Mafia Assgmnt

8/8/2019 Mafia Assgmnt

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-

AN ASSIGNMENT

ON

THE STOCK EXCHANGE

OF

PAKISTAN


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Contents

1. Over view of market . pg.03Types of financial market

Money market pg.04

Capital market pg.04Market infra structure

2. Stock exchange... pg.05 Introduction.. pg.06

History.. pg.06 Securities.. pg.07

Types of operation pg.08

Trading process in S.E.. pg.09

Role of S.E pg.10

Listing of securities in S.E pg.12

Ownership of S.E.. pg.14

Future of S.E. pg.14

Other types of S.E. pg.15

3. Functions of stock exchange. pg.16

4. World major S.E.. pg.21

5. Stock exchange of Pakistan.. pg.23 Karachi stock exchange (K.S.E). pg.24

Lahore stock exchange (L.S.E) pg.30

Islamabad stock exchange (I.S.E) pg.32


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1. Over view of market

Market

Financial market

Money market

Non securitymarket

Capital market

Security market

Stock

exchanges

Clearing &settlement

Education& training

Ratingagency

Investorproductor

Infra structure


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Over view of market

1. Market:- A public place where buyers and sellers make transactions, directly or via intermediaries.

Also sometimes means the stock market.

A market is a public place where provision and object are exposed for sale.

2. Types of Market:-There are two types of Market as following :

Money Market

Capital Market

Money Market:-

In finance, the money market is the global financial market for short-term borrowingand lending. It provides short-term liquidity funding for the global financial system. The moneymarket is where short-term obligations such as Treasury bills, commercial paper and bankers'acceptances are bought and sold.

Capital Market:-

It is defined as a market in which money is provided for periods longer than a yearasthe raising of short-term funds takes place on other markets (e.g., the money market). The capitalmarket includes the stock market (equity securities) and the bond market (debt).

3. Organization of markets:-

A market can be organized as

an auction,

a private electronic market,

a commodity wholesale market,

a shopping center,

a complex institution such as a stock market,

An informal discussion between two individuals.

Markets of varying types can spontaneously arise whenever a party has interest in a good orservice that some other party can provide. Hence there can be a market for cigarettes incorrectional facilities, another for chewing gum in a playground, and yet another for contracts forthe future delivery of a commodity. There can be black markets, where a good is exchangedillegally and virtual markets, such as eBay, in which buyers and sellers do not physically interactduring negotiation. There can also be markets for goods under a command economy despitepressure to repress them.


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2. Stock exchange

Stock exchange

Introduction

Listing of securities

Trading process

Owner ships

History

FutureTypes of operators

Role

Types

Securities


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1. Introduction:-

A stock exchange, (formerly a securities exchange) is a corporation or mutual

organization which provides "trading" facilities forstock brokers and traders, to tradestocks and other securities. Stock exchange is a highly organized market where securitiesare purchased and sold.

A stock exchange is an organization of which the members are stock brokers. A stockexchange provides facilities for the trading of securities and other financial instruments.Usually facilities are also provided for the issue and redemption of securities as well asother capital events including the payment of income and dividends. The securitiesusually traded on a stock exchange include the shares issued by companies, unit trusts

and other pooled investment products as well as corporate bonds and government bonds.

2. History of Stock Exchanges

In 11th century Francethe courtiers de changewas concerned with managing and regulating the debts of agricultural communities onbehalf of the banks. As these men also traded in debts, they could be called the firstbrokers.

Some stories suggest that the origins of the term "bourse" come from the Latin bursameaning a bag because, in 13th century Bruges, the sign of a purse (or perhaps threepurses), hung on the front of the house where merchants met. However, it is more likelythat in the late 13th century commoditytradersin Bruges gathered inside the house of aman called Van der Burse, and in 1309 they institutionalized this until now informalmeeting and became the "Bruges Bourse". The idea spread quickly around Flanders andneighboring counties and "Bourses" soon opened in Ghent andAmsterdam.

In the middle of the 13th century, Venetian bankers began to trade in governmentsecurities. In 1351, the Venetian Government outlawed spreading rumors intended tolower the price of government funds. There were people in Pisa, Verona,Genoa andFlorence who also began trading in government securities during the 14th century. This
http://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Trader_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Brokerhttp://en.wikipedia.org/wiki/Brugeshttp://en.wikipedia.org/wiki/Commodityhttp://en.wikipedia.org/wiki/Traderhttp://en.wikipedia.org/wiki/Traderhttp://en.wikipedia.org/wiki/Traderhttp://en.wikipedia.org/wiki/Flandershttp://en.wikipedia.org/wiki/Ghenthttp://en.wikipedia.org/wiki/Amsterdamhttp://en.wikipedia.org/wiki/Amsterdamhttp://en.wikipedia.org/wiki/Venicehttp://en.wikipedia.org/wiki/Pisahttp://en.wikipedia.org/wiki/Veronahttp://en.wikipedia.org/wiki/Veronahttp://en.wikipedia.org/wiki/Genoahttp://en.wikipedia.org/wiki/Florencehttp://en.wikipedia.org/wiki/Trader_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Brokerhttp://en.wikipedia.org/wiki/Brugeshttp://en.wikipedia.org/wiki/Commodityhttp://en.wikipedia.org/wiki/Traderhttp://en.wikipedia.org/wiki/Flandershttp://en.wikipedia.org/wiki/Ghenthttp://en.wikipedia.org/wiki/Amsterdamhttp://en.wikipedia.org/wiki/Venicehttp://en.wikipedia.org/wiki/Pisahttp://en.wikipedia.org/wiki/Veronahttp://en.wikipedia.org/wiki/Genoahttp://en.wikipedia.org/wiki/Florencehttp://en.wikipedia.org/wiki/Stock_broker


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was only possible because these were independent city states ruled by a council ofinfluential citizens, not by a duke.

The Dutch later startedjoint stock companies, which letshareholdersinvest in businessventures and get a share of their profitsor losses. In 1602, the Dutch East IndiaCompany issued the first shares on the Amsterdam Stock Exchange. It was the firstcompany to issue stocksandbonds. In 1688, the trading of stocks began on a stockexchange inLondon.

On May 17, 1792, twenty-four supply brokers signed the Buttonwood Agreement outside68 Wall Street inNew Yorkunderneath a buttonwood tree. On March 8, 1817, propertiesgot renamed to New York Stock & Exchange Board. In the 19th century, exchanges

(generally famous as futures exchanges) got substantiated to trade futures contracts andthen choices contracts. There are now a large number of stock exchanges in the world.

3. Securities:-

The securities traded on a stock exchange include:

Shares issued by companies.

Debentures.

Bonds.

To be able to trade a security on a certain stock exchange, it has to be listed there.Usually there is a central location at least for recordkeeping, but trade is less and lesslinked to such a physical place, as modern markets are electronics networks, which givesthem advantages of speed and cost of transactions. Trade on an exchange is by membersonly. The initial offering of stocks and bonds to investors is by definition done in theprimary market and subsequent trading is done in the secondary market.

A stock exchange is often the most important component of a stock market.

Supply and demand in stock markets is driven by various factors which, as in all freemarkets, affect the price of stocks.

There is usually no compulsion to issue stock via the stock exchange itself, nor muststock be subsequently traded on the exchange. Such trading is said to be off exchange orover the counter. This is the usual way that derivatives and bonds are traded. Increasingly,stock exchanges are part of a global market for securities
http://en.wikipedia.org/wiki/Joint_stock_companyhttp://en.wikipedia.org/wiki/Joint_stock_companyhttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/Amsterdam_Stock_Exchangehttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Londonhttp://en.wikipedia.org/wiki/Londonhttp://en.wikipedia.org/wiki/New_Yorkhttp://en.wikipedia.org/wiki/New_Yorkhttp://en.wikipedia.org/wiki/Futures_exchangehttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Joint_stock_companyhttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/Amsterdam_Stock_Exchangehttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Londonhttp://en.wikipedia.org/wiki/New_Yorkhttp://en.wikipedia.org/wiki/Futures_exchangehttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Investor


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Shares:-

The total authorized capital in the company is divided into small units and each isindividually called Share. You can buy large or small lots to match the amount of moneyyou want to invest. When the company does well, its shares can rise in value. If the

company hits a bad patch, its share can fall in value. The shares are considered as the mainsource to raise companys capital.

Share Holder:-

The people who provide finance to company by purchasing shares are called shareholders.

Types of shares:-

1. Preference Shares:

These are shares whose holders have preferential rights in respect of the payment ofdividend and repayment of capital in the event of winding up. The rate of dividend on theseshares is fixed. There are further two types of preference shares.

Cumulative preference shares: If the profit if company is not enough to pay dividend onany kind of shares at the end of financial year than the right of dividend on these sharesaccumulates until all arrears of unpaid dividend have been paid.

Non-Cumulative preference shares: These are the shares on which if dividend is not paidout of current years profit in any year then it is never paid.

2. Ordinary Shares:

These shares are the shares on which dividend is not paid at fixed rate. Ordinaryshareholders receive the dividend proportionally out of profit earned by the company afterthe payment of fixed dividend on preference shares.

3. Deferred Shares:

The share issued to promoters of the company is called deferred or founders shares. Thedividend on these shares is paid after the payment of dividend on all other types of shares.

4. Types of operators on stock exchange

The operators who buy and sell securities on stockexchange are of several types. Some of them are described below:

1. Brokers:


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A broker is a member of the stock exchange. He buys and sells the securities on the behalfof the outsiders who are not the members. He charges brokerage for his services. He doesnot specialize in any particular security. He buys sells all types of securities according to theorders placed by his clients.

2. Jobbers:

The jobber is a member of stock exchange but he buys and sells securities on his ownbehalf. He is a dealer in securities. He usually specializes in one type of security. Hisincome comes from the profit or price difference in the purchase and sale of securities. Ajobber normally deals for himself but he is not prohibited from buying and selling securitieson the behalf of others.

3. Bulls:

A bull is a speculator who expects a rise in prices. Therefore, he buys securities with a viewto sell them in future at a higher price thereby make profit. When the conditions in the stockexchange are dominated by bulls, it is called a bullish market. When the prices fall andbulls have to sell at loss, it is called bull liquidation.

4. Bears:

A bear is a speculator expects fall in prices. Therefore, he sells securities for future delivery.He sells securities, which he does not possess. He sells with the hope to buy the securities atlower price before the date of delivery. The efforts of bears to bring down the pricesartificially are known as bear raids. When bears dominate the market, it is called abearish market. When prices are rise and bears have to make purchases to meet theircommitments, it is called bear covering.

5. Trading procedure on Stock Exchange

In order to purchase or sell securities on a stock exchange, the following steps have tobe taken:

1. Selection of Broker:

A broker is a member of stock exchange and securities can only be purchased and sold

through him. After selecting the broker the investor has to convince the broker to buy or sellsecurities on his behalf. For this purpose, the investor may have to make an advance or givereferences of a bank or some other persons.

2. Placing the order:

There are three parties involved in the dealing of shares:

The Stock Broker


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The Client

The Jobber

The stock broker simply acts as agent and contacts the particular jobber in the stockexchange on behalf of the client. He does not disclose to the jobber whether he is a buyer or

seller of shares. He therefore, asks him to quote two prices:

I. The upper prices at which he is ready to sell the shares.II. The lower prices at which he is ready to buy the shares.

For Example, Mr. Ali wants to sell one thousand shares of a Company. He contacts a brokerdealing on the stock exchange. The broker asks a jobber to give quotations. He does notdisclose the jobber whether he wants buy or sell the shares of a company. The jobber givestwo prices, one at which he is willing to sell and the other at which he is ready to buy. Forinstance, the two quoted prices are Rs.21.90 and Rs.22.00 in a thousand. This means brokeris willing to purchase at Rs.21.90 and sell at Rs.22.00 per share. If the broker is not

satisfied, he can go to another jobber or ask the first one to make it closer (i.e. to reduce themargin between buying and selling). If the broker is satisfied with the new quotation, hethen contacts with his client informs him the bid of the share. If the client agrees to the bidprice, then bargain is struck

3. Preparing the contract note:

The stock broker prepares a contact note, one copy of which is given to the client; secondone to the jobber and the third remains with the broker. The contact note generally contains

the following information:

Name and the address of the stockbroker.

The name and address of the jobber.

The type and price of the share.

The commission of the broker.

The date of transaction

4. Settlement:

In case of ready delivery contract, the buyer pays the money and the seller delivers

the securities one same day.

In the case of forward delivery contracts settlements are done in a week or once in amonth.

On the settlement day, the difference in the purchase and the sell price may be paid withoutany delivery of securities. The parties may also postpone the deal to the next settlement datethrough mutual consent. This is known as carryover or budla.


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6.Role of Stock Exchange in economy

Stock exchanges have multiple roles in the economy, this may include the following:

1. Raising capital for businesses:

The Stock Exchange provides companies with the facility to raise capital for expansionthrough selling shares to the investing public. It induces people to save and invest insecurities. There is regular publicity of its operations, which encourages savings andinvestments. People know that when they need money, they can easily sell there securitieson stock exchange. Therefore, they are more willing to invest there savings in securities.Thus a stock exchange serves as an instrument for raising capital.

2. Mobilizing savings for investment:

When people draw their savings and invest in shares, it leads to a more rational allocationof resources because funds, which could have been consumed, or kept in idle deposits withbanks, are mobilized and redirected to promote business activity with benefits for severaleconomic sectors such as agriculture, commerce and industry, resulting in strongereconomic growth and higher productivity levels and firms.

3. Facilitating company growth:

Companies view acquisitions as an opportunity to expand product lines, increasedistribution channels, hedge against volatility, increase its market shares, or acquire othernecessary business assets. A takeover bid or a merger agreement through the stock marketis one of the simplest and most common ways for a company to grow by acquisition orfusion.

4. Redistribution of wealth: Stock exchanges do not exist to redistribute wealth.However, both casual and professional stock investors through dividends and stock priceincreases that may result in capital gains will share in the wealth of profitable businesses.

5. Corporate governance:

By having a wide and varied scope of owners, companies generally tend to improve on theirmanagement standards and efficiency in order to satisfy the demands of these shareholders

and the more stringent rules for public corporations imposed by public stock exchanges andthe government. Consequently, it is alleged that public companies (companies that areowned by shareholders who are members of the general public and trade shares on publicexchanges) tend to have better management records than privately-held companies (thosecompanies where shares are not publicly traded, often owned by the company foundersand/or their families and heirs, or otherwise by a small group of investors). However, somewell-documented cases are known where it is alleged that there has been considerableslippage in corporate governance on the part of some public companies. The dot-combubbles in the early 2000s, and the subprime mortgage crisis in 2007-08, are classical


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examples of corporate mismanagement. Companies like Pets.com (2000), Enroncorporation (2001), One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002),MCI WorldCom (2002), Parmlat (2003), American International Group (2008), LehmanBrothers (2008), and Satyam Computer Services (2009) were among the most widelyscrutinized by the media.

6. Creating investment opportunities for small investors:

As opposed to other businesses that require huge capital outlay, investing in shares is opento both the large and small stock investors because a person buys the number of shares theycan afford. Therefore the Stock Exchange provides the opportunity for small investors toown shares of the same companies as large investors.

7. Government capital-raising for development projects:

Governments at various levels may decide to borrow money in order to finance

infrastructure projects such as sewage and water treatment works or housing estates byselling another category of securities, known as bonds. These bonds can be raised throughthe Stock Exchange whereby members of the public buy them, thus loaning money to thegovernment. The issuance of such bonds can obviate (to remove) the need to directly tax thecitizens in order to finance development, although by securing such bonds with the full faithand credit of the government instead of with collateral (side by side), the result is that thegovernment must tax the citizens or otherwise raise additional funds to make any regularcoupon payments and refund the principal when the bonds mature.

8. Barometer of the economy:

At the stock exchange, share prices rise and fall depending, largely, on market forces. Shareprices tend to rise or remain stable when companies and the economy in general show signsof stability and growth. An economic recession, depression, or financial crisis couldeventually lead to a stock market crash. Therefore the movement of share prices and ingeneral of the stock indexes can be an indicator of the general trend in the economy.

9. Regulation of companies:

The stock exchange exercises a wholesome influence on the management of companies. Acompany that wants to be listed on stock exchange must bind itself to the rules andregulations prescribed by the stock exchange.

10. Employment Opportunities:

Stock exchange provides employment opportunities to the jobbers and other members whoperform there activities in the stock exchange. So it is an important source of employmentnot only for investors but also for the members and there employees.

7. Listing of Securities on Stock Exchange


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All securities are not dealt on stock exchange. Only those securities are sold or purchasedwhich are included in trading list of the stock exchange. In order to get a security listed onstock exchange for trading purposes, the company issuing such a security must make anapplication along with following prescribed documents.

1) Copies of memorandum, articles, prospects, directors report, balance sheet andagreement with underwriters.

2) Specimen copies of shares, debentures, certificates, letter of allotment and acceptance,etc.

3) Particulars regarding capital structures.

4) A statement showing the distribution of shares.

5) Particulars of dividends and each bonus declared since its incorporation.

6) Particulars of shares and debentures for each, permission are required.

7) A brief history of the companys activities since its incorporation.

After the scrutiny of application, if the stock exchange authorities are satisfied, they callupon the company to execute the listing agreement. The listing agreement contains thefollowing conditions and obligations:

1) The company must be fair to all the applicants for shares. In the case of oversubscription, no undue preference will be shown to any particular class of applicants.

2) To notify stock exchange about the date of the board meeting at which decision ofdividend is taken.

3) To forward the copies of its annual accounts duly audited to the stock exchange.

4) To notify the stock exchange, about any material change or nature or feature of thecompanys business.

5) To notify the stock exchange any change in the capital of the company.

6) To notify the issue of any new shares including bonus shares.

7) To comply with all the requirements of the listing agreement and not to commit anybreach of any condition.

8) To notify the stock exchange of any occasion this will result in redemption orcancellation of any listed security.

9) To avoid, the establishment of a false market for the listed securities.


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10) To supply the stock exchange any other information necessary to enable theshareholders to know about the companys position.

8. Ownership of Stock Exchange

Stock exchanges originated as mutual organizations, owned by its member stock brokers.There has been a recent trend for stock exchanges to demutualize, where the members selltheir shares in aninitial public offering. In this way the mutual organization becomes acorporation, with shares that are listed on a stock exchange. Examples are AustralianSecurities Exchange (1998),Euro next (merged with New York Stock Exchange),NASDAQ (2002), theNew York Stock Exchange (2005),Bolsas y Mercados Espaoles,and the So Paulo Stock Exchange (2007). TheShenzhen andShanghai stock exchangescan been characterized as quasi-state institutions insofar as they were created by

government bodies in China and their leading personnel are directly appointed by the ChinaSecurities Regulatory Commission.

9. The future of stock exchanges

The future of stock trading appears to be electronic, as competition is continually growingbetween the remaining traditionalNew York Stock Exchangespecialist system against therelatively new, all Electronic Communications Networks, or ECNs. ECNs point to theirspeedy execution of large block trades, while specialist system proponents cite the role ofspecialists in maintaining orderly markets, especially under extraordinary conditions or forspecial types of orders. UK based exchanges such as PLUS Markets are increasingcompetition with traditional exchanges.

The ECNs contend that an array of special interests profit at the expense of investors ineven the most mundane exchange-directed trades. Machine-based systems, they argue, aremuch more efficient, because they speed up the execution mechanism and eliminate theneed to deal with an intermediary.

Historically, the 'market' (which, as noted, encompasses the totality of stock trading on allexchanges) has been slow to respond to technological innovation, thus allowing growingpure speculation to continue. Conversion to all-electronic trading could erode/eliminate thetrading profits of floor specialists and the NYSE's "upstairs traders", who, like in Septemberand October 2008, earned billions of dollars selling shares they did not have, and days laterbuying the same amount of shares, but maybe 15 % cheaper, so these shares could behanded to their buyers, thereby making the market fall deeply.

William Lupine, founder of the Instinettrading system and the Optima system, has beenquoted as saying "I'd definitely say the ECNs are winning... Things happen awfully fastonce you reach the tipping point. We're now at the tipping point."
http://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Australian_Securities_Exchangehttp://en.wikipedia.org/wiki/Australian_Securities_Exchangehttp://en.wikipedia.org/wiki/Euronexthttp://en.wikipedia.org/wiki/Euronexthttp://en.wikipedia.org/wiki/NASDAQhttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/Bolsas_y_Mercados_Espa%C3%B1oleshttp://en.wikipedia.org/wiki/Bolsas_y_Mercados_Espa%C3%B1oleshttp://en.wikipedia.org/wiki/S%C3%A3o_Paulo_Stock_Exchangehttp://en.wikipedia.org/wiki/Shenzhen_Stock_Exchangehttp://en.wikipedia.org/wiki/Shenzhen_Stock_Exchangehttp://en.wikipedia.org/wiki/Shanghai_Stock_Exchangehttp://en.wikipedia.org/wiki/Shanghai_Stock_Exchangehttp://en.wikipedia.org/wiki/China_Securities_Regulatory_Commissionhttp://en.wikipedia.org/wiki/China_Securities_Regulatory_Commissionhttp://en.wikipedia.org/wiki/China_Securities_Regulatory_Commissionhttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/Market_makerhttp://en.wikipedia.org/wiki/Market_makerhttp://en.wikipedia.org/wiki/Electronic_Communications_Networkhttp://en.wikipedia.org/wiki/PLUS_Marketshttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Instinethttp://en.wikipedia.org/wiki/Instinethttp://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Australian_Securities_Exchangehttp://en.wikipedia.org/wiki/Australian_Securities_Exchangehttp://en.wikipedia.org/wiki/Euronexthttp://en.wikipedia.org/wiki/NASDAQhttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/Bolsas_y_Mercados_Espa%C3%B1oleshttp://en.wikipedia.org/wiki/S%C3%A3o_Paulo_Stock_Exchangehttp://en.wikipedia.org/wiki/Shenzhen_Stock_Exchangehttp://en.wikipedia.org/wiki/Shanghai_Stock_Exchangehttp://en.wikipedia.org/wiki/China_Securities_Regulatory_Commissionhttp://en.wikipedia.org/wiki/China_Securities_Regulatory_Commissionhttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/Market_makerhttp://en.wikipedia.org/wiki/Electronic_Communications_Networkhttp://en.wikipedia.org/wiki/PLUS_Marketshttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Instinet


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One example of improved efficiency of ECNs is the prevention offront running, by whichmanual Wall Street traders use knowledge of a customer's incoming order to place theirown orders so as to benefit from the perceived change to market direction that theintroduction of a large order will cause. By executing large trades at lightning speed withoutmanual intervention, ECNs make impossible this illegal practice, for which several NYSE

floor brokers were investigated and severely fined in recent years Under the specialistsystem, when the market sees a large trade in a name, other buyers are immediately able tolook to see how big the trader is in the name, and make inferences about why s/he is sellingor buying. All traders who are quick enough are able to use that information to anticipateprice movements.

ECNs have changed ordinary stock transaction processing (like brokerage services beforethem) into a commodity-type business. ECNs could regulate the fairness of initial publicofferings (IPOs), oversee Hambrecht's Open IPOprocess, or measure the effectiveness ofsecurities research and use transaction fees to subsidize small- and mid-cap research efforts.

However, believe the answer will be some combination of the best of technology and"upstairs trading" in other words, a hybrid model.

Trading 25,000 shares ofGeneral Electricstock (recent quote: $7.54; recentvolume:216,266,000) would be a relatively simple e-commerce transaction; trading 100 shares ofBerkshire HathawayClass A stock (recent quote: $72,625.00; recent volume: 877) maynever be. The choice of system should be clear (but always that of the trader), based on thecharacteristics of the security to be traded.

Even with ECNs forming an important part of a national market system, opportunitiespresumably remain to profit from the spread between the bid and offer price. That isespecially true for investment managers that direct huge trading volume, and own a stake inan ECN or specialist firm. For example, in its individual stock-brokerage accounts,"Fidelity Investments runs 29% of its undesignated orders in NYSE-listed stocks, and 37%of its undesignated market orders through the Boston Stock Exchange, where an affiliatecontrols a specialist post."

10. Other types of exchanges

In the 19th century, exchanges were opened to trade forward contracts on commodities.Exchange traded forward contracts are called futures contracts. These commodityexchanges later started offering future contracts on other products, such as interest rates and

shares, as well asoptions contracts. They are now generally known as futures exchanges.
http://en.wikipedia.org/wiki/Front_runninghttp://en.wikipedia.org/wiki/Hambrecht's_OpenIPOhttp://en.wikipedia.org/wiki/Hambrecht's_OpenIPOhttp://en.wikipedia.org/wiki/General_Electrichttp://en.wikipedia.org/wiki/General_Electrichttp://en.wikipedia.org/wiki/Berkshire_Hathawayhttp://en.wikipedia.org/wiki/Berkshire_Hathawayhttp://en.wikipedia.org/wiki/Boston_Stock_Exchangehttp://en.wikipedia.org/wiki/Option_(finance)http://en.wikipedia.org/wiki/Option_(finance)http://en.wikipedia.org/wiki/Front_runninghttp://en.wikipedia.org/wiki/Hambrecht's_OpenIPOhttp://en.wikipedia.org/wiki/General_Electrichttp://en.wikipedia.org/wiki/Berkshire_Hathawayhttp://en.wikipedia.org/wiki/Boston_Stock_Exchangehttp://en.wikipedia.org/wiki/Option_(finance)


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3. Functions of stock exchange

Function of SE

Function asMain activities

In favor of investor

In favor of companies

An organization


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The functions of stock exchange are as following

1. Main activities:

To promote the savings and for them to be canalized towards of carrying throughinvestment projects that otherwise wouldnt be possible you need that the issuing

institution of the securities to be admitted for quoting. The negotiations will be

done on the primary market.

To provide liquidity to the investors. The investor can recuperate the money

invested when needed. For it, he has to go to the stock exchange market to sell the

securities previously acquired. This function of the stock market is done on the

secondary market.

2. Functions as an organization are:

To guarantee the legal and economic security of the agreed contracts.

To provide official information about the quantities that are negotiated and of the

quoted prices.

To fix the prices of the securities according to the fundamental law of the offer

and the demand.

Specifying a bit more and centering on the two main agents that intervene in the market, investors

and companies, we could do the following classification:

3. Functions in favor of the investor:

It permits him the access to the profitable activities of the big companies.

It offers liquidity to the security investments, through a place in which to sell or

buy securities.

It permits for the investor to have a political power in the companies in which he

invests its savings due that the acquisition of ordinary shares gives him the right

(among other things) to vote in the general shareholders meetings of the company

in question.


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It offers the possibility of diversifying your portfolio by enlarging the field of

strategy of investments due to alternative options, as could be the derived market,

the money market, etc.

4. Function in favor of the companies:

It supplies them with the obtaining of long-term funds that permits the company to

make profitable activities or to do determine projects that otherwise wouldnt be

possible to develop for lack of financing. Also, this funding signifies a less cost

than if obtained at other channels.

The securities quoted at the stock exchange market usually have more fiscal

purpose advantages for the companies.

It offers to the companys free publicity, which in other way would suppose

considerable expenses. The institution is objecting of attention of the media

(television, radio, etc.) in case any important change in its owners (the share

holders).

5. Constant following of the quotations.

Therefore we can see how the stock exchange market supposes a great advantage to the

companies, but there are also some inconveniences to have in mind:

First of all, they need of a series of conditions to be apt to enter to the quotations, not all

the companies that apply can do it.

The issuing of shares may suppose a loss of power for the founders of the company.

Anyway, this is very relative because it will depend on the grade of atomization on the

participations of the new shareholders and of the percentage of shares that the founders

keep over the total capital of the company.

If for example a 49% of the share capital is in hands of the founders, these could loose the

control of in case the other 51% would be in hands of one main shareholder. However,

this rarely happens, due that the share capital that usually goes to the stock market tends

to be distributed between a great number of shareholders that acquire modest

participations in respect to that of the capital of the company the founders may still keep

control with share capital is distributed between a great number of participants.


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Now then, the property of these shares implies the possession of certain rights over the

company in which you participate.

These are: political rights, among which appears the possibility of participating in the general

share holders meetings and in the administration of the company by means of the execution of

your rights to vote; and the economic right, which embraces the possibility of receiving

dividends, preferential rights of subscription, the transmission of shares (selling) and the right to

the liquidity value.

This last implies that at the moment in which the company is liquidated, what remains is

proportionally divided between the shareholders.

5. The possession of all these rights is what reduces the power of the founders.

The shares may pass to be property of unknown people to the founders. At the moment in

which they are object of quotations at the stock exchange market any supplier of capital

may have them. If its a company that previously knew all its shareholders, considering

this as an asset of value to the company. The stock market quotation may generate an

important change that will not always be positive.

The companies that are quoted at the stock market offer a better transparency, in a way

that the general public may have access to any information related to their evolution and

activities.

This makes them have a greater control and to supervise every movement done.


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3. Major stock exchange

Twenty Major Stock Exchanges In The World: Market Capitalization & Year-to-date TotalTurnover at the end of August 2009

World major SE

Regions

EuropeAfricaAmerica Asia


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Region Stock ExchangeMarket Value

(millionsUSD)

Total ShareTurnover

(millions USD)

Africa Johannesburg Securities Exchange 690,797.5 210,180.8

Americas NASDAQ 2,847,535.2 19,343,868.3

Americas So Paulo Stock Exchange 1,032,518.4 361,959.0

Americas Toronto Stock Exchange 1,432,877.0 798,193.1

Americas New York Stock Exchange 10,842,001.9 12,158,620.6

Asia-Pacific

Australian Securities Exchange 1,066,513.2 560,912.8

Asia-Pacific

Bombay Stock Exchange 1,082,572.0 171,176.2

Asia-Pacific

Hong Kong Stock Exchange 1,945,517.7 970,227.6

Asia-Pacific

Korea Exchange 727,125.3 1,050,473.8

Asia-Pacific

National Stock Exchange of India 1,019,109.0 506,652.3

Asia-Pacific

Shanghai Stock Exchange 2,142,756.8 3,315,768.5

Asia-Pacific

Shenzhen Stock Exchange 596,320.2 1,701,256.8

Asia- Tokyo Stock Exchange 3,478,602.5 2,675,983.3
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Pacific

Europe Euro next 2,605,097.6 1,195,962.2

Europe Frankfurt Stock Exchange (Deutsche Brse) 1,204,292.0 1,589,736.7

Europe London Stock Exchange 2,560,491.1 2,321,518.5

EuropeMadrid Stock Exchange (Bolsas y Mercados

Espaoles)1,178,525.6 1,040,751.1

Europe Milan Stock Exchange (Bursa Italiana) 636,674.8 565,759.3

Europe Nordic Stock Exchange Group OMX1 781,146.3 503,049.9

Europe Swiss Exchange 992,356.4 520,867.5

4. Stock exchange of Pakistan
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KARACHI STOCK EXCHANGE(KSE)

The Karachi Stock Exchange or KSE is a stock exchange located in Karachi, Sindh,Pakistan. Founded in 1947, it is Pakistan's largest and oldest stock exchange, with

Pakistan stockexchange

Karachi stockexchange (KSE)

Islamabad stockexchange (ISE)

Lahore stockexchange (LSE)
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many Pakistani as well as overseas listings. Its current premises are situated on StockExchange Road, in the heart of Karachi's Business District.

Growth

The KSE is the biggest and most liquid exchange in Pakistan and in 2002 it wasdeclared as the Best Performing Stock Market of the World by Business Week. As ofDecember 20, 2007, 671 companies were listed with the market capitalization of Rs.4364.312 billion (US$ 73 Billion) having listed capital of Rs. 717.3 billion (US$ 12 billion).On December 26, 2007, the KSE 100 Index reached its ever highest value and closed at14,814.85 points.

Foreign buying interest had been very active on the KSE in 2006 and continued in 2007.According to estimates from the State Bank of Pakistan, foreign investment in capitalmarkets total about US$523 Million. According to a research analyst in Pakistan, around20pc of the total free float in KSE-30 Index is held by foreign participants.

KSE has seen some fluctuations since the start of 2008. One reason could be that it isthe election year in Pakistan, and stocks are expected to remain dull. KSE has set an alltime high of 15,000 points, before settling around the 14,000 mark.

Karachi stock exchange Board of Directors has recently (2007) announced plans toconstruct a 40 story high rise KSE building, as a new direction for future investment.

Disputes between investors and members of the Exchange are resolved throughdeliberations of the Arbitration Committee of the Exchange.

KSE began with a 50 shares index. As the market grew a representative index wasneeded. On November 1st, 91 the KSE-100 was introduced and remains to this day themost generally accepted measure of the Exchange. Karachi Stock Exchange 100 Index(KSE-100 Index) is a benchmark used to compare prices overtime, companies with thehighest market capitalization are selected. To ensure full market representation, thecompany with the highest market capitalization from each sector is also included.

In 1995 the need was felt for an all share index to reconfirm the KSE-100 and also toprovide the basis of index trading in future. On August the 29th, 1995 the KSE all shareindex was constructed and introduced on September 18, 1995.

Trading System

The Karachi Stock Exchange has introduced a state-of-the-art computerized tradingsystem known as Karachi Automated Trading System (KATS) to provide a fair,transparent, efficient and cost effective market for the investors.

Currently, the exchange conducts one trading session from Monday to Thursday andtwo sessions on Friday. The Trading is divided into four distinct segments, each of which
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has its own clearing and settlement procedure. These are: T+3, Provisionally ListedCompanies, spot (T+1) Transactions and Future Contracts.

KSE 100 Index

The index was launched in late 1991 with a base of 1,000 points. By 2001, it had grownto 1,770 points. By 2005, it had skyrocketed to 9,989 points. It then reached a peak of12,285 in February 2007. KSE-100 index touched the highest ever benchmark of 14,814points on December 26, 2007, a day before the assassination of former Prime MinisterBenazir Bhutto, when the index nosedived. The index recovered quickly in 2008,reaching new highs near 15,500 in April. However, by November 22, 2008 during theglobal financial crisis of 2008 it had fallen to 9,187.

2008 Karachi Stock Exchange Crisis

April 20 : Karachi Stock Exchange achieved a major milestone when KSE-100Index crossed the psychological level of 15,000 for the first time in its history andpeaked 15,737.32 on 20 April, 2008. Moreover, the increase of 7.4 per cent in2008 made it the best performer among majoremerging markets.

May 23: Record high inflation in the month of May, 2008 resulted in theunexpected increase in the interest rates by State Bank of Pakistan whicheventually resulted in sharp fall in Karachi Stock Exchange.

July 17 :Angry investors attacked the Karachi Stock Exchange in protest atplunging Pakistani share prices.

July 16 : KSE-100 Index dropped one-third from an all-time high hit in April, 2008as rising pressure on shaky Pakistan's coalition government to tackle Talibanmilitants exacerbates concern about the country's economic woes.

August 18: KSE 100 Index rose more than 4% after the announcement of theresignation of President Pervez Musharraf but Credit Suisse Group said thatPakistan's Post-Musharraf rally in Stock Exchange will be short-lived because ofa rising fiscal deficit and runaway inflation.

August 28 :Karachi Stock Exchange set a floor for stock prices to halt a plungethat has wiped out $36.9 billion ofmarket value since April.

LAHORE STOCK EXCHANGE(LSE)Introduction

Lahore Stock Exchange was established in October 1970 and is the second largeststock exchange in the country with a market share of around 12-16% in terms of dailytraded volumes. LSE has 519 companies, spanning 37 sectors of the economy, that arelisted on the Exchange with total listed capital of Rs. 555.67 billion having market
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capitalization of around Rs. 3.64 trillion. LSE has 152 members of whom 81 arecorporate and 54 are individual members.

Activities of Lahore Stock Exchange (LSE) have increased significantly in alloperational areas since its inception. Over the years, LSE has successfully met various

challenges and has now emerged, fully geared and positioned to aggressively competewith its fellow Exchanges, contributing towards the growth of Capital Markets inPakistan.

Islamabad Stock Exchange

Islamabad Stock Exchange is one of the three stock exchanges ofPakistan and is located in thecapital ofIslamabad.

History:-

The Islamabad Stock Exchange (ISE) was incorporated as a guarantee limited Company on 25thOctober, 1989 in Islamabad Capital territory of Pakistan with the main object of setting up of atrading and settlement infrastructure, information system, skilled resources, accessibility and afair and orderly market place that ranks with the best in the world. The purpose for establishmentof the stock exchange in Islamabad was to cater to the needs of less developed areas of thenorthern part of Pakistan.

The ISE Towers comprise twin 22 storey towers with unique and inspiring amenities, offer

futuristically and aesthetically designed offices with panoramic views, is being constructed over apiece of land measuring 5600 square yards in the heart of Islamabad at Jinnah Avenue (BlueArea) which is the hub of all business and commercial activities in Islamabad. The building isfacing 400 feet wide Jinnah Avenue on one side and has another entrance from 100 feet wideNazimuddin Road, besides breathtaking scenic view of the Margalla Hills and the city from thebuilding.

Islamabad Stock Exchange Building, Register Companies and Members:-

At present there are 119 members out of which 93 are corporate bodies including commercial andinvestment banks, DFIs and brokerage houses. The other 26 Members are individual persons whoare well educated, enterprising and progressive minded. The affairs of the Exchange are governedby the Board of Directors. The Board of Directors consists of ten directors, of which five areelected member directors and four are non-member directors nominated by the SECP while the
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managing director by virtue of his office is the tenth director of the Board. In order to protect theinterest of the investing public, an Investors Protection fund has been established by theExchange.

Since the inception of automated trading system (ISECTS), the trade volume has been

multiplying day by day and the average daily turnover has now crossed the figure of 1 millionshares. Now all the listed securities are traded through the ISECTS. The system of physicalhandling of shares and securities has been phased out and majority of the scrips are settledthrough Central Depository Company of Pakistan Limited.

At the moment there are 241 companies/securities listed on the Exchange with an aggregatecapital of Rs. 389.512 billion. The market capitalization stood at Rs. 2,275.00 billion as on 04-04-2007 . The pace of listing has remained slow as the economy of the Country is under consistentpressure due to internal as well as external factors.

In comparison with major financial markets around the World, the functioning of capital market

in Pakistan is still very much in its infancy and lacks advanced technology.

References:-

Documents

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