has first call on dividends over common stock.

Investors buy preferred stock for its current income from dividends, so look for companies that make big profits to use preferred stock to return some of those profits via dividends.

Watch the video "What is stock?"

Who is a Shareholder?

A shareholder (or stockholder) is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. Companies listed at the stock market are expected to strive to enhance shareholder value.

Rights of Shareholder

Shareholders are granted special privileges depending on the class of stock, including the right to vote (usually one vote per share owned) on matters such as elections to the board of directors, the right to share in distributions of the company's income, the right to purchase new shares issued by the company, and the right to a company's assets during a liquidation of the company. However, shareholder's rights to a company's assets are subordinate to the rights of the company's creditors.

Shareholders are considered by some to be a partial subset of stakeholders, which may include anyone who has a direct or indirect equity interest in the business entity or someone with even a non-pecuniary interest in a non-profit organization. Thus it might be common to call volunteer contributors to an association stakeholders, even though they are not shareholders.

Although directors and officers of a company are bound by fiduciary duties to act in the best interest of the shareholders, the shareholders themselves normally do not have such duties towards each other.

Trading stocks

Trading stocks. You hear that phrase all the time, although it really is wrong – you don’t trade stocks like baseball cards (I’ll trade you 100 IBMs for 100 Intels).

Trade = Buy or Sell

To “trade” means to buy and sell in the jargon of the financial markets. How a system that can accommodate one billion shares trading in a single day works is a mystery to most people. No doubt, our financial markets are marvels of technological efficiency.

Yet, they still must handle your order for 100 shares of Acme Kumquats with the same care and documentation as my order of 100,000 shares of MegaCorp.

You don’t need to know all of the technical details of how you buy and sell stocks, however it is important to have a basic understanding of how the markets work. If you want to dig deeper, there are links to articles explaining the technical side of the markets.

Two Basic Methods
There are two basic ways exchanges execute a trade:
· On the exchange floor
· Electronically

There is a strong push to move more trading to the networks and off the trading floors, however this push is meeting with some resistance. Most markets, most notably the NASDAQ, trade stocks electronically. The futures’ markets trade in person on the floor of several exchanges, but that’s a different topic.

Exchange floor
Trading on the floor of the New York Stock Exchange (the NYSE) is the image most people have thanks to television and the movies of how the market works. When the market is open, you see hundreds of people rushing about shouting and gesturing to one another, talking on phones, watching monitors, and entering data into terminals. It could not look any more chaotic.

Yet, at the end of the day, the markets workout all the trades and get ready for the next day. Here is a step-by-step walk through the execution of a simple trade on the NYSE.

You tell your broker to buy 100 shares of Acme Kumquats at market.

Your broker’s order department sends the order to their floor clerk on the exchange.

The floor clerk alerts one of the firm’s floor traders who finds another floor trader willing to sell 100 shares of Acme Kumquats. This is easier than is sounds, because the floor trader knows which floor traders make markets in particular stocks.

The two agree on a price and complete the deal. The notification process goes back up the line and your broker calls you back with the final price. The process may take a few minutes or longer depending on the stock and the market. A few days later, you will receive the confirmation notice in the mail.

Of course, this example was a simple trade, complex trades and large blocks of stocks involve considerable more detail.

Electronically
In this fast moving world, some are wondering how long a human-based system like the NYSE can continue to provide the level of service necessary. The NYSE handles a small percentage of its volume electronically, while the rival NASDAQ is completely electronic.

The electronic markets use vast computer networks to match buyers and sellers, rather than human brokers. While this system lacks the romantic and exciting images of the NYSE floor, it is efficient and fast. Many large institutional traders, such as pension funds, mutual funds, and so forth, prefer this method of trading.

For the individual investor, you frequently can get almost instant confirmations on your trades, if that is important to you. It also facilitates further control of online investing by putting you one step closer to the market.

You still need a broker to handle your trades – individuals don’t have access to the electronic markets. Your broker accesses the exchange network and the system finds a buyer or seller depending on your order.

Watch the video about trading stocks:

What is Dividend?

Dividends are returns paid to shareholders out of the profits of the company.

A company can retain its profit for the purpose of re-investment in the business operations (known as retained earnings), or it can distribute the profit among its shareholders in the form of dividends.A dividend is not regarded as an expenditure; rather, it is considered a distribution of assets among shareholders. The majority of companies keep a component of their profits as retained earnings and distribute the rest as dividend.

Types of Dividend
Returns can be in the form of cash or additional shares of the company called bonus shares. Dividends are usually paid once or twice a year depending upon the company’s profit distribution policy.

Special dividend:
Normally, public companies declare their dividends on a specific schedule; however, they also have the option to declare a dividend at any time. This type of dividend is referred to as a special dividend.

Cash dividend:
Paid in checks, this is the most basic form of dividend. Cash dividends considered a type of investment earnings, and are taxable.

Stock dividend:
Given in the form of bonus shares or stocks of the issuing company or a subsidiary company. Normally, they are offered on the basis of a prorata allotment.

Property (in kind) dividend:
Distributed in the form of assets by the issuing company or a subsidiary company.

Other types of dividend:
Warrants and financial assets having market value are also distributed in the form of dividends.

Karachi Stock Exchange (KSE)

The Karachi Stock Exchange or KSE is a 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.

History
Karachi Stock Exchange is the biggest and most liquid 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 market capitalization of Rs. 3,746.203 billion (US$ 56.334 billion) having listed capital of Rs. 705.873 billion (US$ 10.615 billion). The KSE 100TM Index closed at 12130.51 on May 30, 2008.

Trading
The exchange has pre-market sessions from 09:15am to 09:30am and 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 rebounced 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” by Business Week. 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.
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 has recently (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.

Stock Market Index

A stock market index is a method of measuring a section of the stock market. Many indices are cited by news or financial services firms and are used to benchmark the performance of portfolios such as mutual funds.

Here are two more definitions to understand Stock Index better:

A collection of stocks whose value is a benchmark for the overall movement of a particular type of stock

A collection of stocks that are tracked over time and used as benchmarks to see how various parts of the stock market are performing.

To understand the Stock index some more watch the video:

Types of indices

Stock market indices may be classed in many ways. A broad-base index represents the performance of a whole stock market — and by proxy, reflects investor sentiment on the state of the economy. The most regularly quoted market indices are broad-base indices composed of the stocks of large companies listed on a nation's largest stock exchanges.

KSE INDICES
The Karachi Stock Exchange is maintaining three indices, i.e.

1. KSE 100TM Index
2. KSE 30TM Index and
3. KSE All Share Index.

KSE 100TM Index and All Share indices are market capitalization-based indices, whereas KSE 30TM Index is based on Free-Float Market Capitalization.

The KSE 100TM Index

It is a stock index acting as a benchmark to compare prices on the Karachi Stock Exchange (KSE) over a period of time.It was introduced in 1991 and comprises of 100 companies selected on the basis of sector representation and highest market capitalization, which captures over 80% of the total market capitalization of the companies listed on the Exchange. Out of 35 Sectors, 34 companies are selected i.e., one company from each Sector (excluding Open-End Mutual Fund) on the basis of the large market capitalization and the remaining 66 companies are selected on the basis of highest market capitalization. This is a total return index i.e. dividend, bonus and rights are adjusted. The same methodology is applicable in the case of All Share Index, which includes all the listed companies, (except Open-End Mutual Funds).

KSE-30 Index

It is calculated using the “Free-Float Market Capitalization” methodology. In accordance with methodology, the level of index at any point of time, reflects the free-float market value of 30 companies in relation to the base period. The free-float methodology refers to an index construction methodology that takes into account only the market capitalization of free-float shares of a company for the purpose of index calculation.

Risk Management

Risk management is the discipline of identifying, monitoring and limiting risks.

The main difference between an amateur and an experienced trader is that the latter always tries to understand and control portfolio risks. Before entering into any trade, good traders first think about how much risk to take and how much risk exposure comes with a particular trade selection. Only then do they allow themselves to think about how much profit they stand to make. Smart investors always cut down their position and exposure if they determine that a portfolio carries too much risk. They calculate this all-important estimation by employing Risk Management defined as that set of methods and procedures taken to estimate, and control risk for the purpose of achieving optimal investment results.

Watch the video on Risk Management

How to manage portfolio risk?

1. Know your overall risk tolerance before building up the portfolio.
2. Determine your overall loss level. Usually your portfolio should not lose more than 10% of your capital.
3. Diversify your investment in at least three or more different stocks.
4. Actively manage the risk of every individual trade.
5. Know your overall risk and where the risk comes from.
6. Act quickly when you see your risk limits exceeded.
7. Close out the entire portfolio if it loses to your overall stop-loss level.

Stock Terms

Redemption Fee
An amount charged when money is withdrawn from a mutual fund. Unlike a back-end load, which profits the fund company, redemption fees go back into the fund itself and thus do not represent a net cost to shareholders. Redemption fees typically are charged only on withdrawals made before some relatively brief period, commonly 30, 180 or 365 days. These fees are typically imposed to discourage market timers, whose quick movements into and out of funds can be costly and disruptive.

Repayment of Debt
Includes the payments of long-term obligations (those of more than one year's duration).

Repurchase of Capital Stock

Includes anything that involves the repurchase of common and preferred stock for the corporate treasury.

Revenue
All the money (or other items of value) that came into the company during the given period. Revenue includes everything: sales, interest income, proceeds from the sale of a subsidiary and so forth. Revenue is thus one of the most reliable items on the income statement, as opposed to net income, which is subject to various accounting and managerial judgments. But the all-inclusive nature of revenue can make it misleading. If 50 percent of revenue in a given year came from the one-time sale of some land, clearly one shouldn't assume that the business will have similar revenue in future years.

Revenue Growth
The compound annual growth rate of a company's revenues.

Risk

The future chance or probability of loss.

Round Trip
Buying and selling the same stock, especially in a relatively brief period.

Rule Of 72
A quick way to determine how long it take for some types of investments to double. To use the rule of 72, simply divide 72 by the yield of the proposed investment. If the investment yields 12 percent annually, it would take only six years to double your money. At 10 percent, it would take about seven years.

Shareholder's Equity
This is the net worth of a company, the amount by which assets exceed liabilities. It's also known as ""book value."" But most companies are worth far more than their book value, since ""worth"" means what someone is willing to pay, and hardly any good companies can be acquired for this baseline price.

Shares Outstanding
The total number of a company's publicly traded shares.

Spinoff
When a company decides that a subsidiary needs to stand on its own, it might do a spinoff, distributing shares of the new entity to existing shareholders, or selling the new business to its managers or even its employees. There are many possible reasons for a spinoff. Management may decide, for instance, that this is a way to maximize shareholder value. Or it may be decide that the subsidiary is not earning the kind returns that other units of the company generate.

Stock Certificate
A document that proves your ownership of shares in a particular company

Inception Date
The date the mutual fund was started or first offered to the public. Income

(1-year growth rate)
The year-to-date percent change in net income versus the same period a year ago.

Initial Public Offering
The first stock sold by a company in going public.

Interest-Sensitive Stock
A stock whose price is very much affected by rising or falling interest rates.

Investment Club
A typical investment club is a group of individuals -- often neighbors, co-workers or friends -- who agree to contribute a fixed sum each month to the club's investment pool. The money is used to buy stocks, bonds or to make other types of investments. If you're nervous about picking your own stocks and don't like the idea of working with a stockbroker, an investment club might be for you.

Issuance of Capital Stock
Proceeds from issuance of both common stock and preferred stock.

Issuance of Debt
Proceeds from company borrowing.

Debenture
A bond issued without specific security. In the event of a crisis, holders of debentures take a back seat to other bondholders. To compensate for the added risk, debentures usually pay higher interest than secured bonds, or offer conversion to common stock

Debt Ratio
Liabilities divided by assets. The debt ratio is a good indicator of the extent to which a business is leveraged. The lower this number, the more conservative the firm and the less likely it is to be knocked for a loop in hard times.

Debt/Equity Ratio
The most recent quarter long-term debt divided by the most recent quarter common stock equity. The debt/equity ratio is a measure of the extent to which a firm's capital is provided by owners or lenders. Aggressive companies often rely more heavily on debt than conservative companies. A greater reliance on debt can mean greater profitability for shareholders, but also greater risk in the event things go sour. Generally the debt/equity ratio should be 30% or lower, but as with most ratios, this one varies by industry.

Dividend
The distribution of corporate earnings to shareholders. If it is in the shape of stock, it is called "Stock Dividend" and if in the shape of cheque or payorder, its called "Cash Dividend".

Dividend Growth
The compound annual growth rate of dividends per share.

Dividend Rate
The annual ruppee amount of the dividend per share.

Earnings Per Share (EPS)
Net income divided by common shares outstanding. A company that earns Rs.1 million for the year and has a million shares outstanding has an EPS of Rs.1.

Equity
Equity is the market value of your property, less the amount you owe on it and must repay when you sell.

Even Lots
Transactions where stocks are purchased or sold in multiples of 100 shares, also referred to as round lots. It's best to buy or sell stocks in even lots rather than odd lots (less than 100 shares or not a multiple of 100) since most brokers charge a higher commission on odd-lot orders.

Odd Lots

A number of shares that are less than a board lot, which is the regular trading unit decided upon by the particular stock exchange. An odd lot is also an amount that is less than the par value of one trading unit on the over-the-counter market. For example, if a board lot is 100 shares, an odd lot would be 99 or fewer shares.

Financial Adviser
Financial advisers focus primarily on your investment portfolio. They recommend stocks, bonds, mutual funds or other investments that fit your goals and risk level. And if you agree to open a ""discretionary"" account, the adviser can invest your money without first getting your permission.

Financial Planner
Unlike financial advisers, financial planners become involved with all of your assets -- not just stocks and bonds, but real estate, insurance, even collectibles and college-savings accounts.

Financials Sector
A category that includes banks, brokerage firms, thrifts, insurance, and real estate companies

Financing Activities
The sale or purchase of a company's own stock or bonds, payment of dividends and any other finance charges incurred in the company's operations

Fiscal Year (FY)
The 12-month accounting period of a business. For various reasons, the fiscal year is often different from the calendar year. This is especially the case in some seasonal businesses, such as retailing.

Fully Diluted Earnings Per Share
Earnings per share that takes account of all the common stock that would exist if convertible securities were traded in for common shares.

Gross Domestic Product (GDP)
The total value of goods and services produced by a nation within that nation.

Head and Shoulders
For technicians, a chart pattern indicating a peak, a decline, a second even higher peak, a decline, a rebound to the level of the first peak, and yet another decline. A head and shoulders pattern is supposed to be bad news, indicating the stock is headed downward.

Hedge Fund
A risky investment pool, generally open only to well-heeled investors, that seeks very high returns by taking very great risks.

Leading Economic Indicators
A compendium of previously announced economic indicators: new orders, jobless claims, money supply, average workweek, building permits, and stock prices.

Limit Order
When you instruct your broker to buy shares for you at or below a certain price, or sell shares at or above a certain price, you've entered a limit order.

Market Order
In which the broker is instructed to execute the trade at any market price available.
BidThe highest price a buyer is willing to pay for a stock. When combined with the ask price information, it forms the basis of a stock quote.

Blue Chip Stocks

Stocks of leading and nationally known companies that offer a record of continuous dividend payments and other strong investment qualities

Broker or Brokerage Firm

A securities firm or a registered investment advisor affiliated with a firm. Brokers are the link between investors and the stock market. When acting as a broker for the purchase or sale of listed stock, the investment advisor does not own the securities but acts as an agent for the buyer and seller and charges a commission for these services.

Bull Market

A market in which stock prices are rising.

Call Option

An option which gives the holder the right, but not the obligation, to buy a fixed amount of a certain stock at a specified price within a specified time. Calls are purchased by investors who expect a price increase.
CommissionThe fee charged by an investment advisor or broker for buying or selling securities as an agent on behalf of a client.

Intrinsic Value

The difference between the current market value of the underlying interest and the strike price of an option. In-the-money is a term used when the intrinsic value is positive.

Mutual Fund

A fund managed by an expert who invests in stocks, bonds, options, money market instruments or other securities. Mutual fund units can be purchased through brokers or, in some cases, directly from the mutual fund company.

Par Value
A security's nominal face value.

Seed Stock

The shares or stock sold by a company to provide start-up capital before carrying out an initial public offering (IPO).

Spread

The difference between the bid and the ask prices of a stock.

CDC (Central Depository Company)

Incorporated as a public limited (Unlisted) company in 1993, Central Depository Company of Pakistan Limited (CDC) is the only depository in Pakistan. The Company started operations in September 1997. CDC is the sole entity handling the electronic (paperless) settlement of transactions carried out at all three stock exchanges of the country. Through efficient functioning of CDC, approximately 99% of the market settlement is in book entry form.

CDC was primarily established to operate the Central Depository System (CDS) for equity, debt and other financial instruments that are traded in the Pakistani Capital Market. However, with the passage of time and development of Pakistan’s Capital Market, it now also provides services that are beyond the traditional depository services. CDS is an electronic book entry system used to record and maintain securities and their transfer’s registration. The system changes the ownership of securities without any physical movement or endorsement of certificates and execution of transfer instruments.

CDC provides depository services to a wide range of Capital Market participants which includes Brokers, Asset Management Companies, Banks (including Custodian Banks) and general retail investors. It also serves to link up the Issuers and Registrars of securities and the market for the purpose of executing corporate actions like disbursement of corporate benefits and carrying out mergers and splits.

The aim of CDC is to operate as a central securities depository on behalf of the financial services industry so as to contribute to the country's ability to support an effective capital market system which will attract institutional and retail level investors from Pakistan and abroad. CDC is regulated by the Securities and Exchange Commission of Pakistan (SECP). CDC has branches in Karachi, Lahore, Islamabad and Hyderabad.

Taking another step towards capital market development, CDC has diversified its operations in the following services:

Launched in 1999, Investor Account Services (IAS) allows retail investors to open and maintain securities’ accounts directly with CDC.

Trustee and Custodial Services (T&C) were introduced in 2002 and enlists Open-end and Closed end Mutual Funds and Voluntary Pension Schemes.

Launched in 2008, Share Registrar Services (SRS) provides issuing companies state-of-the-art facilities of registrar and transfer agent services, including registration and verification of shares and records and customer dealing on behalf of issuer companies.

CDC Access – Worldwide Access to CDC Accounts
In a drive to increase customer convenience for investors to benefit from electronic custody & settlement of securities, CDC has started multiple channels for investors to access their electronic securities portfolio through its innovative service-range ‘CDC access’. CDC customers can access their account information through CDC access services, which include IVR (Interactive Voice Response), Web and SMS facilities.

CDC access – IVR is a round-the-clock Interactive Voice Response system supported by a state-of-the-art call center, toll free number 0800-CDCPL (23275) and dedicated customer support staff.

CDC access – Web enables Investor Account holders to access their account information through https://www.cdcaccess.com.pk.

CDC access – SMS gives an added level of convenience to investors by providing them their account info on their mobile screens.

Web Kiosk and IVR Phone Booth are two especially tailored facilities for CDC’s walk-in customers at the CDC House (Shahra-e-Faisal, Karachi), enabling them to access https://www.cdcaccess.com.pk through the touch-point kiosk machine installed in the waiting lobby. Similarly, they can access the CDC access – IVR and / or talk to a customer relationship officer through the nearby IVR Phone Booth.

Your CDC Relationship Number:
To register for availing CDC access – IVR, Web and SMS services, you would be required to fill in your CDC Relationship Number on the CDC access – Registration Form. Your CDC Relationship Number is the combination of Investor Account Services (IAS) ID and your account number.

Generation of T-PIN:
Call at 0800-CDCPL (23275).
After selecting the language preference, press 1 for self service.
Enter your 12 digit CDC – Relationship Number (which is a combination of IAS ID and your Investor Account Number)
Generate your 4 digit T-Pin.

CDC Access – Registration Form:
Please click on the link to download the Registration Form.The form can also be obtained from the Customer Support Front Desk at CDC Offices.

Activation of CDC access Services:
Submit completely filled Registration Form duly signed by the authorized signatory(ies) at the CDC Customer Support Front Desk or send it to the CDC Office where you are maintaining your Investor Account. Also affix the company stamp in case you are a corporate client.

What is Central Depository System?

The main function of CDC is to operate and maintain the Central Depository System (CDS), drawing guidance from a well-defined legal framework laid down by Securities & Exchange Commission of Pakistan (SECP). Installed by an IBM-led consortium, CDS is an electronic book-entry system used to record and maintain securities and to register the transfer of securities.

The system changes the ownership of securities without any physical movement or endorsement of certificates and execution of transfer instruments. CDS facilitates equity, debt and other financial instruments in the Pakistani Capital Market. It manages Ordinary & Preference shares, TFCs, WAPDA Bonds, Sukuk, Open-End & Closed-End funds and Modaraba Certificates.

Benefits of Electronic Settlement through CDS:
1. Reduced workload and manpower requirements due to paperless settlement.
2. Instantaneous transfer of ownership.
3. No stamp duty on transfers in CDS.
4. No risk of damaged, lost, forged or duplicate certificates.
5. No impact in case of sudden increase of settlement volumes.
6. Instant credit of corporate entitlements (bonus, rights and new issues).
7. Paperless environment (no traditional vaults).
8. Secure custody of securities.
9. Substantial reduction of paperwork during book closure.
10.Convenient pledging of securities.
11.Substantial reduction in time & capital investments.

CDS Elements
a. Participants / Account Holders
b. Issuers
c. Eligible Pledgee

Transactions handled by CDS
a. Deposit of Securities
b. Transfer of Securities
c. Pledging of Securities
d. Pledge Release
e. Pledge Call
f. Withdrawal of Securities
g. Corporate Action

Market Summary

Take a look at share prices, trades, trends and volume of KSE listed companies.

http://www.kse.com.pk/market-data/marketsummary.php

How to read a Balance Sheet

If you are a shareholder of a company, it is important that you understand how the balance sheet is structured, how to analyze it and how to read it.

Balance Sheet
A balance sheet, also known as a "statement of financial position", reveals a company's assets, liabilities and owners' equity (net worth). The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company's financial statements.

How the Balance Sheet Works
The balance sheet is divided into two parts that, based on the following equation, must equal (or balance out) each other. The main formula behind balance sheets is:

Assets = Liabilities + Shareholder’s equity

This means that assets, or the means used to operate the company, are balanced by a company's financial obligations along with the equity investment brought into the company and its retained earnings.

Assets
Assets are what a company uses to operate its business.

Liabilities
These are the financial obligations a company owes to outside parties.

Shareholders' Equity
Shareholders' equity is the initial amount of money invested into a business.

Conclusion
The balance sheet, along with the income and cash flow statements, is an important tool for investors to gain insight into a company and its operations. The balance sheet is a snapshot at a single point in time of the company’s accounts - covering its assets, liabilities and shareholders’ equity. The purpose of the balance sheet is to give users an idea of the company’s financial position along with displaying what the company owns and owes. It is important that all investors know how to use, analyze and read one.

How to become a Member of KSE ?

Membership of KSE is limited and fixed at 200 and prospective members have to purchase a seat from existing members. The price of the membership seat is freely negotiable between the buyers and sellers which varies according to the interaction of the forces of demand and supply. The KSE does not interfere with these transactions. However, the membership is allowed subject to fulfillment of criteria and qualification laid down by the Board.

Since June 1990, membership has been opened to corporate entities. Corporate members are required to have a minimum paid up capital of Rs. 20 million and are also subject to criteria fixed by the Board.

The Membership of KSE is also available to foreign entities provided that the Nominee Director of the company is a citizen of Pakistan.

Criteria for Individual Membership
No person shall be eligible to be admitted as Member, if:

1. He/she is less than 21 years of age;

2. He/she is not a citizen of Pakistan;

3. He/she has been adjudicated a Bankrupt; or a Receiving Order in Bankruptcy has been made against him/her, or he/she has proved to be insolvent even though he/she has obtained his/her final discharge;

4. He/she has compounded with his/her creditors, unless he/she has paid hundred paisa in the rupee;

5. He/she has been convicted of an offence involving fraud or cheating or dishonesty or any other indictable criminal offence;

6. He/she is associated with, or is a member of, or subscriber to, or shareholder or debenture holder in, or connected through a partner or employee with any other Organization, Institution, Association in Karachi where dealings in Securities are carried on;

7. He/she has been at any time expelled or declared a defaulter by any Stock Exchange or Trade Association in Pakistan;

8. He/she has been previously refused admission to the membership of any Stock Exchange unless a period of six months has elapsed from the date of such refusal;


The applicant should be an income tax or wealth tax assesses or borne as an assesses on the register of income tax/wealth tax.

The minimum qualification for an applicant for the Membership shall be "Graduation".
(In the case of a person holding at least 5 years experience of working as an agent with any of the members of the KSE or a former member of the KSE who had resigned on voluntary basis without any cause of complaint or claim, may be allowed waiver of this requirement by the Board).

The applicant should have sufficient knowledge of stock market business.

Reference from a scheduled bank in addition to other references as disclosed in the Membership form.

In the case of an active member filing his/her/their transfer application/nomination, such member shall also submit a bank guarantee or a guarantee by one of the existing members of the Exchange or a guarantee by the incoming member or any equivalent security in the manner as may be prescribed by the Exchange to the extent of Rs. 2.5 million valid for a period of 2 years from the date of transfer of membership in order to indemnify the Karachi Stock Exchange against all claims of replacement of shares received after the transfer of membership as per Rule 26(a) of Ready Delivery Contracts.
Criteria for Corporate Membership
The Corporate Body applicant for membership must;
be a company or a statuary corporation or a body corporate;
have a minimum issued and paid-up capital of Rs. 20 million.

In case of statuary corporation or a body corporate to which section 183 of the companies Ordinance 1984 applies; the membership application shall be accompanied by a "no objection" from the Federal or Provincial Government, as the case may be;

The Nominee Director representing Corporate Membership must be a citizen of Pakistan. Such nominee shall not be a member of the Exchange, nor shall be a nominee of any other Corporate Member of the Exchange.

At least two Directors of the corporate membership including the Chief Executive must have a minimum academic qualification of "Graduation".
Provided that in the case of conversion of an individual to Corporate Membership the requirement of minimum qualification for the Chief Executive shall not apply, where the same individual member continues as Chief Executive of the Corporate Membership.
(In case the Chief Executive of the Company is a member of the Exchange and the Nominee Director has the stock market experience of at least 5 years as an agent with any of the members of the Exchange may be allowed waiver of the academic qualification by the Board).
In the case of an active member filing his/her/their transfer application/ nomination, such member shall also submit a bank guarantee or a guarantee by one of the existing members of the Exchange or a guarantee by the incoming member or any equivalent security in the manner as may be prescribed by the Exchange to the extent of Rs. 2.5 million valid for a period of 2 years from the date of transfer of membership in order to indemnify the Karachi Stock Exchange against all claims of replacement of shares received after the transfer of membership as per Rule 26(a) of Ready Delivery Contracts.

The membership application shall be accompanied by an auditors certificate confirming that the company maintains a net capital balance/net assets value of at least Rs. 2,500,000/- (excluding the value of membership card).

The qualification of nominee Director shall be his holding of qualification shares in the company to the extent provided under the Articles of the nominating corporate membership.

50% of the total number of Directors subject to a minimum of two Directors of the corporate membership, including the Chief Executive and Nominee, must have a minimum academic qualification of "Graduation".
Provided that in the case of conversion of an individual to Corporate Membership the requirement of minimum qualification for the Chief Executive/Nominee shall not apply, where the same individual member continues as Chief Executive/Nominee of the Corporate Membership.
(In case the Chief Executive of the Company is a member of the Exchange and the Nominee Director has the stock market experience of at least 5 years as an agent with any of the members of the Exchange may be allowed waiver of the academic qualification by the Board).
The Chief Executive and Nominee Director must have at least 3 years stock market experience.

In case the equity of the company is subscribed by foreign participants; No Objection Certificates from State Bank of Pakistan and Ministry of Finance; is to be furnished.
NOTICE PERIOD FOR TRANSFER OF MEMBERSHIP
In relation to inactive member, who has applied for transfer of his/her/their membership; the notice period for the purpose shall be 15 days for inviting objections/claims after the issue of notice.
Provided that an active member, who has been inactive for a period of at least 2 years from the date of filing the transfer application/nomination and, has also filed a declaration to this effect, shall be treated as an inactive member for the purpose of notice period of 15 days.
In relation to active member (including those who are members of the Clearing House), the notice period for inviting objections/claims from the members shall be 90 days after the issue of notice.
Provided that in the event of an undertaking given by the incoming member (on the prescribed format) to settle all the objections/claims/liabilities of the outgoing member, the Board may even before expiry of the 90 days notice period consider and accept the membership application.
NOC OF THE CENTRAL DEPOSITORY COMPANY OF PAKISTAN LIMITED
In case the outgoing member is a participant of Central Depository Company of Pakistan Limited, he/she is required under the Regulations of CDC to notify the CDC about his/her application made to the Exchange for transfer of membership and shall also submit to the Exchange, NOC of the CDC in this behalf.

Forex Rates

Click below link for Forex Rates
http://www.forex.pk/open_market_rates.asp

Forex
Forex is short for foreign exchange. When one speaks of a forex profit or loss, he is talking about the increased or decreased value of an investment caused solely by currency movements.
Forex Spread or Forex Cost. The difference between the buy price and sell price of exchanging one currency into another is the forex price or forex spread.

Determinants of FX Rates
1. Balance of payments level
2. Government budget deficits or surpluses
3. Balance of trade level
4. Inflation level
5. Economic growth and Productivity

See the video about what is forex

Trading and Settlement

The stock exchanges have introduced a computerized trading system to provide a fair, transparent, efficient and cost effective market mechanism to facilitate the investors.

The trading system comprises of four distinct segments, which are:

i) T+2 Settlement System

In the T+2 settlement system, purchase and sale of securities is netted and the balance is settled on the second day following the day of trade.

Benefits of T+2 Settlement System
It reduces the time between execution and settlement of trades, which in turn reduces the market risk. It reduces settlement risk, as the settlement cycle is shorter.

ii) Provisionally Listed Counters
The shares of companies, which make a minimum public offering of Rs.100 million, are traded on this segment from the date of publication of offering documents. When the company completes the process of dispatch/credit of allotted shares to subscribers, through CDC it is officially listed and placed on the T+2 counter. Trading on the provisionally listed counter then comes to an end and all the outstanding transactions are transferred to the T+2counter with effect from the date of official listing.

iii) Spot/T+1 Transactions
Spot transactions imply delivery upon payment. Normally in spot transactions the trade is settled within 24 hours.

iv) Futures Contract
A Futures contract involves purchase and sale of a financial or tangible asset at some future date, at a price fixed today

What is Badla ?

Badla is a mechanism to carry forward a speculative trade. It is also known as the Carry Over Transaction (COT).
Badla Finance in simple terms means putting money on interest. The mechanism is very easy for the stockbroking society but complex for the ordinary investor. History says Badla was born in the nineteenth century. Then, till today, the purpose has remained the same, the mechanism has hardly changed but the process has. These changes have made Badla Finance safer, more secure and transparent to clients besides a fair business practice for the stockbrokers.

Mechanism of Badla
A person buys shares with the intention to make profits but without blocking money. The purchase at the end of the settlement is carried forward to the next settlement. Here is where the client / Badla financiers steps in. The financier's block the money for taking delivery of shares purchased by the speculators. He gives the money to the exchange for shares bought. For this facility the speculator pays interest to the financiers. This interest is known as Badla.

Badla Financing is done through stock brokers
The financier gives money to his broker who in turn, hands over the same to the Exchange. The shares are retained by the Exchange under custody, on behalf of the broker's client. Since the shares and the money lie with the Exchange, broker's risk is also eliminated.
Example: If "A" has purchased 1000 shares of MCB @ Rs. 50 per share in Settlement 1, he has to take delivery from "B" who has sold the same. "A" would like to carry forward his position to the next settlement by letting "C" (Badla Financier) take delivery at the prevailing interest rate.
In settlement 2 "A" will have to purchase the shares at a higher badla rate as determined by the Exchange. If the Badla was Rs. 0.20 in settlement no.1, "A" will have to buy MCB @ Rs. 50.20 per share from "C".
The difference in purchase price in settlement no.1, and sale price in settlement no.2, is the earning for the Badla Financier.

List of 30 COT (Carry over transaction) eligible securities

1. Pakistan Telecommunication Co,Ltd.
2. The Hub Power Company Ltd
3. D.G. Khan Cement Co. Limited
4. Fauji Fertilizer Bin Qasim
5. Pakistan State Oil Co.Limited(PSO)
6. Sui Northern Gas pipelines Limited
7. Pak Oilfields Limited
8. Bosicor Pakistan Limited
9. Dewan Salman Fibre Limited
10. Fauji Cement Company Limited
11. Pakistan International Airlines Corp
12. National Bank of Pakistan
13. Lucky Cement Company Limited
14. Karachi Electric Supply Corporation
15. Maple Leaf Cement Factory Limited
16. Nishat Mills Limited
17. Dewan Farooque Motors Limited
18. I.C.I. Pakistan Limited
19. Japan Power Generation Limited
20. Engro Chemical Pakistan Limited
21. Oil & Gas Development Company Limited
22. Muslim Commercial Bank Limited
23. WorldCall Communication Limited
24. TRG Pakistan Limited
25. Telecard limited
26. Sui Southern Gas Co. limited
27. ICP SEMF
28. Adamjee Insurance Company Limited
29. Fauji Fertilizer Co. Ltd
30. Southern Electric Power Co. Limited

How Companies Raise Money

Some 30 companies have decided to list their shares on the Karachi Stock Exchange. But why? What do they get out of it? There are, after all, tremendous costs involved in gaining a stock market listing and maintaining it.

Quite simply, listing on the stock market is all about raising money to enable your business to expand. Imagine you have a brilliant idea for a new company but you don’t have the money necessary to buy equipment such as computers and office furniture. You might initially think about raising some money from family and friends and giving them a stake in your business in return. This is, in fact, the way many companies start life. Shares issued by companies not listed on the stock exchange are often referred to as ‘unquoted’.

But if you need money on a large scale or you are a small business looking to expand, you might need more than your close acquaintances can provide. At this stage some people look to borrow money from venture capitalists or the bank. Others decide to try and raise money from a wider group of investors through a stock market listing. These shares are known as ‘quoted’ or ‘listed’ on the stock exchange.

It is rare, however, that companies approach the market just once for money. As you flick through the financial pages of your newspaper you will often read about rights issues, share splits and share buy backs. These are all terms used to describe different ways companies raise money from investors and, pay it back.

IPOs/new issues
Bond issues
Rights issues
Stock splits and scrip issues
Share buybacks

Corporate Governance

The Code of Corporate Governance was incorporated in the Listing Regulations of the Exchange in year 2002. In true sense, it has no statutory force or penalty provisions. Its implementation through the Listing Regulations requires companies to disclose in their annual reports whether or not they are complying with its provisions and if they are not, to explain why.

The main purpose / objectives of Code of Corporate Governance is to:
a. Stimulate the performance of companies
b. Limit insider’s abuse of power
c. Monitor manager behavior to ensure corporate accountability and protection of interes of investors and society.

The Exchange has played a proactive role in safeguarding small shareholders' interest and has strengthened its monitoring and enforcement capability to monitor compliance with the Code of Corporate Governance by the listed companies.Being a front line regulator, the Exchange initiated action against such companies which do not comply with the requirements of Listing Regulations, particularly Regulation No. 32, which includes:

1. failure to declare dividend or bonus for the last five years;
2. failure to hold its annual general meeting for a continuous period of three years;
3. has gone into liquidation either voluntarily or under court order;
4. failed to pay the annual listing fees of the Exchange for a period of 2 years;
5. failed to comply with any of the requirements under Listing Regulations.
6. failed to join CDS after its securities have been declared eligible security by the CDC.

The Exchange after adopting the due process has placed a number of companies on the “Defaulters’ Counter”, whose names are quoted separately through the Daily Quotation of the Exchange along with nature of default(s) mentioned against each company.

The purpose of placing the companies on separate counter namely; “Defaulters’ Counter” is to create awareness amongst the shareholders / investors that the company is in default(s) of the Listing Regulations.

In order to encourage good corporate governance and appreciate outstanding performance of the companies, the Exchange has a practice to give away the awards to top companies each year.

The criteria for selection of top companies has been regularly reviewed to ensure that only such companies are rewarded that not only pay good returns to their shareholders but also comply with the Listing Regulations, particularly the Code of Corporate Governance. Amendments / additions in the Criteria for selection of Top Companies in relation with good Corporate Governance point of view including Corporate Social Responsibility have been included.