presentation on ISE

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Islamabad Stock Exchange Prosperity Through Transparent Market

Pre-assessment:

Pre-assessment What are Investments? 1 What is Capital Market? 2 What is Stock Exchange? 3 What is Role of Stock Exchange? 4

Stock Exchanges History:

Stock Exchanges History Unofficial share markets existed across Europe where brokers would meet outside or in coffee houses to make trades 11 th Century 13 th Century Till 1600 1602 In France, courtiers de change (first Brokers) traded in debt and government securities In Bruges (Belgium) commodity traders gathered in house of “Van der Burse”. That meeting was called “Bruges Bourse”. That idea spread in neighboring countries and bourses were formed in various places Amsterdam Stock Exchange (first Stock exchange) was created and it began official trading shares of Dutch East India Company

Stock Exchanges History:

Stock Exchanges History Europe & Others By early 1700s there were fully operational stock exchanges in France and England. America followed in the later part of the century by signing Buttonwood Agreement. Other parts of the world followed later in 19 th century. There are now a large number of stock exchanges in the world. Title Add your text Sub-continent of India Before Independence there were many stock exchanges established in sub-continent during 1800s. In 1934 Lahore Stock Exchange was formed but it was closed after partition and later on merged with Delhi Stock Exchange. Karachi Stock exchange was founded in 1947. After 1700

Stock Exchanges:

Stock Exchanges Stocks: A stock refers to the shares of a company that are sold publicly. If you buy a stock in a company you effectively get a reciprocal share of it to your name. You will also be eligible to vote in the stockholders meetings. You would also be informed about any momentous decision, impending mergers or splits the company is heading towards. Stock Market: The market in which shares are issued and traded either through exchanges or over-the-counter markets . Also known as the equity market, it is one of the most vital areas of a market economy as it provides companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company's future performance.

Functions of Stock Exchanges:

Functions of Stock Exchanges Raising Capital for business Redistribution of wealth Barometer of the economy Mobilizing saving for investment Facilitating company growth Creating investment opportunities for small investors Corporate governance Bought & sold Efficiently & fairly vetting companies

Stock Exchange & Economy:

Stock Exchange & Economy Money circulation

Stock Exchange & Economy:

Stock Exchange & Economy “Barometer” Immediate and Visible reaction on the News and Transactions Capital market and monetary policy are closely interrelated as they are determined jointly by the supply of money, interest rates and liquidity position. One cannot ignore the monetary side effects in survey of capital market behavior and forecasting. Harmonization between the rules and regulations developed by the (SECP), (SBP) and (FBR) are also required to determine the balanced strategies regarding the reinvestment of corporate profits (retained earnings) for modernization and expansion, dividend payments, treatment of the sick units and placing of the companies on default counters at the stock exchanges.

Sectoral Analysis:

Sectoral Analysis Listed companies according to their nature of business are grouped into 34 sectors. In terms of market capitalization , Oil and Gas Exploration , Communication , Commercial Banks, Oil & Gas Generation and Distribution are the biggest sectors, having more than Rs.100 billion investments. However, power generation and fertilizer are also included in the biggest investment sectors in term of paid up capital. Textile spinning and textile composites are also classified as important sectors because of their contribution in the economy in terms of employment generation capacity, value addition, foreign exchange earnings and the large number of the companies.

Basic Concepts :

Basic Concepts Bull & Bear Blue Chip Carry-Over Trades Dividends Right Issue Book closure Buy Stop Order Inside trading Portfolio Public Limited Company Short selling Ex-Dividend Dates: When a company declares a dividend, it sets a record date when you must be on the company's books as a shareholder to receive the dividend. Earning per share (EPS): A profitability indicator calculated by dividing the net after-tax earnings (earnings available to common shareholders) during a period by the average number of shares outstanding at the end of that period. Stop-Loss Order: An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor's loss on a security position. Also known as a "stop order" or "stop-market order".

Stock Exchanges of Pakistan:

Formed in 1989 Third Biggest Stock Exchange of Pakistan Turnover of 1% shares Formed in 1971 Second Biggest Stock Exchange of Pakistan Turnover of 14% shares Formed in 1947 Biggest Stock Exchange of Pakistan Turnover of 84% shares Stock Exchanges of Pakistan

Brief History of ISE:

2009 2006 ~ 2007 2002 ~ 2003 1996 ~ 1997 ISE Towers were inaugurated in 2009 Logo of ISE was redesigned in 2009 UTS was established with LSE in 2007 T+2 cycle was introduced in 2007 UIN system was established in 2006 New RMS was introduced in 2006 Remote Trading was implemented in 2003 System Audit of Brokers was introduced in 2003 “ ULTRA TRADE” trading system was adopted in 2002 ISE 10 Index was launched in 2002 Computerized Trading called ISE-CTS started in 1997 ISE Network Index was launched in 1996 Brief History of ISE

Governing Laws:

Governing Laws The Securities and Exchange Commission of Pakistan (SECP) is the main regulator of the stock market. It regulates the stock market through following major statutory laws/rules: Securities and Exchange Ordinance 1969 Securities and Exchange Rules 1971 Securities and Exchange Commission of Pakistan Act 1997 Specific Purpose Legislations for Conduct of Trade Stock Exchange’s Regulations: Memorandum & Articles of Association Listing Regulations General Regulations

Regulatory Structure:

Regulatory Structure Parliament Ministry of Finance Securities & Exchange Commission of Pakistan State Bank of Pakistan Federal Board of Revenue ISE CDC NCCPL

Custodial Functions:

Custodial Functions Central Depository Company of Pakistan Limited (CDC) provides custodial services for shares. It ensures efficient handling and transfer of shares. Types of CDC Accounts: Main Account for Brokers ( a gateway account) House Account (a family account of the Broker) Sub-Account (An investor account with CDC through Broker) Investor Account Services. (Facilitating the Investors to open their independent CDC Accounts) Initial Account Opening Fee: Rs.500/-. Annual renewal Fee Rs.500/-.

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Broker Broker Buying Investor Shares KSE/UTS Selling Investor Broker Buying Investor Trading System Trading System NCCPL Broker Selling Investor Proceeds Amount Shares Shares Proceeds Activity Chart

Stakeholders of ISE:

Companies Investors Brokers Customers of ISE Members ISE has a very small base of investors as compare to other Exchanges Investors 261 Companies are listed in ISE Rs. 200 million paid-up capital public offer should be Rs.100 million or 20% of the capital whichever is higher 500 applicants Issuers ISE has 119 Members/ Brokers 26 individual 93 corporate Pakistani Citizen Having certain taxable income Graduate Not defaulter of any public institution Not penalized for any moral guilt Membership Fee Stakeholders of ISE

Procedure for Trading in ISE:

Step 1 Step 2 Step 3 Selecting Stock Broker Opening Account with Stock-Broker Placing Orders Commission/Brokerage Fee Delivery Clearing & Settlement Procedure for Trading in ISE

Organizational Structure:

Organizational Structure GM (Operations) Company Secretary Managing Director CEO Board of Directors Department of Companies Affairs Department of Internal Control Department of Investors Relations Department of General Administration/ Finance Department of New Building IT Wing

Corporate Structure of the Stock Exchanges :

Corporate Structure of the Stock Exchanges The affairs of the Exchanges are run by the Board of Directors. Composition of the Board: Elected from Members of the Exchange 5 Nominated by SECP 4 The Managing Director 1 Total 10 Managing Director is a member of the Board by virtue of his office. The Chairman of the Board is elected out of the non-member directors.

Operations of ISE:

Operations of ISE Companies Affairs Provide listings to Companies Monitor listed companies Provide quotations to media Ensure listing requirements and code of corporate governance by companies Internal Control Grant membership to brokers Control members Monitor computerized trading Perform market surveillance Manage Risk Management System Investors Relations Provide Information to Investors Deal with Complaints of Investors Educate Investors Handle Default & Legal Cases Keep Media Relations

Trading Systems:

Trading Systems The stock exchanges have fully computerized trading systems and out-cry systems no more exist. Bids (buy orders) and offers (sale orders) are placed in the trading software and then executed accordingly. Types of Trading: Regular Future Trade Orders: Market Order Limit Order

Stock Market Index:

Stock Market Index KSE-100 INDEX LSE-25 INDEX ISE-10 INDEX ISE-10 INDEX: Date of launching: Jan 1, 2004 The main objective for the construction of an index is to track the performance of the various listed stocks according to their market capitalization. A capital weighted index is composed of a basket of securities, which captures the change in market capitalization due to the variation in prices. Mathematically this can be represented by: Index Value = Total market capitalization * 1000 Index divisor

Blue Chip Companies (Market Capitalization) :

Blue Chip Companies (Market Capitalization) Oil & Gas Development Company Limited Pakistan Petroleum Limited Pakistan Telecommunication Company Limited National Bank of Pakistan Limited Pakistan State Oil Company Limited Pakistan Oilfields Limited Hub Power Company Limited Fauji Fertilizer Bin Qasim Limited Sui North Gas Pipeline limited D. G. Khan Cement

Trading Fees and Levies:

Trading Fees and Levies % Exchange Transaction Fee .00415 Appropriation: SECP levy .00065 Investor Protection Fund .00100 Members Protection Fund .00100 ISE Income .00150

Trading Fees and Levies:

Trading Fees and Levies % Advance Withholding Tax (Sales) .010 COT Withholding Tax 10 Market Access Fee 2 Presumptive Withholding Tax-Purchase/Sales .010 Capital Value Tax (Purchase) .02

Sources of Revenue of ISE:

Sources of Revenue of ISE Listing Fees Initial listing fee @.1% of total paid-up capital maximum upto Rs.1.00 million Annual Listing Fee Paid-up Capital Upto Rs. 50 mn Rs. 10,000/- P.A. Above Rs. 50 mn to Rs. 200 mn Rs. 15,000/- P.A. Above Rs. 200 mn Rs. 25,000/- P.A. Additional Listing Fee @ 0.1% of the increased capital Trading Fee @ 0.0015% - Rs.1.50 per Rs.100,000 value of transaction Any Other Income Source

Slide 28:

Warren Buffett Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years

Sensitivity of Stock Market:

Sensitivity of Stock Market Emotions News Economy & Politics Earnings of Companies Rumors Demand & Supply Stock Market

Investor Vs. Speculators:

Investor Vs. Speculators Those who investors knows the company – or at least the industry – and were often involves the growth. Investors have reasonable ways to quantify risk. There has been another type of investor. The investor does not have a deep knowledge about the company or industry he invests in. He invests based on trends, or charts, or tips, or generally guesses about the Market.

Effects of Rumors on Market:

Effects of Rumors on Market

Quotes by Market Gurus:

Quotes by Market Gurus Peter Lynch The key to making money in stocks is not to get scared out of them. John Templeton Diversify your investments. Warren Buffett Wide diversification is only required when investors do not understand what they are doing.”

Assessing Securities:

Assessing Securities Fundamental Analysis Technical Analysis Economic Factors Industrial Sectors Companies Analysis Charts Graphs Technical Indicators

Stock Market Indexes of ISE:

Stock Market Indexes of ISE Price-weighted Index of ISE Capitalization-weighted Index of ISE ISE Network Index ISE-10 Index Tracks changes in performance of basket of shares

Indicators by Index:

Indicators by Index Bullish Index Bearish Optimism Pessimism Stock Market Crash Stock Market Boom Barometer of Investors’ Confidence in Market & Economy

Bullish or Bearish:

Bullish or Bearish Trading screen

Slide 37:

Thank You!