Role of Stock Exchange

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CORPORATE LAW ASSIGNMENT

Submitted to:

Sir Ghulam Mustafa Korai

Submitted By:

M.Yasir Ali

11431

CRITERIA/GUIDELINES FOR LISTING OF COMPANIES ON THE EXCHANGE


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(1) Every listing application must accompany:i) All relevant Land Acquisition documents,ii) Feasibility Report in case of a new project,iii) Copies of the Letters of Credit established for the purpose of import of allmachinery, if linked with the public issue.

(2) The Exchange shall not entertain listing application of such company whose "Chief Executive" has been found to have violated the Listing Regulations or any other/listedcompanies on the Exchange of which he had been the Chief Executive.

(3) In all the prospectuses/offer for sale, the following disclosures must be made:-

i) No financial statements shall be incorporated in the prospectus/Offer For Sale whichis not audited and certified by the auditors and which is not accompanied by theaccounting policies.

ii) The Audited Accounts incorporated in the Prospectus/Offer For Sale shall not beolder than 6 months time before the application of Listing is made to the Exchange.

iii) A profile of the Chief Executive alongwith academic qualifications and experiencein the field on Industry.

iv) Break-up value of the shares on the basis of the latest audited account supportedby a certificate from the auditors.

v) In the financial plan, the amount of interest/mark/up/financial charges during pre-production period should be shown separately.

vi) Any other disclosure which the Exchange may require for the benefit of theinvestors.

(4) A running company for one full year or more, reflecting losses in their last auditedaccounts, shall not qualify for listing if its equity is eroded by 40% or more.

(5) The companies applying for listing on the Exchange should have a paid-up capitalof not less than Rs. 50 million.

(6) In the case of Modaraba Companies, 30 % of the paid-up capital shall besubscribed by the Sponsors their Friends Associates and Associated Companies andbalance 70 % shall be offered to General Public including N.I.T. Additionally, themanagement should have sufficient experience of finance and its management withsupporting documents, as submitted to the Registrar Modaraba Companies.

7) No company should be allowed listing whose promoters/sponsors/controlling


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directors are also promoters/sponsors/controlling directors in other listed companies,which are in default of any Listing Regulation of the Exchange. However, this will notapply to nominee directors of the Government and Financial Institutions. Thecompany should also provide a list of Controlling Directors.

8) No company shall be allowed listing which is a Wholly owned subsidiary companyof any other listed company which has violated the Listing Regulations of theExchange and is still in default of any Listing Regulation.

9) No company shall be allowed listing until it has achieved financial close.

10) A certificate signed by all the directors and principal sponsors of the companyshould be submitted, confirming that the machinery has been purchased at mostcompetitive rates and the same should be disclosed in the prospectus/offer for salefor information of the prospective subscribers.

11) A brief write-up of each controlling directors shall be submitted in order to assesstheir performance and the same should form part of the prospectus/offer for sale.

ROLE OF STOCK EXCHANGE

The role of Karachi Stock Exchange in capital formation has been thrown in bold relief by therecent boom during which many new records have been established.

Though the Karachi Stock Exchange had a modest beginning in 1948, today it has come of age boasting of more than 414 listed companies. The investment activity has gained momentum in thewake of introduction of a number of leasing and modaraba companies which are playing a major role in making the stock market buoyant. With these companies offering loans for industrialestablishments, the pace of industrialisation has been accelerated in the country. Besides, thedependence of sponsors of new projects on banks and DFIs has decreased because of the positiveresponse of the general public to their offerings and growing interest in share business. More andmore entrepreneurs have started depending more and more on the share market for mobilisation of funds.

The stock exchange has thus turned the corner and is well poised to play an even greater role inindustrialisation of the country. The liberal incentives provided in new industrial and export

policies have created a congenial atmosphere for vigorous investment activity. A climate conduciveto foreign investment has also been created. Hence the outlook of the share market is quite bright.In fact, one of the biggest share markets in the region is now in the making. The reasons are not far to seek. The present government's policy of allowing free movement of foreign exchange hasstarted paying dividends. A large amount of money belonging to overseas Pakistanis and foreign


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investors representing major financial houses of Europe and the Gulf, is coming to Pakistanthrough indirect channels. This runs into billions of rupees.

The upsurge in investment activity is largely attributable to the fact that the shares quoted onKarachi Stock Exchange ensure higher yield. The average yield across the board at the KSE is 9

per cent which is so far the highest as compared to other neighbouring countries despite the fact theonly 50 per cent of the companies listed on the stock exchange are paying dividend. In case of top25 companies, the average yield across the board is over 20 per cent, while in India the yield isonly 2.2 per cent. Elsewhere in the world, it is less than 9 per cent.

Moreover, being a developing economy, the stock market in Pakistan has a vast scope for expansion which in fact is the main feature of attraction for the foreign investors who see a lot of

potential in the market as compared to markets in Europe which are now at the point of saturation.

The stock exchange is expected to assume much greater role in capital formation because of themeasures announced by the government towards privatisation and motivating the public sector companies to float their equities through the stock exchange for mobilising domestic resources.Until recently, the stock exchange played insignificant role in capital formation both in terms of companies listed on the stock exchange and in terms of their total market capitalisation. It needs nostress that stock exchange plays an important part in allocating funds to most productive sectors of the economy. Stock exchanges have played a pivotal role in developed countries in speeding upeconomic activity. It has served as a leading indicator of economic activity in the country as alsohas a deep impact on aggregate consumption and investment.

Thus a very bright future lies ahead of the share market. It has already achieved a major breakthrough. As the pace of industrial investment picks up momentum, its role in capitalformation is bound to increase the unprecedented appreciation in market capitalisation and dailyturnover reflect the growing importance of the share market in the national economy. The number of listed companies is going to exceed 500 in the next few months. KSE has already emerged asthe premier capital market of the country.

Thus in the last few years, the Karachi Stock Exchange has shown tremendous growth and themarket capitalisation has shot up to 70 billion rupees with nearly 500 listed companies. The rushfor the equity listing on the Exchange is increasing considerably. It was long felt that other instruments apart from equity should also receive due consideration in view of the fact that nowindustries require huge finance which is a burden on government funding. It is, therefore, essentialthat due consideration is given to the floatation of other instruments apart from equity whichshould be raised through the stock exchange.

The fact that in recent years all the public issues have been heavily oversubscribed proves theconfidence of the investors in the share market and in the projects. It also proves that the
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shareholders are willing to participate in the industrialisation of the country. If the government policies are long-term, viable, indiscriminatory and not too much in favour of one area, one province or one sector, the interest in share business is bound to increase tremendously.

ROLE OF CENTRAL DEPOSITORY COMPANY

Incorporated as a public limited (Unlisted) company in 1993, Central DepositoryCompany of Pakistan Limited (CDC) is the only depository in Pakistan. The Companystarted operations in September 1997. CDC is the sole entity handling the electronic(paperless) settlement of transactions carried out at all three stock exchanges of the

country. Through efficient functioning of CDC, approximately 99% of the marketsettlement is in book entry form.

CDC was primarily established to operate the Central Depository System (CDS) for equity, debtand other financial instruments that are traded in the Pakistani Capital Market. However, with the

passage of time and development of Pakistans Capital Market, it now also provides services thatare beyond the traditional depository services. CDS is an electronic book entry system used torecord and maintain securities and their transfers registration. The system changes the ownershipof securities without any physical movement or endorsement of certificates and execution of transfer instruments.

CDC provides depository services to a wide range of Capital Market participants which includesBrokers, Asset Management Companies, Banks (including Custodian Banks) and general retailinvestors. It also serves to link up the Issuers and Registrars of securities and the market for the

purpose of executing corporate actions like disbursement of corporate benefits and carrying outmergers and splits.

The aim of CDC is to operate as a central securities depository on behalf of the financial servicesindustry so as to contribute to the country's ability to support an effective capital market systemwhich will attract institutional and retail level investors from Pakistan and abroad. CDC isregulated by the Securities and Exchange Commission of Pakistan (SECP) . CDC has branches inKarachi, Lahore and Islamabad.
http://www.cdcpakistan.com/UserPanel/AboutUs/ViewContent.aspx?m=cb&type=0019http://www.secp.gov.pk/http://www.cdcpakistan.com/UserPanel/AboutUs/ViewContent.aspx?m=cb&type=0019http://www.secp.gov.pk/

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Role of Stock Exchange