Sourajit Aiyer - South Asian Federation of Exchanges, Pakistan - ETFs in the Global Context - July 2013
July | 2013
this month’s special
FEDERATION OF EXCHANGES
this month’s special
p13 South Asian Securities
An Interview with
Mr. Al Maruf Khan,FCA
President Chittagong Stock Exchange
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
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
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
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
Mr. Al Maruf Khan,FCA
President, Chittagong Stock Exchange
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
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
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
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.
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
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.
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.
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.
Ÿ Increase business turnover
Ÿ Modernize trading system
Ÿ Ensure effective relationship management
Ÿ Achieve high level of confidence &
Ÿ Engage in product and market diversification
Ÿ Contribute to capital market policy
Ÿ Ensure exchange related quality services
Ÿ Value for people
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.
Regional Financial Integration
“Developing a Harmonized Regulatory Framework for the Capital Markets in Pakistan & South Asia”
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
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
with Life Insurance
Companies for a
- 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
Sr. Manager, Investor Relations
Motilal Oswal Financial Services Ltd., India
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
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
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
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
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!
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
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,”
BSE to offer various forms of Sensex business-standard.com
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
*Please note that the closing index values for every day have been quoted for all the indices.
DHAKA STOCK EXCHANGE
BOMBAY STOCK EXCHANGE
NATIONAL STOCK EXCHANGE
S&P CNX NIFTY
NEPAL STOCK EXCHANGE
STOCK EXCHANGE OF MAURITIUS
COLOMBO STOCK EXCHANGE
KARACHI STOCK EXCHANGE
KARACHI STOCK EXCHANGE
The 'cap' confusion
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
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.
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)
South Asian Federation of Exchanges (SAFE)
96-W, Khyber Plaza, 2nd Floor,
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Tel: +92 (51) 282 6763
Fax: +92 (51) 280 4215