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Sourajit Aiyer - South Asian Federation of Exchanges, Pakistan - ETFs in the Global Context - July 2013
 

Sourajit Aiyer - South Asian Federation of Exchanges, Pakistan - ETFs in the Global Context - July 2013

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    Sourajit Aiyer - South Asian Federation of Exchanges, Pakistan - ETFs in the Global Context - July 2013 Sourajit Aiyer - South Asian Federation of Exchanges, Pakistan - ETFs in the Global Context - July 2013 Document Transcript

    • CAPITAL MARKETS July | 2013 p1 p4 Members’ Contributions p5 Industry Focus this month’s special SOUTH ASIAN FEDERATION OF EXCHANGES p6 Interview this month’s special AMONTHLYE-PUBLICATIONABOUTTHEDEVELOPMENTSINTHECAPITALMARKETINDUSTRYOFTHEREGION DevelopingCapitalMarketsThroughRegionalCooperation SAFE-USAID Project Update p13 South Asian Securities Markets Highlights Special Industry Focus An Interview with Mr. Al Maruf Khan,FCA President Chittagong Stock Exchange
    • QA& with An exclusive interview of the President of Chittagong Stock Exchange, Mr. Al Maruf Khan, FCA, with SAFE Secretariat Q: What initiatives have been taken to develop and increase the efficiency of CSE in year 2013? A: Chittagong Stock Exchange has been giving its sincere effort to create a more efficient market platform for the local and foreign investors since its start-up in 1995. CSE is the pioneer of so many new developments in the Bangladesh capital market. In 2011 the bourse set up the Next Generation Trading System, one of the fasted trading software in the world. Following this, CSE went with further development initiatives in the following years. In the year 2013 the development initiatives taken by CSE are as follows: Ÿ CSE restructured its employee set up earlier this year in order to get maximum output from the workforce. Apart from that, a number of in house trainings have been conducted in different departments for further enhancing the capacity of CSE executives. Ÿ CSE organized Training on Derivatives for its executives and members in collaboration with National Stock Exchange of India (NSE) Ÿ CSE has started calculating and measuring its all indices (CASPI, CSCX, CSE-30 and Sectoral Index) on free float shares from the 2nd month of the year. This now reflects true and fair picture of stock market performance, and finally help investors in making accurate investment decisions. Ÿ To implement one of the best regulatory frameworks for enhancing fairness of the market, on May 2nd of this year the Exchange Demutualization Act has been enacted by the Government of Bangladesh. As per the act, CSE has been working to separate its management from ownership. The separation of management from ownership is intended to ensure the transparency and accountability in operation of CSE. CSE is currently working on preparing the demutualization scheme and will be demutualized within the stipulated time frame. We hope that after the demutualization is complete the capacity of the bourse will be further enhanced and it can work PAGE 01 Mr. Al Maruf Khan,FCA President, Chittagong Stock Exchange
    • PAGE 02 even more efficiently to serve investors interests. ŸCSE lunched E-Library in order to boost investors' education and enhance in house capacity of R&D. ŸCSE also lunched enriched website to cater both local and foreign market ŸCSE significantly developed its monthly and quarterly publications Bazar Porikroma and Portfolio respectively. Q: How lucrative is Bangladeshi stock market for local investors as well as Foreign Direct Investment, considering the current economic growth rate in the country? A: Bangladesh holds a growth prospect for the coming days which will attract more foreign investors in the country. ADB estimates Bangladesh's GDP growth rate for 2013 is 5.7% and 6 % for 2014. The rate of inflation as perADB's estimate will come down to 7.8 % in 2013 and will be further down to 7% in 2014. The provisional remittance inflow in June, 2012-13 is USD 1057.63 million. Bangladesh offers generous opportunities for investment under its liberalized Industrial Policy and export-oriented, private sector-led growth strategy. Facilities/Incentives offered by Bangladesh Government: (a) For foreign direct investment, there is no limitation pertaining to foreign equity participation. Non-resident institutional or individual investors can make portfolio investments in stock exchanges in Bangladesh. Foreign investors or companies may obtain full working loans from local banks. The terms of such loans will be determined on the basis of bank-client relationship. (b) A foreign technician employed in foreign companies will not be subjected to personal tax up to 3 (three) years , and beyond that period his/ her personal income tax payment will be governed by the existence or non-existence of agreement on avoidance of double taxation with country of citizenship. (c) Full repatriation of capital invested from foreign sources will be allowed. Similarly, profits and dividend accruing to foreign investment may be transferred in full. If foreign investors reinvest their repatriable dividends and or retained earnings, those will be treated as new investment. Foreigners employed in Bangladesh are entitled to remit up to 50 percent of their salary and will enjoy facilities for full repatriation of their savings and retirement benefits. (d) Foreign entrepreneurs are, therefore, entitled to the same facilities as domestic entrepreneurs with respect to tax holiday, payment of royalty, technical know-how fees etc. (e)The process of issuing work permits to foreign experts on the recommendation of investing foreign companies or joint ventures will operate without any hindrance or restriction. Multiple entry visa" will be issued to prospective foreign investors for 3 years. In the case of experts," multiple entry visa" will be issued for the whole tenure of their assignments. Moreover, Bangladesh Govt. adopted a number of measures to encourage foreign and local investors to invest in the security market.These measures include: Ÿ Allowing foreign investors to participate in IPO and right issue without any regulatory restrictions. Withdrawal of all regulatory restrictions on international portfolio investors for investing in the secondary securities market. Ÿ Withdrawal of ceiling on holding of international portfolio investors. Ÿ Previous lock-in for one year for foreign investors in private placement of IPO is now withdrawn. No time limit to sell stocks or IPOs. Ÿ Tax payment on dividend has been withdrawn which means Income from dividend is totally tax-free for investors. Ÿ A gradual decline in Bank Rate resulting in fall in interest rate in bank deposits which is acting as an incentive to invest in securities market. Ÿ Investment in Primary and Secondary Market share is eligible for InvestmentAllowance. Q: Do you think that the better understanding of IPOs have positive effect on the company? In your valued opinion, how important is the role of an exchange in the whole process? A: We do believe that better understanding of IPOs have positive impacts on the company. The business world has become ever competitive these days and hence a growing number of companies will be forced by this changing competitive environment to pursue growth strategies that can be achieved through access to equity capital. A better understanding of the whole IPO process will benefit the company to sustain in the capital market, provide better dividends to the investors and thus stabilize the capital market. The role of the exchange in the whole process is indeed very important. The major roles that the exchange plays are during the listing and follow-up of continuous listing requirements in the post listing environment.
    • PAGE 03 Q: In your opinion, how shall the stock market in Bangladesh benefit, if cross-border listing is allowed within SouthAsian region? A: Regional integration is important for stock market development in the South Asian countries. Such integration can bring greater efficiency in the financial system, attract the foreign flow of funds, foster risk sharing and portfolio diversification, facilitate capital market development and lead to economic growth. Allowing Cross Boarder listing in this region could have been an effective drive to achieve these goals. Besides, cross boarder listing will facilitate Bangladesh stock market to have an enlarged investor base, increased market depth, liquidity and increased marketability of firm's securities. Bangladeshi companies will have the opportunity to raise new capital by being listed in other regional exchanges and vice-versa. There are also other strategic advantages related to enhancing firm's image, increasing the visibility of products internationally. Moreover, investors across the region will have wider choices regarding investing in foreign company stocks which is not possible at present scenario. Q: What plans are in offering to increase market share of CSE and what's your vision for a marketplace in year 2013? A: To increase the market share of CSE has always been our prime objective and accordingly we have come up with many planning and development initiatives in the recent years. This year we took plan to popularize our Internet Trading Service through the use of smart phones. We offer a more user-friendly trading device on real time basis to the investors around the world. We are working over lunching Index future in the CSE market and hopefully after receiving the regulators nod we will start trading index future within shortest possible time. We also plan to lunch Shariah Index and Shariah Index based product for greater product diversification in the market. We have also plan to introduce commodity future is Bangladesh andARE working closely with BSEC. Our vision for a market place in the year 2013: We envision for a well regulated capital market in the post demutualization scenario. We hope that the completion of the demutualization process we will be able to restore investors' confidence again and make the stock market of Bangladesh more vibrant.
    • Aspire a global standard transaction place of securities and financial product. DUSTRY INFOCUS VISION PAGE 04 In the backdrop of a strong need to institute a dynamic, automated and transparent stock exchange in the country, a group of seventy very reputed business personalities of Bangladesh established Chittagong Stock Exchange Ltd. (CSE) in 1995 in the commercial capital, Chittagong. CSE received governmental approval on 12th February 1995 and incorporated as a limited company by Guarantee having Share Capital on 1st April 1995. Operation started at CSE from 10th October 1995. Since its inception CSE has always been very focused in developing a strong capital market in line with its broad objectives to contribute towards the industrial and overall economic growth of the country. BACKGROUND Practice a set of core values to build competency in compliance, diversification and technology so that an accessible platform, market confidence and wealth maximization scope can be ensured. MISSION Ÿ Increase business turnover Ÿ Modernize trading system Ÿ Ensure effective relationship management Ÿ Achieve high level of confidence & professionalism Ÿ Engage in product and market diversification Ÿ Contribute to capital market policy development Ÿ Ensure exchange related quality services OBJECTIVES Ÿ Value for people Ÿ Transparency Ÿ Excellence Ÿ Harmony Ÿ Commitment Ÿ Integrity CORE VALUES
    • SAFE held seventh press briefing of its USAID Small Grants Program funded project on developing a regionally harmonized regulatory framework, on Thursday 6th June, 2013, at the Lahore Stock Exchange, Lahore. The briefing got good coverage from prominent media players of Pakistan. Mr. Aftab Ahmad Ch., SG SAFE and MD Lahore Stock Exchange (LSE) announced the completion of the first version of the Rule Book prepared by SAFE which details uniform model of regulations for adoption by all SAARC nations to financially integrate the region. The proposed regulations are related to market operations, market integrity, enforcement regulations and all SAFE members in Pakistan, India, Sri Lanka, Bhutan, Maldives, Bangladesh & Nepal shall be encouraged to adopt provisions of this Rule Book, if applicable, in order to promote market integrity, efficiency and transparency. Mr.Amir Raza Khan, SAFE's prime consultant gave a presentation about the development of SAFE Rule Book and the way forward. PAGE 05 Regional Financial Integration “Developing a Harmonized Regulatory Framework for the Capital Markets in Pakistan & South Asia” “Media Advocacy”
    • Emerging Markets Growth having joined the league of listed and bank loans and facilities. Along entities on the Indian stock with following the best practices in the exchanges in December'12 and also industry, CARE Ratings also adheres of being one which has since been to the code of conduct set out by the - D.R Dogra, MD & CEO, CARE Ratings enjoying healthy investor interest, a International Organization of testimony to its superior performance Securities Commissions (IOSCO) and sound management. Even during and the Association of Credit Rating challenging times, we have witnessed Agencies in Asia (ACRAA). our client base grow and the number History of assignments undertaken by it Over the years since its inception, increase. Significantly, we have CARE provides a story of continuous obtained an ISO certification transformation and growth. It 9001:2008. commenced its rating operations in October 1993. Thereafter, in 1997-98, CARE Ratings shareholders it launched 'CARE loan rating' for comprise India's oldest and most rating term loans and subsequently established domestic banks and also started the rating of debt mutual financial institutions, such as IDBI funds. In 1999-00, CARE obtained a Bank, Canara Bank, State Bank of registration from SEBI when rating India, IL & FS among others. CARE's agencies were bought under its intrinsic strengths and lineage have purview. In 2001-02, CARE became a been a major driver for its ever founder member of ACRAA. It also growing investor base. The agency'sCARE Ratings, established in 1993, signed MoU with National Small client list includes leading banks,has grown to become the second Industries Corporation (NSIC) for financial institutions, private sectorlargest credit rating agency in India empanelment as an approved rating companies, sub-sovereign entities,with a well established presence in agency for small-scale industries in central public sector undertakings,the Indian Capital markets, having to 2005. small and medium enterprisesits credit over two decades of (SMEs) and micro –finance Post 2007, after the introduction ofanalytical expertise. Since its institutions among others. Basel II regulatory norms, CAREinception CARE Ratings has signed MoU with 19 banks to providerelentlessly built itself as a full service We have recognition from various rating facilities. The introduction of thecredit rating agency offering a wide statutory regulators such as SEBI, concept of Bank loan ratings (BLR), arange of high quality services that under the CRA (Credit Rating major regulatory change ininclude rating and grading services Agencies) regulations, RBI, as an compliance with the Basel IIacross a diverse spread of segments, eligible credit rating agency whose requirements, led to a significantinstruments and industries. The ratings may be used by banks to growth in CARE's business. Thereagency has been seen to be assign risk weights for credit risk of has been no looking back since then.constantly expanding its product banks on corporates for capital In the last five years, even duringofferings and to play an active role in adequacy purposes and for rating of challenging times, CARE has seen itsshaping the landscape of the Indian fixed deposits of NBFCs and client base grow and the number ofcapital markets, in a healthy market- commercial paper. We are also assignments undertaken by itoriented approach. recognized by the Indian Ministry of increase as shown in Exhibit 1 and 2. Petroleum and Natural Gas, MinistryOur USP is that we are widely of Defence, Directorate General of The debt rated by CARE has seen aassociated with strong credibility and Shipping, the National Small steady and continuous rise all throughbrand presence in its business Industries Corporation among others. the years, taking the cumulative debtsegments. Amongst our innumerable Internationally too, CARE is rated by the agency as of FY13 to beachievements and milestones recognized by statutory authorities to over 50% of India's GDP. In FY13, wereached during its two decades of carry out ratings of debt instruments had over 5200 clients and during theexistence, we hold the distinction of CONTRIBUTIONS MEMBERS’ PAGE 06
    • year completed around 7700 industry overviews for clients in have an external rating committee, assignments. The large quantity of relation to their capital market which has added to the credibility of debt rated by the agency helps offerings are brought out regularly. our ratings. highlights the critical role played by it CARE Research has also recently Global presence: i n e l i m i n a t i n g i n f o r m a t i o n launched valuation services for CARE has in recent years been asymmetries and in building investor valuation of Market Linked making a number of international confidence through its unbiased, fair Debentures. forays across continents, to further and transparent credit opinion based its business prospects. We have We also provide grading services,on its in-depth research and rigorous signed MoUs and entered into which includes grading of IPO's,analysis. various agreements with monetary equity, educational institutions and and development authorities in real estate to name a few. Its different countries. To name a few – grading services are robust and so we have signed a MoU with GCR, far CARE has graded one of the the South Africa & CIM Group for largest number of IPOs since the starting operations in Mauritius; joint introduction of IPO grading in India. ventures with Beed Group, CARE also has an Economic Kathmandu has been finalised to Research team in place which start operations in Nepal and constantly reports and provides discussions have also been held analysis on nearly all the facets of with African Development Bank the domestic and global economy, (AfDB) for forming an African rating often providing key inputs to the agency. various regulators and industry bodies and associations. We are also recognized by the Hong Systems/ processes: Kong Monetary Authority and by the We do have in place robust and Capital Markets Development established rating procedures and Authority of Republic of Maldives. systems which include the Bank of Mauritius too recognises undertaking on a continuous basis ratings for risk weighting of banks c r i t e r i a d e v e l o p m e n t a n d claims on corporate for capital i m p r o v e m e n t i n r a t i n g adequacy purposes. CARE also methodologies. To adhere to its has its operations in Maldives. In stringent quality requirements, we addition to these international have a separate quality controlRange of Products and Services forays, CARE has signed an department. At all times, weoffered: i n t e r n a t i o n a l s h a r e h o l d i n g maintain 3 levels of checks andCARE Ratings has fast emerged as a agreement with 4 other credit rating balances - from analyst to groupleading agency covering ratings of agencies from Brazil, Portugal, head and thereafter the rating head.many segments, such as Corporate Malaysia, and South Africa for We have also leveraged technologyand Financial sectors, Structured establishing ARC Ratings (a new to make our processes seamlessFinance, Public Finance, SME, SSI/ international credit rating agency) and more effective. To this end, weMSE, Infrastructure Sector and with each holding a 20% stake. have implemented an integratedProject Finance Rating. Over and CARE thus has a strong global information interface for workflowabove this, we also undertake presence which can be built on in m a n a g e m e n t . A l s o , C A R EIndustry research which helps lay the the coming years. K n o w l e d g e C e n t r e ( C K C )foundation for its rating analysis too. Diversification /acquisitions established at Ahmedabad, isTo begin with, this research was for We have also diversified our entrusted with the centralisedin-house consumption, but we are operations, one such being the collection of raw data andn o w w o r k i n g t o w a r d s acquisition of CARE Kalypto Risk organising the same in acommercializing the same. CARE's Technologies Private limited. While standardised format, which isIndustry Research desk provides being a risk analytic company we thereafter presented in a systematicindustry research reports covering a are working on starting our advisory manner to the analysts located atwide gamut of sectors and industries business though this outfit so as to the various offices of CARE, spread(46 industries currently). They also spread into more business lines. across the country, to execute thepublish risk score reports called Quite clearly we do see our further rating process. Further, toCARE Industry Risk Metrics for 116 organization branching successfully maintain high standards ofsectors. Further, customized into other business lines and we professional quality and integrityresearch reports covering key areas would be working towards widening CARE has an External Ratingssuch as market sizing, demand and deepening our existing rating Committee comprising a majority ofestimation, demand-supply gap business so as to cover a wider independent members, who areanalysis, cost benefit analysis, cross section of companies and well renowned and respectedproduct segmentation, business hence contribute towards the financial industry professionals ofanalysis and cost indexation are growth of the Indian financial the country. In fact, CARE is the onlyprepared as per the client markets. large rating agency in the country torequirements and specifications.Also PAGE 07
    • PAGE 08 Central Depository Company of Pakistan signs Memorandum of Understanding with Life Insurance Companies for a Centralized Information Sharing Solution - CDC Press Release Takaful Ltd, for a Centralized (CDC) offered its services to develop Information Sharing Solution for the and maintain Insurance Repository insurance industry. The MoU signing on behalf of the insurance sector as it ceremony was held at the CDC possess the necessary technology House in Karachi and was attended infrastructure and has a proven track by Senior Management of the record of developing similar systems. Pakistan's leading Life Insurance and Centralized Information Sharing Takaful companies, the SECP and Solution will be implemented in twoCentral Depository Company of Management of CDC. All the parties phases, the first phase of which willPakistan Limited (CDC) has signed have agreed in principle that a cover the sharing of policy holdersMemorandum of Understanding with Centralized Information Sharing information only among theLife Insurance and Takaful Solution for the Insurance Industry Insurance companies on acompanies in Pakistan including (CISSII) should be developed to bring Centralized database while theState Life Insurance Corporation of in greater efficiencies and second phase will result in itsPakistan, EFU Life Assurance, transparency in the Insurance extension for establishment of aJubliee Life Insurance Company, Industry by sharing of critical c o m p r e h e n s i v e I n s u r a n c eMetLife Alico Pakistan, Adamjee Life information including acceptance of Repository in Pakistan through whichInsurance Company, Pak-Qatar claim and underwriting of hazardous insurance policies can be stored inFamily Takaful and Dawood Family risks. Central Depository Company dematerialized form. funded by USAID for harmonizing on ways to address the challenges in SAFE – RFI regulatory frameworks of the capital the proposed framework and identify markets of SouthAsia. additional recommendations toPROJECT incorporate into the Rule Book &CMDA, Maldives Stock Exchange anticipated support of regulators,- CMDA Report (MSE), Maldives Securities e x c h a n g e s , m i n i s t r i e s a n dD e p o s i t o r y ( M S D ) & t h e governments to adapt the proposedbroker/dealers attended meetings framework.with the consultants who visited Maldives for collecting information for the project. As part of the continuing CMDA is currently reviewing the draft support to the project, CMDA will be RFI report in order to identify theSAFE has organized a Multi- attending SAFE’s Multi-Stakeholder suitability of the proposed frameworkStakeholder Advocacy Moot for Advocacy Moot in Mumbai, India on to the Maldives Capital Markets.discussing progress of the RFI project 5th July 2013. Discussions will focus globally vs. 1541 and ~$851bn in launched in the last 5 years itself. ETFs in the global 2007 and 297 and ~$146bn in 2002. ETFs now account for over a third of ETF growth has been seen to be a US passive investing (index mutualcontext result of net inflows rather than price funds) given its advantages. Though- appreciation. Global ETFs have seen active ETF products have also started consistently high net inflows since the from 2008, they still constitute a very past 4-5 years. New ETF launches small portion. and product development gaveETFs are largely index funds that E T F c h a l l e n g e s t r a d i t i o n a linvestors' access to multiple assets,trade like stocks and help achieve distribution models as it pays little ormany of which were not easily withindiversification, benchmark returns, no distribution fee. However, it hasreach earlier. The industry has seenaccess to multiple assets and real- found favour from the fee-for-advicehigher number of launches each yeartime asset allocation at a low cost. model as it benefits financialbetween 2009 and 2012. New ETFsAlthough in existence since 1993, it is advisors. Traditionally, ETFs werefrom China, South Korea and USA inonly in the last few years that they held initially by institutions and2012 rank amongst the largest fundhave accumulated scale. As of Dec financial advisors globally, due to itslaunches made recently. A larger2012, 4,806 exchange traded lower cost, risk diversification, newportion of the ETFs in USAtoday wereproducts had assets of ~$2.1tn Sourajit Aiyer Sr. Manager, Investor Relations Motilal Oswal Financial Services Ltd., India
    • PAGE 09 beta exposure and short-term liquidity management. Though slow to pick up in the retail space, it has started gaining acceptance of late and the share of retail has picked up within global ETF assets. However, many emerging markets like India actually saw ETFs demanded more by retail initially, largely attributable to the proliferation of gold ETF products. ETF AUM has advanced within mutual fund assets, though the proportion is still quite small at ~6%. The share of USA, Japan and Europe distributors were otherwise reluctant ETFs tracking broad indices. Activelyin global ETF assets declined from due to the low commissions earned m a n a g e d s a t e l l i t e s s e e k95% to 91% in the last decade, while on ETFs. concentrated, targeted exposure toAsia Pacific (ex Japan), LatinAmerica certain sectors, assets and marketsLow fees and trading costs (includingand Canada grew. Equity, though still to tap outperformance. ETFs can be amarketing and distribution costs)the largest constituent within global u s e f u l w a y t o g ohave been a key factor as most ETFsETF assets, declined in proportion overweight/underweight in markets,are not actively managed, hence rolefrom 92% in 2007 to 77% as of May based on views. Short-term marketof the portfolio manager is limited.2012, attributable to the volatile movements may render certainETFs can give targeted exposure toequity markets which shifted focus sectors relatively undervalued.specific sectors, markets and totowards uncorrelated assets for Assuming such sectors to typicallyassets like commodities, currenciesdiversification and risk reduction. converge to their true value in the longwhich may be uncorrelated to eachDuring periods of downturns, there is run, such sector ETFs may often beother, including niche exposuresa shift in the investors' preference used. Those with deep understandingdepending on the nature of the index.from active investing towards passive of markets might use ETFs to captureETFs have made commoditiesproducts. Despite lower trading stock vs. sector performanceaccessible for retail investors, whichvolumes, there was asset addition in differential - buy the stock and shortwere otherwise often cost-prohibitivethe ETF space, demonstrating the its sector ETF if the company isas it had to be bought in lots. Thus,increased appetite for such products. expected to better its peers, and viceETFs have helped achieve portfolioWhile ETF assets grew globally, the versa. Investors with cash parked incompletion and access to alternativeaverage AUM per Fund declined, their portfolios for some time may useassets.particularly in Asia, owing to strong ETFs like short-duration bond ETFsaddition to fund count. India has been Since ETFs are listed on an instead of money market funds, asan exception given its rapid addition exchange, they are tradable like they may often pay better yields thanto gold assets, though it is in line with shares. Investors can trade real-time money-market funds. Fixed incomeAsia in terms of equity ETFs using intraday price movements. ETFs can reduce the risk of investingspecifically. Increase in smaller sized Costs related to any short term in single bonds, offers a bond basketfunds outside the Top 10 ETFs in any inflows/outflows into mutual funds with single trade and replacesgeography may present a concern, (STT, brokerage etc) impacts all the maturing bonds. Dividend ETFsince this could impact the players' investors in that fund. But in the case portfolios for current income may beprofitability. of ETFs, the cost of trade while appealing in the current scenario,Features and trends that aided buying/selling the underlying ETF with each underlying paying athe surge in ETFs globally basket shares is borne by those dividend monthly.In volatile times, diversity is key. particular investors only. Thus, long Since 2008, market volatility has Some of the best performing ETFsterm investors into ETF are not increased perceived risk and the were linked to less exotic indices.impacted by inflows/outflows from the inability to beat benchmarks Performances of most exotic fundsETF. ETFs are also able to maintain consistently (alpha). This brought the were unable to match regular ETFs,low levels of cash which helps reduce focus on benefits of passive, un- because exotic products were oftentracking error. This is because flows c o r r e l a t e d a n d d i v e r s i f i e d difficult for most investors toare added to its AUM only when the investments. As investors seek to understand. Despite many ETFsunderlying portfolio baskets are balance growth with risks, they are launched to benefit from currentreceived by the ETF and not when increasingly looking at lower- market situations, they may have aapplications are received originally. correlated assets. ETF products help limited success life. Being linked to anIts features of an equity share – like in this. Financial advisory is seeing a index with a long-term appeal hasthe ability to buy on margin, sell short, gradual shift from commission based usually been more attractive fortrade with stop/limit orders, replicate to fee based advisory. This is largely investors. As the ETF markethedge fund-like strategies etc, have due to the inability of investors to pick evolved, the demand for morebeen key factors. ETFs, including correct options, given the product innovative products grew includinga c t i v e E T F s , d i s c l o s e t h e proliferation, volatile markets and non-cap weight index ETFs, alternatecomposition of their portfolios daily, shifting focus to newer assets which asset ETFs etc, as well as fixedhence investors know what they own many are yet to understand – thus income etc. Lastly, ETFs with loweach day. increasing the demand for advice. tracking error have generally been Since advisory services charges a Core-Satellite investing involve more successful. fee-for-advice over and above other passive investing for core exposure portfolio costs, they seek low-cost seeking benchmark performance to options and ETFs fit this bill. This minimize risk. This may be ideally trend is a boon for ETFs, as many serviced by the numerous low-cost
    • PAGE 10 Amir Zia addressed the participants management. He stated that Lahore LSE LEADS explaining and highlighting the Stock Exchange considers it CORPORATE financial performance of the essential for the companies to company. Mr. Amir while addressing participate in such programs so that BRIEFING PROGRAM stated that energy shortage is a there is no information asymmetry worrisome issue for which Treet regarding our listed companies.FOR TREET Corporation Limited is already Corporate Briefing Program (CBP)CORPORATION LTD planning to launch alternate sources -LSE Press Release aims to bridge the gap between theof power generation to meet the listed companies and investor'senergy shortage. He also stated that community and provide them with anthe company is at the stage of opportunity to share company's firstexpanding its business by looking hand information. The basic goal offorward to explore trade with India. the Corporate Briefing Program is to Managing Director and Chief enhance investor's understanding of Executive Officer of Lahore Stock financial statements, company's Treet Corporation Limited senior Exchange, Mr. Aftab Ahmad short term and long term projects. management visited The Lahore Chaudhry while addressing the CBP is an opportunity for investors to Stock Exchange to participate in the participants stated that the purpose of b e t t e r u n d e r s t a n d t h e Corporate Briefing Program. CBP is the Corporate Briefing Program is to economic/financial affairs of a an interactive program initiated by the provide an opportunity to the company which might affect Lahore Stock Exchange under the companies to brief investors and the company's share price and ultimately C o r p o r a t e C o m m u n i c a t i o n s broker community on the updated impact their investments as well as Department to encourage companies operational, financial and strategic investment decisions. The LSE under to come forward and share their positioning of the companies. He this initiative will be conducting financials and non financial projects expressed that an opportunity of regular programs for different listed before the members, TREC Holders, periodical communication through companies. Management of the investors and the media to abridge the Corporate Briefing Program companies shall brief and explain the the communicational gap between would enable the companies to investors about company's assets the listed companies and the market create a strong investors following, and liabilities, financial soundness, participants through this platform. besides, providing the investors an credit worthiness, current and Company Secretary, Mr. Ayaz Ahmad opportunity to gain first- hand expected revenue and growth rates. and the Chief Financial Officer, Mr. knowledge from a company's financial value. Now, before moving laundering and terrorism financing, A Critical Scrutiny ahead it is very important that we ever given brief thoughts on the minutely assess, at least some basic, gravity of the impact of such money inon Money sources or origin of the so called the financial eco-system of a country? black-money. Generally, any funds If scrutinized minutely, the impact isLaundering not satisfying and meeting taxation much more devastating and dreadful creating Havoc in and other regulatory requirements than we could ever fathom. The while the funds are being generated illegitimate sources of funds, once Capital Markets are the prime sources of illegal funds. transformed into the white-money, - Sandip Nepal Beyond these, funds availed from not only jeopardizes the revenue Assistant Manager in R&D Department corruption, financial embezzlements, reorganization mechanism of a illegal business activities and by country, but also imposes a long term violating the domestic and chain-effect into the entire economy international laws are the originators inviting serious economic flaws like of the dreadful black-money. price instability and violation of basic economic/market fundamentals andOnce such non-legitimate funds are financial/capital market is not ancreated, the parties holding such P r i o r t o exception. he injection of black-funds would obviously desire to investigating money into the capital markets, whichchannelize it, more importantly, and assessing could have been practiced in manylaunder it and flourish it in the forms of whether the developing and under-developeddifferent investments. If stringent funds are being economies, has affected themeasures of anti-money laundering laundered and if efficiency of capital marketare operationalized in an efficient yes, how they fundamentals in an acute manner.manner, the risk of illegal funds to are practically Once the illegal funds are generated,enter the formal section of the executed, it is of no matter from any illegitimateeconomy and financial arena surges i m m e n s e sources, the funds could be simplysignificantly. Now, let's examine on importance that channelized or laundered via thethe consequences of a successful we identify and elaborate the prime intermediation of various markettransformation of black-money into sources of black-money and how they intermediaries like Bank andwhite or laundered money. Have our are actually channeled into the Financial Institutions (BFIs),political leaders, diplomats and so- economy. In a layman's term, black- brokerage houses and other differentcalled financial experts holding the money is the entire accumulated fund forms of market intermediariestop-ranked positions in different which doesn't possess legitimate participating in financial transactions.public organizations, responsible for properties or simply, an illegal controlling/monitoring money Mercantile Exchange Nepal Limited
    • PAGE 11 trade through accreditation of cold producers of oil to manufacturers of Benefits of storages (where the potatoes are value added products such as stored). As the Exchange (MCX) acts crystals. Such a transition helped thecommodity futures as a guarantor to both buyer and rise of India, since 2005, as a major seller, delivery-takers are more player in the international market fortrading — findings assured from the quality perspective mentha crystals, displacing China's of a field level when trading on MCX platform, dominance. This, according to compared to traditional marketing authors, stand out as the most study chains. This results in an anonymous significant effect of the futures market trading through a process of on the commodity ecosystem.-Nazir Ahmed Moulvi and Niteen M Jain, disintermediation thereby linking the Additionally, both through exchangeSenior Analysts, Research & Strategy, Multi Commodity Exchange of India Ltd. local traders and producers often with based transactions and physical end-users. Also, the delivery taker procurement in MCX certified can aggregate the contracts, and warehouses, a significant part of eventually take an assured delivery of mentha trade has also come into an assured quality and quantity. This transaction nets with higher tax is the form of 'involuntary compliance, leading to higher tax aggregation' caused through the revenue generation. As a result, exchange platform, find the authors of Government of India has collected tax the study. revenues of about Rupees 411 croreCommodities exchanges are (more than USD 90 million at averageplatforms for price discovery and The advent of commodity exchange exchange rates) during 2005-06 toprice risk management. There are a and subsequent shift of transactions 2011-12.number of studies from developed to platforms such as MCX has also countries which showcase the brought the trade under the tax net. Concluding remarksbenefits of commodity derivatives Enforcement of the sales tax (and market in terms of enabling farmers to To sum up, the IIMC-NISTADS studymandi tax introduced since last year) obtain better prices with higher clearly shows the commodity futuresis seen higher in the trade channels transparency as well as benefiting trading have benefited all theintermediated through exchange- small industries and exporters by stakeholders of commodity valueaccredited warehouses. Through providing them with a hedging chain like farmers, manufacturerstrading in potato, Government of India platform. Economies of developing (particularly SMEs), exporters,has received tax revenues of Rupees countries, including those in South traders etc. The futures exchanges,1,150 crore (more than USD 250 Asia, derive large proportions of their particularly MCX, have been able tomillion at average exchange rates) incomes and employment from the build up a reputation of 'certification'during 2005-06 to 2011-12 farm sector. However, there are few and 'rule-based-operation' in the detailed studies elaborating the commodity economy. Further, the Benefits commodity futuresbenefits of commodity futures positive effects of integration of market in Mentha Oil tradeexchanges from South Asian farmers with the post-harvest risk In case of mentha oil, the awarenesscountries. economy have enabled farmers to of futures market and the MCX experience both upward social In 2012, Multi Commodity Exchange platform is well dispersed and mobility and better economic (MCX) appointed Indian Institute of reaches deep hinterlands (production prospects. Management Calcutta (IIMC) and areas) too. Field level interaction with National Institute of Science, market participants revealed that Technology and Development MCX delivery channel has emerged Studies (NISTADS), New Delhi to as a significant procurement route for conduct a detailed study including mentha oil exporters and crystal field level survey to gauge the impact manufacturers. In turn, the of commodity futures trading in India. p a r t i c i p a t i o n o f For the study, two agricultural exporter/manufacturers, particularly commodities — mentha oil and potato SMEs, has helped in the integration of were identified. Futures trading in mentha oil futures trade with the these two commodities have been physical trade. The large spillover taking place on MCX platform for over benefits of the deep and liquid futures seven years. market is seen in the form of better dispersion of price information. Key findings of the study, 'Impacts of Significantly, the authors found that Potato and Mentha Oil Futures on the futures market has led to the Commodity Ecosystem' are emergence of a very efficient summarized below: alternative marketing chain in mentha oil trade. Benefits commodity futures market in Potato economy One important finding of the study on The IIMC-NISTADS study found that mentha oil economy is that from potato futures trading has created an 2004-05, there has been a rise in 'ecosystem' around this market, with crystal manufacturing and exports. an efficient marketing chain enabled Futures platform through trading of by the certified storage system for the mentha oil contract and hence delivery of the commodity. This has development of the delivery system also created a strong interface has helped the transition of mentha oil between futures market and physical stakeholders from being mere
    • PAGE 12 participants together by offering Market will have lot size of Rs. 5 MCX-SX launches them transparency and liquidity on a crore (tick size 0.0001) and Rs. 1 single platform for all debt securities crore (tick size 0.0001). Settlementdedicated Debt and all mechanisms of trading and will be on DVP I Method and Segment settlement that the industry has settlement guarantee and margins been using globally in the fixed would not be applicable. Settlement income market. It combines the best on DVP III Method will have a of both the OTC and the exchange settlement guarantee. traded market and will offer Speaking on the occasion, Shri innovations and new features, Rajeev KumarAgarwal, Whole Time which will be the key differentiator. Member, SEBI, said, “I congratulate It would enable executing orders MCX-SX on the launch of its through an Anonymous OrderAdding yet another milestone to the dedicated debt segment. I firmly Matching Trading Platform, whererecent and rapid spate of believe that MCX-SX will make the order entry panel would facilitatedevelopments at MCX Stock significant contributions in creating to quote either in yield or in priceE x c h a n g e ( M C X - S X ) , t h e a vibrant debt market in India, which terms. It is an interface that wouldExchange launched its dedicated has a critical role to play in raising enable users to see pricingdebt market segment. MCX-SX also capital for fuelling the growth of fluctuations and market actions.announced that the Equity and economy.” Equity derivatives segment turnover In line with SEBI guidelines, MCX Shri Joseph Massey, MD&CEO, has crossed Rs 1,000 crore and Stock Exchange will offer Retail and MCX-SX, added, “With the launch of turnover of derivatives on its Institutional Market for the Debt our dedicated debt segment as well flagship index 'SX40' has crossed segment, including Request for as the Equity Segment turnover Rs 500 crore mark. Quote (RFQ) and Negotiated crossing Rs. 1000 cr mark, we have Platform.The debt market segment of MCX- crossed yet another milestone and SX was inaugurated by Shri. Rajeev The Retail Market will offer lot sizes demonstrated our commitment Kumar Agarwal, Whole Time of 1 bond (tick size 0.01), Rs. 1 crore towards building a world class Member of Securities and (tick size 0.0001) and Rs. 5 crore exchange for India. We are happy to Exchange Board of India (SEBI) at a (tick size 0.0001). The market receive a very encouraging ceremony attended by prominent timings would be from 9 am to 5 pm. response from across the industry.” industry leaders and stalwarts of the Trades done in retail market will be The debt segment of MCX-SX went capital market, banking and settled on a DVP III (net Basis) on live from Monday, June 10, 2013. financial sectors. T+2 day and there would be a settlement guarantee.The MCX-SX debt market segment envisions to bring the debt segment Instruments tradable in Institution - MCX-SX Press Release
    • In line with the expected regulatory parameters, MEX Nepal is proud to announce its brand New state-of-the-art, cutting-edge technology, the Complete Exchange Solution Software: AX1 Trader, which incorporates new business model for the Nepalese Commodity Market. The new software is similar and on par with CME, NYMEX, MCX, ICE, EUREX etc. It is based on pure order-matching-system (OMS) and fully equipped for price discovery, which can help the farmer to the big corporates in mitigating their risk associated with price volatility and gives an opportunity to investors who want to trade with the price volatility itself. With this newAX1 Complete Exchange Solution software, the local demand and supply will also reflect in the price of the MEX markets, which add yet another milestone in Nepalese commodity market. Technologically, this one hundred and one percent fullyAutomated Trading-System is equipped for physical delivery and once remaining things related to warehouse get completed, MEX Nepal, immediately plans to go for physical delivery, coordinating with related entities for such commodity, which is possible with current infrastructure available. The new software with the state-of-the-art technology also gives a better trading experience to the investor, with advanced charting analysis and globally practiced features. Availability of Market Depth, Order Tracking, Time and Sales Stamp, Client Profiling, Client Tracker, Broker Profiling and other tons of latest features enhance the maximum level of transparency and facilitate for an effective risk mitigation & management system. MEX also intends to increase the number of Market Makers and Clearing Members with this new Business Model. The successful migration of new platform was completed on 8th July 2013. Mercantile Exchange Nepal Limited Migrates to New Exchange Solution Software! PAGE 13 Sharia-compliant insurance company Amana Takaful (Maldives) PLC has announced a cumulative profit of MVR 4.5 Million (US$292,208) since listing on the Maldives Stock Exchange back in 2011. Following the company’s second annual general meeting held Sunday (April 28), Amana Takaful said a 10 percent dividend of MVR 2.6 million (US$168,831) would be paid among its Maldives-based shareholder members for the group’s performance during 2012. Growth for the company during last year was said to be driven in particular by demand for medical and motor insurance following amendments to government regulations that has seen a number of insurers moving to offer 3rd party coverage in these areas. Aspokesperson for the company claimed that 3rd party motor cover was anticipated to continue to help drive growth for its Maldives operations in the coming years as a result of recent legislation imposed on the country’s motorists. During its AGM, Amana Takaful also announced an underwriting result – earnings from premiums after deducting the costs of operating expenses and insurance claims – of MVR 20.7 million (US$1.3 million). This was said to be a 61 percent increase on the previous year. As well as Sharia-compliant insurance, a growing number of private groups in the Maldives have moved to offer Islamic financing to their customers. Specialist groups such as the Maldives Islamic Bank (MIB) are set to be joined in the segment by Bank of Maldives (BML), which this month announced the appointment of a four-member ShariaAdvisory Committee. Amana Takaful posts MVR 4.5 million profit since Maldives Stock Exchange float minivannews.com The capital market regulator has allowed conversion of promoter shares to ordinary shares through secondary market trading. However, not removing the option of selling those shares by issuing offer documents has irked brokers. Securities Board of Nepal (Sebon) has introduced a provision that will allow promoters to sell their shares to the public directly through brokers in the stock exchange without issuing an offer document. Earlier, the capital market regulator allowed conversion of promoter shares to ordinary shares through merchant bankers that prepare a detailed offer document and offer to sell the portion of shares in their possession at the quoted price. “Sebon has removed the obligation of offloading promoter shares through a lengthy process of issuing offer documents, as from now on these shares can be traded at the stock exchange,” said chairman of Sebon Baburam Shrestha. “The conversion of shares through the previous process is still valid if promoter share holders want to issue offer documents and quote their sell price,” added Shrestha, pointing out that transaction can be held in one process unlike the earlier one that required a merchant banker to sell through an offer document and then transfer the share through stock exchange. After Nepal Rastra Bank (NRB) allowed financial institutions to bring down the promoters’ equity to 51 per cent from the existing provision of 70 per cent, promoters seeking to offload shares to bring down promoters’ ownership by 19 per cent had faced difficulties.NRB allows promoters to offload their shares and turn them into ordinary shares after the lock-in period of five years is over and if the annual general meetings of the respective financial institutions endorse the decision to increase public equity in the institution. According to Sebon’s Security Registration and Issue Regulation 2064, promoter shares are supposed to be converted to public shares through the process of offer documents like during an initial public offering. However, the provision was not feasible for promoters who wanted to sell a small amount of shares at their own terms because the process was rather expensive. Moreover, brokers had also strongly objected to the decision for it bypassed brokers in the transaction process. “Any share transaction of a listed company that does not include brokers is against market practice,” said president of Stock Brokers’Association of Nepal Narendra Raj Sijapati. “Moreover, direct sale through merchant bankers would have created rigid pricing,” he said, adding that transaction through merchant bankers instead of brokers will also raise difficulty in calculating capital gain tax. “A dual system of converting promoter shares is ambiguous,” he said. Sebon brings new provision to offload promoter shares thehimalayantimes.com
    • Investors might soon get to bet on various versions of the Bombay Stock Exchange’s (BSE) benchmark index, the Sensex, and its other key gauges soon. BSE, which recently tied up with S&P Dow Jones, the world’s largest index provider, has planned to launch different types of indices, which could be based on aspects, such as volatility and dividend yield. For instance, the Sensex could have different versions such as low volatility and high dividend yield but will be structured with the same set of 30 stocks. So, a low-volatility Sensex could have stocks with that feature enjoying the highest weightage. Its new US-based partner, S&P Dow Jones, which has already launched different versions of the S&P 500 in America, will help BSE to launch these. In February, S&P and BSE entered into a partnership for maintaining and disseminating indices. The tie-up was formed shortly after a similar agreement ended between BSE’s bigger rival, the National Stock Exchange and the S&P. “It is not just a case of having an index to represent a particular size or segment of the market. It has moved on to investing strategy -- having different versions of the same indices,” said John Davies, vice-president and global head of exchange-traded products at S&P Dow Jones Indices. “You can have different flavours for the BSE suite of indices and that's before you go anywhere near and try to bring in more international products.” Davies didn't specify when the indices would be introduced. “Over the next few weeks, a number of people are coming over from New York and London to visit the BSE, to discuss different aspect of the existing index business and how we can integrate S&P Dow Jones Indices’ international practices and expertise into what's relevant for the Indian market,” he said. The methodology to form different versions of the same index are simple, said Davies. “A low-volatility version is very straightforward. We take the stocks, we look for the top low-volatility ones and then inversely weight them in the basket. It is a simple mechanism, it compressed the volatility and you can still participate in the performance of the underlying (shares).” The recent spike in the market volatility saw a lot of money moving into the low-volatility and dividend-yield versions of S&P 500s.Also, these two tweaked versions had outperformed the S&P500 index in the past year. Brokers said different versions of a more broad-based index like the BSE 200 or BSE 500 would be more efficient than having more variants of the 30-share Sensex. Davies said a 'full toolkit' of ETF products that provide exposure to all the segments like fixed income, equity and commodities needs to be developed for the Indian market. “As the investment attitude and culture evolves, other asset classes will be required to be part of the portfolio,” he said. BSE to offer various forms of Sensex business-standard.com PAGE 14 The capital market is expected to contribute US $ 50 billion for the country’s GDP by year 2016, therefore the Stock Brokers should be geared to handle the highest number of deposits in the future, Director General Security and Exchange Commission (SEC) Dr Nalaka Godahewa said. “Sri Lanka’s GDP would be US $ 100 billion by 2016, out of which 50 percent should contribute from the capital market. Therefore, each stock broker should be geared to manage many retail accounts, “Dr Godahewa said at the launch of the Colombo Stock BrokersAssociation website and also introduced code of principles of best practices at the event. He said that right now the country’s total GDP was US $ 60 billion and the capital market’s contribution to the GDP was only 30 percent. There are more than 220,000, accounts in the Capital Depository System, he said. “At present the country has 29 stock brokering companies, each company should be geared to manage at least 20,000 retail deposits. Therefore all stakeholders should work together to make a vibrant stock market to achieve that target. To popularize the capital market education aspect plays a pivotal role because our present market is a speculative market than the research base market,” he said. ” When the foreign investors are investing in Sri Lanka they have little knowledge on few companies.Therefore, research on companies would help to create a vibrant and strong market in the country. “With the stability in the market, the debt market has performed well, better than we expected. Therefore, we have to find ways and means to face future challenges to make a vibrant market,” he said. The President of the Colombo Stock Brokers Association (CSBA) Dimuthu Abeysekera said that in developing a vibrant equity market, the role of stockbrokers is crucial and into this equation comes the tenets of transparency and enhancing effectiveness across the market.He said that facilitating a customer centric solution in securities trading in Sri Lanka would be a primary objective for the stock broking community, while maximizing financial returns for the broader investor community by proving prudent timely information,” he said. “Colombo Stock Exchange is showing stability at present and the development of the overall capital market by introducing Principles of Best Practice that would help to promote the professionalism to the market,” he said. Capital market to contribute US $ 50 bn to GDP by 2016 dailynews.lk Bhutan's unique formula of using happiness to measure the development index may have captured the imagination of many countries but the government's priority should be to create basic conditions for experiencing happiness, says a leading scholar on Bhutan. "Despite attempts to make Gross National Happiness (GNH) philosophically and econometrically tenable, the initiative is not without problems and criticisms. Most people argue that happiness is a state of the mind and an internal subjective experience," writes Karma Phuntsho's in his new book "The History of Bhutan", published by Random House India. "What triggers the experience of happiness differs from person to person depending on their cultural background, individual interest and often on the point of comparison. Any attempt on the part of a state or government to provide, let alone impose, a uniform value or definition of happiness is futile," Phuntsho, who teaches Buddhism and Bhutan Studies in the Himalayan country and abroad, says. The idea of happiness and wellbeing as key points of development has been a part of Bhutan's political psyche. It was pursued as a deliberate policy goal when former king Jigme Singye Wangchuck introduced GNH to define the official development paradigm for the country. Apart from the objectives of development that seek to increase GDP on a national level and incomes at the household level, development in Bhutan encompasses the achievement of less quantifiable but highly qualitative objectives. GNH is centred on the belief that happiness is the ultimate desire of every individual, and by extension, the responsibility and purpose of the state is to create the necessary conditions that enable citizens to lead a good life. Phuntsho argues that the state must create conducive conditions required for the experience of happiness. "While many agree that GNH is a useful framework for guiding development and giving it a sense of direction, they argue that for a developing country like Bhutan, the government's priority must be in improving the basic conditions for happiness rather than excessively talking about happiness itself. "These critics point out that even today over 20 per cent of the population live under the national poverty line, governance and public services are far from efficient, youth delinquency and crimes are rising while the cultural heritage is eroding and the economy is ever more precarious with too much dependence on imported goods.At such times, GNH dangerously veers to the point of being an ideological distraction from the real issues and problems. Of Bhutan, happiness and development! business-standard.com First session of Campus Outreach Programme was conducted for the students of BBA at Superior University (Raiwind Campus) by the Lahore Stock Exchange in collaboration with South Asian Federation of Exchange where LSE’s officials interacted with the students. Managing Director and Chief Executive Officer of Lahore Stock ExchangeAftabAhmed Chaudhry was the chief guest at the event. The session was organised at Superior University. Ms MadihaAbrahim from Investor Relations Department LSE, enlightened the students on the broad features of Pakistan’s economic and financial system, features and characteristics of different financial markets, regulatory framework, market indicators, investment products, financial services and opportunities available to investors in Pakistan and roles and responsibilities being performed by various financial institutions. They were also given an insight about various investment avenues available in the market and their role in the economic system of the country. Ms Madiha also spoke on various operational matters of the Exchanges including listings, trading, corporate governance, sensitivity of stock market and investor protection. She said that the financial decision-making starts from the teenage and in order to become a smart saver, it is imperative to hold basic knowledge on the financial market. She also focused on the classification and functions of the stock market, market indices, historical background and stakeholders of the capital market. Campus Outreach Programme under the broader Financial Literacy Initiative has been launched by the LSE in collaboration with South Asian Federation of Exchange. LSE holds campus outreach programme pakobserver.net
    • PAGE 15 MAJOR SAFE MARKETS *Please note that the closing index values for every day have been quoted for all the indices. June DHAKA STOCK EXCHANGE DSI BOMBAY STOCK EXCHANGE SENSEX NATIONAL STOCK EXCHANGE S&P CNX NIFTY NEPAL STOCK EXCHANGE NEPSE STOCK EXCHANGE OF MAURITIUS SEMTRI COLOMBO STOCK EXCHANGE ASI KARACHI STOCK EXCHANGE KSE-30 KARACHI STOCK EXCHANGE KSE-100
    • The 'cap' confusion BusinessStandard Different agencies define large, medium or small cap, according to their own methodology. Understand them better. We humans find comfort in classification and segmentation. That is why many of us prefer the well-demarcated aisles in supermarkets, rather than popping into the local grocer's cluttered store. We extend the same desire to investing and consider it especially important when there are over 4,000 listed stocks and hundreds of mutual fund (MF) schemes. Acommon method of classification is the market capitalisation (MC)-based method, wherein stocks/funds are divided into large-cap, mid-cap and small-cap. MC is the product of the market price and the number of equity shares outstanding. It may be computed either on a total or a free-float basis. Many investors have a clear preference regarding the category they would like to invest. While some stick to large-caps, others gravitate towards mid-cap and small-cap stocks. However, their definition varies widely. For instance, the Bombay Stock Exchange (BSE) considers stocks falling within the first 80 per cent of the free- float market capitalisation as large-caps and those within 80-95 per cent as mid-caps while computing their indices. The National Stock Exchange (NSE) considers stocks falling within 75 per cent and 95 per cent of the free-float market capitalisation as part of the eligible universe, while computing the NSE MidCap Index. Even mutual funds differ markedly. For instance, Birla Mid-Cap Fund uses an absolute filter of stocks with a market-cap between Rs 150 crore and Rs 1,500 crore. DSP Micro Cap's universe constitutes of stocks that are not part of the top 300 companies by market capitalisation. What constitutes small-cap for some may be micro-cap for another. Here's some solution to the segmentation conundrum: STRIKE A BALANCE: Rather than obsessing over the the classifications, investors could opt for clear options within each category. For instance, Hindustan Unilever and Jyothy Laboratories are large and mid-cap stocks, respectively, by most definitions. Owning both will give investors an exposure to two good companies across the market-cap spectrum. If you prefer mutual funds, choose 'go-anywhere' funds, which operate without any market-cap bias. However, even in these, the fund's philosophy will lead to a tilt in some direction. Fidelity Equity Fund, for example, is primarily large-cap oriented, while Reliance Regular Savings is mid-cap oriented, though both profess to be market-cap agnostic. Choose the one whose style you are comfortable with. CHOOSE INDEX FUNDS/ETFS: These mirror specified large and mid-cap indices and offer a low cost option to gaining exposure to a variety of stocks at one go. In fact, undertaking monthly SIPs in one Nifty/Sensex-related exchange-traded fund (ETF) (example Benchmark NiftyBeES or Franklin Index Fund – Sensex) and one mid-cap ETF (say Benchmark Junior BeES or MOST Midcap ETF) could be good enough.Any change in the underlying index's composition automatically leads to a rebalancing of your holding.There is also no fund manager-related risk. CHOOSE APPROPRIATE FUNDS: Ensure the large or mid-cap fund you are investing in is true to its mandate. For instance, Franklin Bluechip strictly ensures over 80 per cent of its corpus is invested in large-cap stocks and, hence, is a good fund for those seeking a large-cap fund. Funds which frequently modify their mandate end up confusing and disappointing investors. BE COGNISANT OF BIASES: Often, the preference for one category over the other may be due to 'recency bias'. If stocks or indices belonging to a certain category outperform for some time, investors gravitate towards that class. For instance, mid-cap indices outperformed large-cap indices for a large part of 2010. This led to heightened interest for mid-cap stocks. Similarly, during the market correction of 2008, large and well-known companies fell less than the rest, thereby creating an illusion of safety, leading to a penchant for large-caps. Continuous Listing Requirements Colombo Stock Exchange (CSE) is currently examining the feasibility of making its continuous listing requirements (CLR) permanent. At present under its main board listing requirements, there needs to be a 25% minimum free float; and in the case of listing in the Diri Savi secondary board, the requirement is a minimum 10% free float. However, what more often than not happens, after an initial public offering, where CLR are conformed to, subsequently however the free float is diluted due to strategic interest in the company, and the requirement of a 25% minimum free float in the case of main board listing and 10% in the case of Diri Savi, is, therefore, more often than not, observed in the breach. Contentious issues such as which shareholder/shareholders should shed his/their's “excess” equity stake/stakes in order to conform to CSE's CLR, are among the matters that the CSE is grappling with, before mandating CLR. A plethora of new listings, some mandatory and some voluntary, are now before the CSE. Among the mandated listings are the need for registered finance companies to list by end June, banks by end December and insurance companies by next year. - 12YEARS OLD Grants McCann Erickson's Public Relations Department celebrated its 12th anniversary. CREDIT CARDS SHRINK The number of active credit cards in circulation as at end of last year decreased by 42,769 (5.2%) over that of November, and continued with this decline vis-à- vis the end December 2009 figure, a shortfall of 62,035 (7.4%) over that figure of 840,509. However, the outstanding credit card balance in the review period increased by Rs. 853 million (2.8%) to Rs. 31,616 million month on month in December, and marginally increased by Rs. 241 million (0.8%) when compared with the end December 2009 figure of Rs. 31,375 million. RICE IMPORTS UP132% Colombo tea auction prices last November declined by 4.5% year on year (YoY) to US$ 3.38 a kilo, whilst tea production for the year increased by 13.1% YoY to 329.4 million kilos.However rice import prices in the review period increased by 132.3% YoY to US$ 849.10 per metric ton (pmt) C&F. Similarly white sugar prices increased by 22.6% YoY to US$ 709.3 pmt C&F and crude oil by 7.2% YoY to US$ 84.80 per barrel C&F.But wheat prices in the review period declined by 11.8%YoYto US$ 225.50 pmt C&F. (Source: Central Bank of Sri Lanka) (Source: CBSL) South Asian Federation of Exchanges (SAFE) SAFE Secretariat 96-W, Khyber Plaza, 2nd Floor, Fazal-ul-Haq Road, Islamabad-44000, Pakistan. Tel: +92 (51) 282 6763 Fax: +92 (51) 280 4215 Email: info@safe-asia.com URL: www.safe-asia.com| |