Major Stock Exchanges of Pakistan

Importance of Stock Market in an

Economy

Sadaf Manzoor
Muhammad Afzal
Anam Hanif
Arsalan Mehmood

Introduction
A stock market or equity market is the aggregation of buyers
and sellers of stocks, these may include securities listed on a
stock exchange as well as those only traded privately.
A stock exchange is a place to trade stocks. Companies may
want to get their stock listed on a stock exchange.
Exchanges may also cover other types of security such as fixed
interest securities or indeed derivatives.

Trading in Stock Market:

Trade in stock markets means the transfer for money
of a stock or security from a seller to a buyer.
Participants in the stock market range from small
individual stock investors to larger traders investors,
who can be based anywhere in the world, and may
include banks, insurance companies or pension
funds.
A potential buyer bids a specific price for a stock, and
a potential seller asks a specific price for the same
stock.

Trading in Stock Market:

Buying or selling at market means you will accept any ask
price or bid price for the stock, respectively.
Supply and demand in stock markets is driven by various
factors which, as in all free markets, affect the price of stocks.
The purpose of a stock exchange is to facilitate the exchange
of securities between buyers and sellers, thus providing a
marketplace (virtual or real).
The initial offering of stocks and bonds to investors is by
definition done in the primary market and subsequent trading
is done in the secondary market.

Major Stock Exchanges of Pakistan

Karachi Stock Exchange (KSE)

Lahore Stock Exchange
(LSE)
Islamabad Stock Exchange (ISE)

Karachi Stock Exchange (KSE)

Karachi Stock Exchange (Guarantee) Limited (KSE), currently
the biggest and most liquid stock exchange in Pakistan.
It was established on September 18, 1947, incorporated on
March 10, 1949.
Only five companies were initially listed with a total paid-up
capital of 37 million rupees.
Karachi Stock Exchange is located on Stock Exchange Road.
The first index introduced in KSE was based on fifty companies
and was called KSE 50 index.

Listing in KSE
As on December 5th, 2014 there are 581 companies listed in
KSE and the total market capitalization is Rs. 6,982.504 billion.
There are total 36 sectors listed on Karachi Stock Exchange.
Out of these, 33 sectors contribute towards the market
capitalization, Rest of the 3 sectors is allocated for indexes,
futures bonds etc.
These non-market capitalization contributing sectors are as
follows;
Bonds
Non-Equity Investment Instruments
Stock Index Future Contracts

Market Indexes
KSE 100 Index:
The KSE-100 Index was introduced in November 1991, comprises of
100 companies selected on the basis of sector representation and
highest market capitalization, which captures over 90% of the total
market capitalization.

KSE ALL Index:

By August 29, 1995 the KSE-All Share Index was constructed which
became operative on September 18, 1995.
the need was felt for an all-share index to reconfirm the KSE-100
, KSE ALL Index is also calculated using market capitalization method.

Market Indexes
KSE 30 Index:
KSE-30 Index is designed to provide investors with a sense of how
large companies' scrip of the Pakistans equity market is performing.
KSE-30 Index is calculated using the Free-Float Capitalization
methodology.
The level of index at any point of time reflects the free-float market
value of 30 companies in relation to the base period.

KMI 30 Index:
the objective of KSE-Meezan Index (KMI) is to serve as a gauge for
measuring the performance of Shariah compliant equity investments.
its construction will increase investor trust and enhance their
participation.

Current Situation of KSE:

On 5th December 2014, KSE market index summary
shows
Total volume traded in KSE-100 index is 194,562,640
having worth Rs. 10,809,666,620.00.
Total volume traded in KSE-30 index is 80,927,400 having
worth Rs. 6,370,623,820.00
Total volume traded in KSE All-Share index is 286,479,680
having worth Rs. 13,107,358,156.00
Total volume traded in KSE-MI30 index is 56,254,700
having worth Rs. 5,466,239,292.00

Lahore Stock Exchange (LSE)

Lahore Stock Exchange is Pakistan's second largest stock
exchange.
It came into existence in October 1970, under the Securities
and Exchange Ordinance of 1969 by the Government of
Pakistan.
The LSE was the first stock exchange in Pakistan to use the
internet and currently 50% of its transactions are carried out
via internet.
It initially had 83 members .

Listing in LSE
LSE operates with 37 sectors of the economy and 519 listed
companies and with total capital of Rs. 555.67 billion having
market capitalization of around Rs. 2.51 trillion.
LSE Indexes:
LSE-25:
Index calculates the performance of stocks assuming that
all rights issues and bonus share issues only increase the
listed capital and prices of the shares are not adjusted.
The LSE-25 also assumes that dividends paid out by a
component company are not reinvested.

LSE Indexes
LSE-TRI:
The Lahore Stock Exchange Total Return Index calculates
the performance of stocks assuming that all payouts are
reinvested in the index on the ex-date.
Prices are adjusted in LSE-TRI if a component company
issues bonus shares or announces a rights issue.

Current Situation of LSE:

Total volume traded in LSE-25 index is 3,262,700 having
worth Rs. 43,002,720.00.

Islamabad Stock Exchange (ISE)

Islamabad stock exchange (ISE) was incorporated
as a guarantee-limited company on 25 October
1989, the youngest exchange of Pakistan.
It started trading in July 1992. The purpose for
establishment of the stock exchange in Islamabad
was to cater to the needs of less developed areas
of the northern part of Pakistan.

Trading in ISE:
Initially, an outcry method of trading (a
method of trading that uses verbal bids and
offers in the trading pits) in shares was
adopted.
It was replaced with the automated trading
system commonly called ISE-CTS in 1997.

Listed Companies & Index

There are 261 companies listed in Islamabad Stock
Exchange at the moment.
On 1 January 2004, ISE launched its own capital
weighted index which is ISE-10 index.
ISE joined hands with LSE on 30 April 2007 to
establish a Unified Trading Platform.
It increased liquidity in the market, improving price
discovery, maximizing transparency, increasing
turnover etc.
As per current situation
Total volume traded of ISE-10 index is 152,600.

Importance of Stock
Market in an Economy
The stock market plays a play a pivotal role in the growth of
the industry and commerce of the country that eventually
affects the economy of the country to a great extent.
Government, industry and even the central banks of the
country keep a close watch on the happenings of the stock
market.
Stock exchange apart from being hub of primary and
secondary market, they have very important role to play in
the economy of the country. Some of them are explained
here:

Importance of Stock
Market in an Economy

Raising Capital for Businesses:

Exchanges help companies to capitalize by selling shares to

the investing public.
The stock market is the primary source for any company to
raise funds for business expansions.
For the companies which are going public for the first time,
they need to start with the Initial Public Offering or the
IPO.
That is the reason that a rising stock market is the sign of a
developing industrial sector and a growing economy of the
country.

Importance of Stock
Market in an Economy

Mobilizing Savings for Investment:

Stock market helps public to mobilize their savings to invest in high

yielding economic sectors, which results in higher yield, both to the
individual and to the national economy.
It helps to promote business activity with benefits for several
economic sectors, resulting in a stronger economic growth and higher
productivity levels and firms.

Facilitating Company Growth:

Stock market helps companies to expand and grow by acquisition or
fusion.
A takeover bid or a merger agreement through the stock market is
one of the simplest and most common ways for a company to grow
by acquisition or fusion.

Importance of Stock
Market in an Economy
Profit Sharing:
Stock market helps both casual and professional stock investors, to
get their share in the wealth of profitable businesses.
Stocks exchanges do not exist to redistribute wealth. However,
through dividends and stock price increases that may result in capital
gains.

Corporate Governance:
Listed public companies have better management records than
privately held companies.
Companies generally tend to improve on their management
standards and efficiency in order to satisfy the demands of these
shareholders.

Importance of Stock
Market in an Economy
Creating Investment Opportunities for Small Investors:
Small investors can also participate in the growth of large companies,
by buying a small number of shares.
tock Exchange provides the opportunity for small investors to own
shares of the same companies as large investors.

Government Capital Rising for Development Projects:

It help government to raise fund for developmental activities through
the issue of bonds.
An investor who buys them will be lending money to the government,
which is more secure, and sometimes enjoys tax benefits also.
At the same time, it will eventually be used for economic
development.

Importance of Stock
Market in an Economy
Barometer of the Economy:
Stock market maintains the stock indexes which are the indicators of
the general trend in the economy.
They also regulate the stock price fluctuations.
Therefore the movement of share prices and in general of the stock
indexes can be an indicator of the general trend in the economy.

The smooth functioning of all these activities facilitates

economic growth in that lower costs and enterprise risks
promote the production of goods and services as well as
possibly employment

Economic Effects of the

Stock Market

Wealth Effect:
If the fall is significant it will affect peoples financial
outlook.
If they are losing money on shares they will be more
hesitant to spend money; this can contribute to a fall in
consumer spending.
Effect on Pensions:
Pension funds invest a significant part of their funds on the
stock market.
Therefore, if there is a serious fall in share prices, it
reduces the value of pension funds.

Economic Effects of the

Stock Market

Confidence:
Share price movements are reflections of what is
happening in the economy.
Bad headlines of falling share prices are another factor
which discourages people from spending.
Investment:
Firms who are expanding and wish to borrow often do so
by issuing more shares it provides a low cost way of
borrowing more money.
However, with falling share prices it becomes much more
difficult.

Economic Effects of the

Stock Market
Bond Market:
A fall in the stock market makes other investments more
attractive.
These investments offer a better return in times of
uncertainty.
Since there are only few companies in Pakistan which
issues bonds, the fall in stock market crashes bond market.

Conclusion:
The stock market has a major role in economy as it channelize
the money, contribute in capital, provides diversified
investment opportunities and lead the country towards
development.
Stock market makes available cost effective trading platforms
by concentrating demand and supply and liquidation of funds.
It ensures the greatest possible transparency for investors. It
provides accurate information on prices and volume of the
stock traded in there.

Conclusion:
One of the main reasons behind the unstable stock market is
the gap in the regulatory framework and weakness in stock
market governance.
Also, in short term, the exchanges should improve the
Securities Information Processors which consolidate and
distribute the stock quote information to the market.
It should provide public market data and compete on
performance and cost. Brokers should provide the information
in an easier-to-understand way and in great detail.
In this context efforts are being made to bring ISE, KSE, LSE in
line with the International system and methodology.