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Regulatory Body and Stock Exchange
Arsal Aftabon 2 November 2012
Transcript of Regulatory Body and Stock Exchange
Shumaila Zaheer Siddiqui Karachi Stock Exchange Regulatory Bodies and Functions of KSE Functions of stock exchange Functions of KSE Pakistan stock exchange Karachi stock exchange(KSE) Islamabad stock exchange(ISE) Lahore stock exchange(LSE) Main activities Function as An organization In favor of investor In favor of companies Karachi Stock Exchange ROLE AND FUNCTIONS OF Karachi STOCK EXCHANGE Established for the purpose of assisting, regulating and controlling business of buying, selling and dealing insecurities.
Provides a market for the trading of securities to individuals and organizations seeking to invest their saving or excess funds through the purchase of securities.
Provides a physical location for buying and selling securities that have been listed for trading on that exchange.
Establishes rules for fair trading practices and regulates the trading activities of its members according to those rules.
The exchange itself does not buy or sell the securities nor does it set prices for them. Fair The exchange assures that no investor will have an undue advantage over other market participants. Efficient Market This means that orders are executed and transactions are settled in the fastest possible way Doing business People who buy or sell stock on an exchange do so through a broker. The broker takes your order to the floor of the exchange looks for a broker representing someone wanting to buy/sell. If a mutually agreeable price is found the trade is made Transparency Investor make informed and intelligent decision about the particular stock based on information they have. History of KSE The Karachi Stock Exchange or KSE is astock exchangelocated in Karachi, Sindh, Pakistan. Founded in 1947, it is Pakistan's largest and oldest stock exchange, withmany Pakistani as well as overseas listings. Its current premises are situated on Stock Exchange Road, in the heart of Karachi's Business District
The index was launched in late 1991 with a base of 1,000 points. By 2001, it hadgrown to 1,770 points. By 2005, it had skyrocketed to 9,989 points. It then reached a peak of 12,285 in February 2007.
KSE-100 index touched the highest ever benchmark of 14,814 points on December 26,2007, a day before the assassination of former Prime Minister Benazir 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 the global financial crisis of 2008 it had fallen to 9,187. Growth and Progress of KSE Today KSE has emerged as the key institution of the capital formation in Pakistan with:- Listed companies 653, securities listed on the exchange 692: ordinary share653, Preference shares 14 and debt securities (TFC's) 25.
Listed capital Rs.750,477.55 million (US$ 9,499.72 million).
Market capitalization Rs.1,858,698.90 million (US$ 23,527.83 million). Average daily turnover 146.55 million shares with average daily trade valueRs.14,228.35 million (US$ 180.11 million).
Membership strength at 200.
Corporate Members are 187 out of which 9 are public listed companies.
Active Members are 163.
Fully automated trading system with T+2 settlement cycle.
Deliveries through central depository company.
National Clearing and Settlement System in place. MEMBERSHIP IN KSE Membership of KSE is limited and fixed at 200 and prospective members have to purchase a seat from existing members.
The price of the membership seat...
However, the membership is allowed subject to fulfillment of criteria and qualification laid down by the Board.
The Membership of KSE is also available to foreign entities… Criteria For Individual Membership 1) No person shall be eligible to be admitted as Member, if:
c. Bankrupt, Receiving Order in Bankruptcy and insolvent
d. Offence involving fraud or cheating or dishonesty…
e. Related to any other Organization, Institution, Association in Karachi where dealings in Securities are carried on.
f. Expelled or declared a defaulter…g. He/she has been previously refused admission to the membership of any Stock Exchange unless a period of six months has elapsed from the date of such refusal. 2) The minimum qualification for an applicant for the Membership shall be"Graduation"
3) Sufficient knowledge of stock market business
4) Disclosure of references
5) In the case of an active member filing his/her/their transfer application/nomination, such member shall also submit a bank guarantee or a guarantee by one of the existing members of the Exchange or a guarantee by the incoming member or any equivalent security in the manner as may be prescribed by the Exchange to the extent of Rs. 2.5 million valid for a period of 2 years from the date of transfer of membership in order to indemnify the Karachi Stock Exchange against all claims of replacement of shares received after the transfer of membership as per Rule 26(a) of Ready Delivery Contracts. Criteria For Corporate Membership: 1) The Corporate Body applicant for membership must;
a. be a company or a statuary corporation or a body corporate.
b. have a minimum issued and paid-up capital of Rs. 20 million.
2) The membership application shall be accompanied by a "no objection" from the Federal or
3) Provincial Government, as the case may be.
5) Minimum academic qualification of "Graduation”
6) Auditors certificate confirming the company’s net capital balance
7) The qualification of nominee Director shall be his holding of qualification shares in the company to the extent provided under the Articles of the nominating corporate membership.
8) The Chief Executive and Nominee Director must have at least 3 years stock market experience.
9) In case the equity of the company is subscribed by foreign participants; No Objection Certificates from State Bank of Pakistan and Ministry of Finance; is to be furnished. Investor Specific Foreign Investor specific
Local Investor specific
General Foreign Investor Specific 1. The foreign investors are freely allowed to operate in the capital marketwithout any retention period.
2. There are no restrictions on the extent of foreign ownership stake and also nolimit for holding the shares for trading purposes.
3. Funds invested in the capital market are freely transferable alongwith dividendincome.
4. Foreign investors are treated at par with local investors in tax treatment. Local Investor specific: 1. Capital gains on sale of listed securities are exempt from income tax up to theyear 2010. This exemption is available since 1974.
2. The dividend is subject to withholding tax at 10%.
3.Dividend income is taxed as a separate block of income in the hands of individual shareholders.
4.Any income derived from TFCs is subject to income tax with effect fromincome year 2001 – 2002. General 1. Listed companies are toned at 35%.
2. Provident funds can now invest in approved listed securities. They are alsoallowed to invest in open end mutual funds established under the AssetManagement Companies Rules 1996.
3. No turnover tax is payable by companies on their turnover representingtransactions in securities listed on stock exchanges. Investment Climate Equity Market In 1991, the secondary market was opened for foreign investors on an equal basis with the local investors.
This measure along with the government policy of privatization has resulted in rapid growth of the market since 1991.
It may also be mentioned that "privatization" has been adopted as a philosophy and most of the business & finance activities which were previously reserved for the public sector have now been opened for the private sector.
The change of policy is most visible in the financial sector where a number of commercial banks, investment banks, discount houses, leasing companies, modarabas, life insurance companies and mutual funds have been allowed in the private sector.
Foreign exchange holdings and transfers have been liberalized; resulting in the deregulation of national economy leading.
However prior permission of the government is necessary somewhere with industrialized section Legal Framework The securities market and the corporate sector are regulated by the provisions of :
The Companies Ordinance 1984
The Securities and Exchange Ordinance 1969 and Rules framed there under in1971
The Securities & Exchange Commission Act 1999.
There are also Federal legislations relating to specific areas like:
1.Monopolies and Restrictive Trade Practices (Control and Prevention)Ordinance, 1970
2.Investment Companies and Investment Advisors Rules 1971
3.Modaraba Companies and Modaraba (Flotation and Control) Ordinance, 1980
4.Companies (Issue of Capital ) Rules 1996
5.Leasing Companies (establishment and Regulation) Rules 1996
6.Asset Management Companies Rules 1996
7.Insurance Companies Ordinance 2000
8.Guidelines for insiders trading. Crises of stock market 2007-2008
Change in the government;
Elections and uncertainity in the enviornment.
After the assasination of former prime minister Benazir Bhutto,was a chair person of now ruling pary PPP
Throughout january and early february the market behaved skittishly and fell from nearly 15000 points before the assasination to below 13,600
World recession as a major factor
fell in the investment and purchasing power decreased. The Regulator
The regulatory authority for the securities market and corporate sector in Pakistan is the Securities and Exchange Commission of Pakistan.
The Commission was established on January 01,1999 by dissolving the Corporate Law Authority which was formed in 1981 under a Special Law of legislature.
The Commission administers the compliance of the Corporate laws in the country.
All policy decisions are made by the Board on the recommendations of the Commission
The Board is directly answerable to the Parliament.
Members of the stock exchanges are also subject to the discipline of self-regulation under various Rules and Regulations of the stock exchanges.
Self-Regulation is the essence of market regulation and for this purpose the legal framework has been amended to facilitate the attainment os shares through the stock exchanges