Karachi Stock Exchange (KSE)

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Karachi Stock Exchange (KSE)

  1. 1. KARACHI STOCK EXCHANGE PRESENNTED BY Muhammad BILAL Ramzan khan DEPARTMENT OF COMMERCE UNIVERSITY OF SARGODHA WWW.UOS.EDU.PK
  2. 2. INTRODUCTION The Karachi Stock Exchange (KSE), Pakistan's largest and most liquid Stock Exchange. The Karachi Stock Exchange (KSE) is the premier stock exchange of the country. KSE provides a liquid and efficient digitized marketplace where investors meet directly to buy and sell listed companies' common stock and other securities.
  3. 3. For over 60 years, the KSE has facilitated capital formation, serving a wide spectrum of participants, including individual and institutional investors, the trading community and listed companies. KSE offers companies and investors an efficient and transparent securities market for raising capital and achieving investment objectives.
  4. 4. KSE remains the pioneer of Pakistan's Capital Market Developments by introducing new products, constantly upgrading technology infrastructure through partnerships with the world's leading technology companies and through the continuous assessment and improvement of services, catering to every segment of customers' needs. Registered Office The Registered Office of the Exchange will be situated in Karachi.
  5. 5. HISTORY The Karachi Stock Exchange (KSE) was established on Sep 18, 1947 The Karachi Stock Exchange (KSE) was incorporated in March 10, 1949 as a Company Limited by Guarantee. Started with the 5 companies with a paid-up capital of Rs. 37 million. The first index was the KSE 50 index.
  6. 6. With growth in number of listed companies and trading activities, a dire need for a true representative index and computerization of trading activities was felt. As a result KSE 100 Index was introduced on November 1, 1991. KATS Computerized trading system called Karachi Automated Trading System (KATS) was introduced in 2002 with a capacity of 1.0 million trades per day and the ability to provide connectivity to an unlimited number of users.
  7. 7. 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. By August 29, 1995 the KSE-All Share Index was constructed which became operative on September 18, 1995. To address the needs of investor community two other indexes were also introduced later on called KSE 30 Index and KMI 30 Index. Karachi Stock Exchange is located on Stock Exchange Road, in the heart of business district of Karachi.
  8. 8. Listing in KSE As on September 26th, 2013 there are 579 companies listed in KSE and the total market capitalization is Rs. 5,542.986 billions. The listing is done on the basis of strict rules and regulations laid out by Securities Exchange Commission of Pakistan (SECP) & Karachi Stock Exchange (Guarantee) Limited.
  9. 9. All the listed companies are categorized in various main business sectors. There are total 36 sectors listed on Karachi Stock Exchange. Out of these, 32 sectors contribute towards the market capitalization and all the listed companies (excluding their future contracts) are divided among these. Rest of the 4 sectors are allocated for indexes, futures bonds etc.
  10. 10. VISION To be a leading financial institution, offering efficient, fair and transparent securities market in the region and enjoying full confidence of the investors.
  11. 11. MISSION To strive to provide quality and value- added services to the capital market in an efficient, transparent and orderly manner, compatible with international standards and best practices. To provide state-of-the-art technology and automated trading operations, driven by a team of professionals in accordance with good corporate governance.
  12. 12. To protect and safeguard the interests of all its stakeholders, i.e. members, listed companies, employees and the investors at large. To reflect the country’s economic health and behavior and play its role for the growth, development and prosperity of Pakistan.
  13. 13. KSE POSITIONED TO BE A HUB OF CAPITAL FORMATION IN THE REGION Chairman South Asian Federation of Exchanges (SAFE) Member Federation of Euro-Asian Exchanges (FEAS) Affiliate Member of the World Federation of Exchanges (WFE)
  14. 14. Affiliate Member of International Organization of Securities Commissions (IOSCO) Agreements with other Exchanges •Dubai Financial Market •Abu Dhabi Securities Market •Shanghai Stock Exchange
  15. 15. KSE CUSTOMER Issuers (Listed Companies) Brokers and Members Investors TODAY KSE Exchanged owned by 200 members / brokers. 1850 trading terminals exist at broker end. 3 indices (KSE 100, KSE 30, KMI 30) Trading currently through an electronic trading system.
  16. 16. Tomorrow KSE Demutualized exchange-public listed company with strategic investors. Products to includes: •Index trading •Option •Swaps •New indices (e.g Sector Index) Board base investor participation. Increase float of existing trade companies becoming a Regional Hub for source of capital. Cross border listing of companies and trading of indices.
  17. 17. KSE FUTURE SUCCESS KSE future success will depend on the quality of our human resources. A spirit of youthful energy, high intellect and superior skills characterizes our people. Our workforce consists of a combination of youth and experience – perfectly suitable to the organization’s current requirement and future challenges. KSE employs the best available human resource from the capital market and financial industry.
  18. 18. Candidates are selected based on their individual energy, quick thinking ability, confidence, decision making ability, integrity and professionalism – attributes that define the person’s compatibility with KSE culture. The key to our long-term success is the creative genius of our people and their drive towards excellence. Our employees are exposed to an organizational commitment to continuous personal and professional development. Our people get involved in various initiatives ranging from management skills, development and personal improvement, to technology advancement and process enhancement. On a regular basis, some of our best performers are selected for our Mentoring Program, where seasoned mentors groom their portages towards positions of greater responsibility and influence. Promoting a performance driven culture where ‘high performers’ are recognized for their exceptional contributions.
  19. 19. KSE TECHNOLOGY Our Information Technology Group forms the Core of our Business Operations. Development, implementation and monitoring of state- of-the-art trading system known as Karachi Automated Trading System (KATS), introduced in 2002 with a capacity of 1 million trades a day and unlimited number of users. Disaster Recovery Management and Business Continuity Programs database backups.
  20. 20. Software Development, Testing and Training. Customer Services Support. Caters to member’s complaints regarding computer network and trading systems. Administration and Maintenance of servers and operating systems. Partnerships with Microsoft, Oracle and Unisys for I.T. infrastructure.
  21. 21. KSE PLAY A KEY ROLE IN PAKISTAN’S ECONOMY The KSE is one of Pakistan’s largest tax payer and in the fiscal year 2006- 2007 contributed over Rs. 4 billion towards the national exchequer. Listed Companies contribute over 10% of total revenue collected by the Government of Pakistan. KSE brokers on average pay more than 50% of their profit before tax as presumptive tax. Our investors pay 10% tax on dividends.
  22. 22. LISTING REGULATIONS OF THE KARACHI STOCK EXCHANGE (GUARANTEE) LIMITED ELIGIBILITY FOR LISTING A company may be listed under these regulations provided that:- • The minimum paid up capital of the company is Rs. 10 million. • The minimum public offering is Rs. 5 million or 25% of the capital, whichever is higher.
  23. 23. • At the time of listing, the break-up value of the ordinary shares of the company, duly certified by a Chartered Accountant / Auditor shall not be less than its face value. • The offering document has to be cleared by the KSE before it is submitted to the Securities Exchange Commission of Pakistan for approval.
  24. 24. CONDITIONS APPLICABLE FOR LISTING OF SECURITIES The company shall comply with the following listing requirements:- a) The Company shall apply for approval to the Exchange. The application shall contain the names of the sponsors of the company, names of the directors of the Company.
  25. 25. b) The company shall not be eligible for listing under these regulations if any of its Director / Sponsor is a defaulter of any Stock Exchange and / or he is a Director in other listed company which has violated and / or failed to comply with any provision of the Listing Regulations of the Exchange and/or has defaulted in the payment of the loans of any bank or financial institution or government dues, unless the same are legitimately disputed by him by litigation.
  26. 26. FEE SCHEDULE Rates of Initial Listing Fee Payable by the Companies with Listing Application: (i) Initial Listing Fee A company applying for listing on the OTC, shall pay an initial listing fee equivalent to one twentieth of one percent of the total value of Security.
  27. 27. (ii) Annual Listing Fee: A company shall pay, in respect of each financial year of the Exchange, commencing from 1st July and ending on 30th June next, an annual listing fee, which shall be payable by or before the 30th September in each calendar year, as per the slabs of fee applicable to debt instruments. A company applying for enlistment on the Exchange shall, in addition to other fees, pay a sum of Rs. 50,000/- (Rupees fifty thousand only) as non-refundable service charges.
  28. 28. AFTER-HOURS TRADING After-hours trading is stock trading that occurs after the traditional trading hours of the major exchanges, such as the New York Stock Exchange and the KSE Stock Market. Since 1985, the regular trading hours in the United States have been from 9:30 a.m. to 4:00 p.m.
  29. 29. Trading outside these regular hours is not a new phenomenon but previously was limited to high net- worth investors and institutional investors like mutual funds. The emergence of private trading systems, known as electronic communication networks or ECNs, has allowed individual investors to participate in after-hours trading. After-hours trading on a day with a normal session occurs from 4:00 to 8:00 p.m.
  30. 30. Trading also occurs before the traditional trading hours and is known as pre-market trading. Pre- market trading occurs from 4:00 to 9:30 a.m. National Association of Securities Dealers (NASD) members who voluntarily enter quotations during the after-hours session are required to comply with all applicable limit order protection and display rules (e.g., the Manning rule and the SEC order handling rules).
  31. 31. Trading System The KSE has introduced as state of the art computerized trading system known as Karachi automated trading system to provide a fair , transparent an deficient and cost effective market for the investors. The trading is divided into four distinct segments, each of which has its own clearing and settlement procedure. These are: T+3 Provisionally listed companies Spot (T+1) Transactions and future contrasts
  32. 32. T + 3 Counters T + 3 Counters Transactions in this segment are settled through the clearing and settlement? NNCPL that nets out the purchases and sales and the financial obligations theory of each member/firm for the notified clearing period. Payment from and to members are routed through the 8 clearing & settlement/ NNCPL. For the securities declared eligible securities by the central depositary company the clearing and settlement takes place through NNCPL in order to handle the clearing of all the three stock exchanges of the county under one roof, the national clearing and settlement system has been introduced. NNCPL is managed by central depositary company of Pakistan limited.
  33. 33. Futures Trading in Provisionally Listed Companies The shares of companies which make a minimum public offering of Rs.150 million are traded on this segment from the date of publication of offering documents. The period of contracts of each script is notified by the exchange. The outstanding contracts carried out under the provisionally listed companies are settled on the settlement date and members are not allowed to transfer their positions to the ready clearing board or any other board. On formal listing, the trading in the shares of the company is shifted to the ready board counter under T+ 3 settlement system from the dates of normal listing.
  34. 34. Spot / T+1 Transaction Spot / T+1 Transaction For about 5 days before the closure of shares transfer book notified by the company for any corporate action, transactions are settled on T+ 1 basis. For non-CDC securities the delivery and payment is settled through the clearing house of the exchange, however, delivery is tendered directly between the buying and selling members as per the instructions of the clearing house, however the delivery is tendered directly between the buying and selling members as per the instructions of the clearing 7 settlement. The transactions in CDC eligible securities are settled through NCCPL.
  35. 35. Future Contracts A future contract involves purchase and sale of securities at some future date (normally within one calendar month) at a price foxed today. The number and names of companies to be traded on the futures counter are determined every six months based on the eligibility criteria approved by SECP in this regard ad which are notified to the market participants in advance. Under the regulations governing future contracts and the contract is fixed for a period of one month transaction costs. Brokerage on transactions is freely negotiable between the negotiator and the client. Stamp duty is charged at 1.5% of the face value of the shares under the physical form of transfer. There is no stamp duty for transfer settled through the central depositary system; however, there is a one time stamp duty at the rate of one paisa per share at the time of deposit of securities in the CDS. The stamp duty is born by the buyer ad the seller.
  36. 36. Market Indexes KSE 100 Index KSE-All Share Index KSE 30 Index KMI Index
  37. 37. Introduced at 1st November 1999 with base value of 1,000 points. 100 companies selected on the basis of sector representation and highest market capitalization. Captures over 80% of the total market capitalization. Out of the following 35 Sectors, 34 companies are selected i.e. one company from each sector (excluding Open-End Mutual Fund Sector) History KSE100 index
  38. 38. LIST OF SECTORS 1. Open-end Mutual Funds 19. Oil & Gas Marketing Companies 2. Close-end Mutual Funds 20. Oil & Gas Exploration Companies 3. Modarabas 21. Engineering 4. Leasing Companies 22. Automobile Assembler 5. Investment Banks/Investment Cos./Securities Cos. 23. Automobile Parts & Accessories 6. Commercial Banks 24. Cable & Electrical Goods 7. Insurance 25. Transport 8. Textile Spinning 26. Technology & Communication 9. Textile Weaving 27. Fertilizer 10. Textile Composite 28. Pharmaceuticals 11. Woollen 29. Chemical 12. Synthetic & Rayon 30. Paper & Board 13. Jute 31. Vanaspati & Allied Industries 14. Sugar & Allied Industries 32. Leather & Tanneries 15. Cement 33. Food & Personal Care Products 16. Tobacco 34. Glass & Ceramics 17. Refinery 35. Miscellaneous 18. Power Generation & Distribution
  39. 39. STOCK SELECTION RULES Rule # 1 • Largest market capitalization in each of the 34 Karachi Stock Exchange sectors excluding Open-end Mutual Fund Sector; Rule # 2 • The remaining index places (in this case 66) are taken up by the largest market capitalization companies in descending order. Rule # 3 • Company which is on the Defaulters’ Counter and/or its trading is suspended, declare Non-Tradable (i.e. NT) in preceding 6 months from the date of decomposition shall not be considered in the decomposition of KSE-100 Index.
  40. 40. Objective KSE100 index The primary objective of the KSE100 index is to have a benchmark by which the stock price performance can be compared to over a period of time. In particular, the KSE 100 is designed to provide investors with a sense of how the Pakistan equity market is performing. Thus, the KSE100 is similar to other indicators that track various sectors of the Pakistan economic activity such as the gross national product, consumer price index, etc.
  41. 41. KSE-All Share Index 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. By August 29, 1995 the KSE-All Share Index was constructed which became operative on September 18, 1995. Similar to KSE 100 Index, KSE ALL Index is also calculated using market capitalization method.
  42. 42. KSE 30 Index: The primary objective of the KSE-30 Index is to have a benchmark by which the stock price performance can be compared to over a period of time. In particular, the KSE-30 Index is designed to provide investors with a sense of how large companies' scrip’s of the Pakistan’s equity market are performing. Thus, the KSE-30 Index will be similar to other indicators that track various sectors of country’s economic activity such as the gross national product, consumer price index, etc.
  43. 43. KSE-30 Index is calculated using the “Free- Float 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.
  44. 44. KMI 30 Index Introduced in Spetember 2008, the objective of KSE-Meezan Index (KMI) is to serve as a gauge for measuring the performance of Shariah compliant equity investments. Besides tracking performance of Shariah compliant equities, its construction will increase investor trust and enhance their participation. KSE-Meezan Index is also calculated using the “Free-Float Capitalization”.
  45. 45. CALCULATION METHODOLOGY
  46. 46. RECOMPOSITION OF THE KSE-100 INDEX Semi-annual recomposition process. • Time-based rule • Value-based rule Sector Rules • Time-based rule Market Capitalization Rules Rules for new issues
  47. 47. AN EXAMPLE OF THE RECOMPOSTION OF THE KSE100 All divisor adjustment are made after the close of trading.
  48. 48. REPLACEMENT OF STOCK IN THE INDEX
  49. 49. REPLACEMENT OF STOCK IN THE INDEX

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