Project

2017
PAKISTAN STOCK EXCHANGE PSX

Financial Institution
COMSATS Institute of
Information Technology
Project 2017
 Financial Institution
Pakistan Stock Exchange (PSX)
Final Project

Submitted to: Sir Shahab-Ud-din

Submitted by: Syed Ali Haider Naqvi-030
Muhammad Shahrukh-025
Sara Masoom-029
Jalal-Uddin-Wahab-017
Javeria Javed-036
Deep Ali Jafri-009
CLASS: BBA-6

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 Acknowledgement
All praises and thanks to Almighty Allah. The lord and creator of this
universe by whose power and glory all good things are accomplished and the
most merciful, who bestowed on us the potential, ability and an opportunity
to work on this report.
We owe our profoundest thanks to our teacher Sir Shahab-Ud-din we
feel solely blessed to have him as our teacher, whose strength and wisdom we
learn up to and no doubt, experience of work with him is far better than we
believed possible. We appreciate his way of teaching, explaining and guiding
the students. He really has an art to get maximum for students without
making them feel what he got from them. He is really a source of inspiration
for us and for every student of our class.

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 Table of Contents
1. Introduction
2. History
3. Vision
4. Mission
5. About PSX
6. Past, Present & Future
7. KSE 100 Index
8. Top 15 KSE 100 Index Companies
9. Stock Exchange
10. Why do Companies go public?
11. Shares
12. The initial offering of stocks (IPO)
13. Book Building process for new companies
14. Regulating the Stock Market
15. How does KSE regulate trading activities?
16. The regulatory Infrastructure of Karachi Stock Exchange
17. Market and its Working
18. Measures of market performance
19. What Influences Market Movements?
20. How do other economic indicators affect the market?
21. Stock Market Indices
22. How they work? KSE Index
23. General Information
24. Why should I invest in Shares?
25. Risks of Investing in Stocks
26. What is the minimum amount of initial investment?
27. How can I buy and sell shares?
28. How can I decide which shares to buy?
29. How can I find a Stockbroker?
30. When you buy/Sell
31. How do I safe keep the acquire shares?
32. How much does it cost to buy shares?
33. How can I keep track of my Shares?
34. How are Settlement and Clearing done?
35. Central Depository Company (CDC)/ Central Depository System (CDS)
36. Taxes and Legal Aspects Income Tax
37. Capital Gain Tax
38. Who is ineligible to open a trading account?
39. Resolutions
40. Amicable Settlement
41. Arbitration committees of Stock Exchanges
42. SECP
43. Civil Courts
44. Arbitration

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 Introduction
KSE:
The Karachi Stock Exchange Limited (KSE),
was a stock exchange located at the Stock Exchange
Building (SEB) on Stock Exchange Road, in the heart of
Karachi's Business District, I. I. Chundrigar
Road, Karachi, Sindh Province of Pakistan. It is now
incorporated in the Pakistan Stock Exchange along with
the other two bourses of Pakistan, the Lahore Stock
Exchange and the Islamabad Stock Exchange [2] It is
Pakistan's largest and one of the oldest stock exchange in
South Asia by market capitalization, with many Pakistani
consortium as well as overseas enterprises listings.
According to Bloomberg, the Pakistani
benchmark stock market index is the third-best performer
in the world since 2009. In June 2015, Khaleej
Times reported that since 2009, the Pakistani equities
delivered 26 percent a year for US dollar investors, making Karachi the best-performing stock
exchange in the world.
With effect from January 11, 2016 the Karachi Stock Exchange, Lahore Stock Exchange
and Islamabad Stock Exchange were integrated under the Stock Exchanges (Corporatisation,
Demutualization and Integration) Act, 2012 to form the Pakistan Stock Exchange Limited as the
only stock exchange in Pakistan.

History:
Founded on September 18, 1947, Karachi Stock Exchange Limited (KSE) is the
exchange in Pakistan. It was declared the "Best Performing Stock Market of the World for the
year 2002", the position again re-affirmed by the Prime Minister of Pakistan in January 2015.
However, according to analysis by Bloomberg, Pakistan ranked third in 2014 amongst the Top
Ten Best Performing Markets in the world. A total of 654 companies were listed on December 8,
2009 with a market capitalization of Rs. 8.561 trillion (US$120.5 billion) having listed capital of
Rs. 2805.873 billion (US$40.615 billion). The KSE-100 Index closed at 11,967 on May 16,
2011. Total market capitalization of the PSX reached Rs 2.95 trillion (US$35 billion
approximately) on July 30, 2011. As on July 10, 2015, total market capitalization reached Rs.
7.33 trillion (US$72 billion approximately).

Vision:
To be a leading financial institution, offering efficient, fair and transparent securities
market in the region and enjoying full confidence of investors and listed securities issuers.

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Mission:
To strive to provide quality and value-added services to the capital market in an efficient,
transparent and orderly manner, compatible with international standards and best
practices.
To provide state-of-the-art technology and automated trading operations, driven by a
team of professionals in accordance with good corporate governance.
To protect and safeguard the interests of all its stakeholders i.e. members, listed
companies, employees and investors at large.
To reflect the corporate sector and countrys economic health and play its role for the
growth, development and prosperity of Pakistan.

About PSX:
The Exchange was incorporated in 1949 as a company Limited by Guarantee. As a result
of demutualization, the Exchange stood corporatized and demutualized as a public company
limited by shares under the name of Karachi Stock Exchange Limited, with effect from August
27, 2012. Subsequently, the three stock exchanges namely Karachi Stock Exchange, Lahore
Stock Exchange & Islamabad Stock Exchange were integrated into Pakistan Stock Exchange
Limited (PSX) on January 11, 2016.

PSX provides a reliable, orderly, liquid and efficient digitized market place where
investors can buy and sell listed companies common stocks and other securities. For over 60
years, the Exchange has facilitated capital formation, serving a wide spectrum of participants,
including individual and institutional investors, the trading community and listed companies.

Past:
Incorporated on March 10, 1949 as a company Limited by Guarantee
Exchange having 200 members
Started with 5 companies that had a paid up capital of Rs. 37 million
Trading was conducted through an open out-cry system
KSE 50 Index was the first index
Present:
Electronic Trading through KATS
Internet Based Order Routing System-KITS
Currently, the following 7 indices are quoted:

KSE 100
KSE 30
KSE All Share Index
KMI 30
PSX KMI All Shares Index
Oil & Gas Sector
Banking Sector

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 Markets Index to MSCI Emerging Markets Index with effect from June, 2017
A Company limited by shares, with the initial share capital equally allotted to 200 initial
members after integration is now allotting share capital to around 400 members
559 companies listed
Market Capitalization US $ 72.3 billion (June 30, 2016)
Government Debt Securities Trading
REITs
Capital Market Hub in Abbottabad
Offices in Lahore and Islamabad
Bond Market Index (Beta Version)

Future:
Products in Pipeline

Bond Market Index

Exchange Traded Funds
Fixed Income Derivatives
Index Options
Single Stock Options
SME Board
Securities Lending & Borrowing
Stock Index:
A stock index or stock market index is a measurement of the value of a section of
the stock market. It is computed from the prices of selected stocks (typically a weighted
average). It is a tool used by investors and financial managers to describe the market, and to
compare the return on specific investments.
A stock market index gives us minute by minute reading about how the market
participants perceive the future.
The movements in the Index reflect the changing expectations of the market
participants. When the index goes up, it is because the market participants think the future
will be better. The index drops if the market participants perceive the future pessimistically

KSE 100 Index:

Karachi Stock Exchange 100 Index (KSE-100 Index) is a stock index acting as a
benchmark to compare prices on the Karachi Stock Exchange (KSE) over a period. In
determining representative companies to compute the index on, companies with the
highest market capitalization are selected. However, to ensure full market representation, the
company with the highest market capitalization from each sector is also included.

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Top 15 KSE 100 Index Companies:
The following is a list of 15 companies with the highest market capitalization volume and their
respective weightages in the index and account for over 80% of the KSE index as of February
20, 2008:

Market Capitalization
Number Company Name Weightage (%)
(PKR)
1 OGDCL 14.14 550,948,930,000
2 MCB 7.17 279,583,150,000
3 National Bank of Pakistan 5.43 211,726,900,000
4 Pakistan Petroleum 5.06 197,201,080,000
5 Standard Chartered Bank 4.41 171,704,800,000
6 PTCL 4.28 166,810,800,000
7 United Bank Limited 4.13 161,025,160,000
8 Jahangir Siddiqui & Company 2.66 103,600,000,000
9 Pakistan State Oil 2.08 81,034,440,000
10 Allied Bank Limited 2.01 78,371,670,000
11 Nestl Pakistan 1.93 75,280,250,000

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 12 Pakistan Oilfields 1.71 66,824,220,000
13 Fauji Fertilizer Company 1.68 65,607,390,000
14 ABN AMRO 1.63 63,666,370,000.
15 Engro Chemical 1.45 56,492,990,000

What is Stock Exchange?

A stock exchange, share market or bourse is an organization which provides "trading"
facilities for stock brokers and traders, to trade shares of the listed companies and other financial
instruments such as Term Finance Certificates and Derivatives. Stock exchanges also provide
facilities for the issue (listing), redemption (delisting) of securities and other capital events
including the payment of income and dividends. Karachi Stock Exchange (KSE) is a modern
market where trading takes place with electronic trading system called Karachi Automated
Trading System (KATS), which gives the Exchange advantages of speed and minimum cost of
transactions. Trades on an exchange are by members only.

Why do Companies go public?

The primary purpose for companies to be publicly listed at the exchange is to cost-
effectively raise capital. It reduces the company's reliance on the traditional financiers such as
financial institutions and individuals. Listing allows business expansion without increasing
borrowings or draining the company's cash reserves. History of listed companies indicate that
companies that convert to public ownership are more likely to become successful than control
companies that remain private. Companies that go public are also more likely to become
acquirers than control companies. IPO companies grow faster than control companies after going
public. However, both public and private companies must disclose financial information to
regulators.

Shares:
Shares, as the name says, are shares in a limited company. Each shareholder is a partial-
owner of the company in which they have bought shares and investors can buy and sell their
shares on the stock exchanges. Companies on incorporation issue shares, (also called equities)
and later perhaps when they are building up a business. The original shareholders might still own
them, or they may have sold them to someone else through the stock market. If the company
makes a profit, the shareholders normally have some of it passed to them in the form of
dividends. The amount paid in dividends varies year by year, depending on how profitable the
company has been and how much money the directors and the company management want to
keep in reserve for future expansion.

There are different ways in which you can participate in the stock market:
1. Directly: by buying and selling shares;
2. Indirectly: through a collective vehicle, in which shares are grouped together, such as a
mutual fund or Exchange Traded Funds (ETFs).

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The initial offering of Stocks (IPO):
The initial offering of stocks and bonds to investors is by definition done in the primary
market (IPO) and subsequent trading is done in the secondary market. Initial Public Offering
(IPO) is the initial sale by a company of shares of its stock to the public in the financial market.

Book building process for new companies:

Book Building is the process of price discovery and pricing a new share issue. The
process by which an underwriter attempts to determine, at what price to offer an IPO based on
demand from institutional investors for its efficient price discovery based on actual supply and
demand by informed investors.

Regulating the Stock Market:

How does KSE regulate trading activities?
The regulatory authority for the securities market and corporate sector in Pakistan is the
Securities and Exchange Commission of Pakistan (SECP). The SECP administers the
compliance of the corporate laws in the country and is run by commissioners under a chairman.
The Securities and Exchange Commission of Pakistan, is an autonomous regulatory
authority, and at the same time provides an accountability mechanism through establishment of a
Securities and Exchange Policy Board. All policy decisions are made by the board on the
recommendations of the commission and the board is directly answerable to the Parliament.

The regulatory Infrastructure of Karachi Stock Exchange:

Members of the stock exchanges and trading at the Exchange are also subject to the
discipline of self-regulation under various Rules and Regulations of the Stock Exchanges.
KSE is regulated by the provisions of the following regulations:
General Regulations of Karachi Stock Exchange
Listing Regulations of Karachi Stock Exchange
Regulations Governing Over the Counter Market
Regulations Governing Future Contracts
Regulations Governing Cash-Settled Future Contracts
Regulations Governing Provisionally Listed Companies
Regulations Governing Short Selling, 2002
Regulations Governing Proprietary Trading
Regulations Governing Margin Trading, 2004
Regulations Governing Karachi Automated Trading System (KATS)
Regulations Governing System Audit, 2004
Regulations Governing Investors Protection Fund
Regulations Governing Continuous Funding System 2006
Regulations Governing Recovery of losses
Regulations Governing Risk Management

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 Regulations Governing Branch Offices
Regulations Governing Stock Index Future Contracts
Trading activities are being monitored through the surveillance terminal to ascertain that,
there are no illegal postings and dealings made in any of the issues listed in the Exchange.
Through the Compliance and Surveillance Group, compliance of members to set rules and
regulations are monitored.

Market and its Working:

What are the measures of market performance?
There are four indicators of market performance:
Market Capitalization
Value Turnover
Traded Volume
Composite Index

What Influences Market Movements?

General investors' sentiment indicates the direction of the market movement. However, the over-
all market sentiment is influenced by a number of factors - economic, political, fiscal, etc.

How do other economic indicators affect the market?

Interest rates, foreign exchange, inflation, growth rates - these are some other economic
indicators, which affect the performance of the Stock Market. Favorable growth and inflation
rates, as well as stabilized interest rates and foreign exchange, are good news for the stock
market. They usually give a boost to the market performance as these indicate sound economic
status. Soaring interest rates, on the other hand, usually push investors from the stock market to
some interest-bearing investments, as they offer better returns than stock investing.

What are Stock Market Indices?

How they work? KSE Index:
The Karachi Stock Exchange KSE-100 Index is the bench mark for our market, it
comprises of the top companies from each of the 34 sectors on the KSE, in terms of market
capitalization. The rest of the companies are picked on market capitalization ranking, without
any consideration for the sector to make a sample of 100 common stocks with base value of
1,000 in late 1991. There are two other indices; KSE-30 Index, which is based on free float
capitalization of top 30 companies and KSE all shares Index which is based on full market
capitalization of all listed companies at the Exchange.
An index, a composite figure, becomes a benchmark index when you choose it as the
standard against which to measure your own portfolio's performance over time. Many investors
like to keep track of how companies are performing in general. When a company's share price
moves up or down, it shows, whether it is perceived to be lucrative by the investors.

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 Movements in share prices are measured by various indices. These provide a benchmark
against which you can compare the performance of your shareholdings.
The most quoted index is the KSE-100. It comprises of the 100 largest companies on the
Stock Exchange and is updated minute by minute during trading hours. The index reflecting all
the companies on the Stock Exchange is the KSE-All Share Index and the KSE-30 Index
comprises of top 30 companies.
Various investment companies have made their own indices to keep track of the
performance of their portfolios. There are three major types of indices calculated to help private
investors track the performance of their investment portfolios:
1. The Income Portfolio represents the performance of a portfolio designed to provide a
regular flow of income.
2. The Growth Portfolio is for the investor seeking capital growth in his or her portfolio.
3. The Balanced Portfolio represents a balanced portfolio providing both capital and income.
The indices are made up of three broad types of asset: Pakistani equities, foreign equities,
bonds and PIBs.

General Information:
The KSE website http://www.kse.com.pk includes a wide range of information about
investing, including information on various market data and Rules & Regulations of the
Exchange.

Why should I invest in Shares?

Almost everyone worldwide has an interest in shares, whether they realize it or not.
Millions of people around the world own shares directly. However, many millions more have an
indirect stake in the stock market through pension schemes, life insurance policies, NIT units,
and other mutual funds. All of these, invest in shares traded on the stock market.
Today, increasing number of people own shares around the world, while many more
invest in pension schemes, have an insurance policy, National Saving Schemes (NSS) or another
form of collective savings invested in shares traded in stock markets.
However, investing in shares is different from saving in a bank or National Saving
Scheme. There is more risk - but there is the opportunity for better reward over the longer term.
With deposit accounts, you earn interest on your capital. When you take your cash back, you get
back exactly the same amount that you first deposited (plus the interest it has earned). With
shares, you may receive dividends but when you sell those shares, you might get back more than
you bought them for, which is your reward for taking a risk.
Nevertheless, because shares can go up as well as down in value, it is important to
understand that taking a risk means you might get back lesser than you had invested initially.
You can minimize your risk by investing in different shares or a collective fund. There is,
however, the possibility of greater rewards.

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 Funds invested in equities in the long term (five or more years) have outperformed
regular saving accounts.
You should remember that saving through the stock market should be seen as a long-term
investment. Historically, money invested in shares over the long term (ten or more years) has
almost always outperformed regular saving accounts.
Before investing in stocks and shares, you should understand your own financial position
and what you hope to achieve with your investments. Your regular financial obligations should
be protected and preparation should be made for unexpected expenses.
Having done this, you are ready to consider investing the surplus in stocks and shares.
The three main rationales for owning shares are summarized below:
Ownership in a Company - when an individual invests in the stock market, he
automatically becomes a shareholder of that company. As a stockholder, he is entitled to the
following benefits: 1) voting rights; 2) dividends to be declared by the corporation and 3) share
of the remaining assets of the company if it is to be liquidated.
Liquidity of Funds - a stock market investor has easier access to funds. Compared to
banks, which have a high minimum balance requirement for deposits and credit, as an individual,
you can start an investment with very low capital, and can expect high yields for your initial
investment. You can always cash in or out your funds anytime, during trading hours, through
your broker.
Make Money - investors in the stock market make money through dividends and capital
appreciation. When a listed company declares dividends, it increases the shareholders' investing
power. An investor who buys into the company at a low market price and sells it at a higher price
will gain capital appreciation.

What are the risks of Investing in Stocks?

While it is true, that stock investment is the most volatile of all securities, investors might
well recall the fact that uncertainty is a permanent feature of any investing perspective. This
means that risk is always a part of any investment. A better attitude would be to limit and
manage your risk. A maximum level of gain or loss should be set, and calculated decisions
should be made when this level is reached.

What is the minimum amount of initial investment?

Some brokers may require a minimum initial investment to open an account depending
on their requirement or may charge or waive other fees depending on the amount you initially
invest.
If you are just getting started with a small investment, look for an investment firm that
would not penalize you based on the size of your investment.
The minimum amount of money needed to invest in the stock market depends on the
minimum number of shares to be traded for the stock. The minimum shares will be determined

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by the prevailing market price of a particular stock, as each stock, the minimum number of shares
to be traded is fixed, called the market-lot, which depends on the price range of the stock.
The market lot is calculated biannually by NCCPL, keeping the lot size to 500-shares for
scrip which are priced less than Rs. 50 and lot size of 100-shares for scrip priced above Rs. 50

How can I buy and sell shares?

You can buy shares when a company first comes to market - that is at flotation or
privatization; or you can buy them through the stock market once they are in circulation and
being traded.
Companies which are about to issue shares often advertise in a daily newspaper. If you
decide to buy these shares, you can seek more information from the company's website or you
can fill up the application form at the affiliated bank or ask the company for a prospectus. Fill out
the application form and submit it with your pay order, at the bank. There is nothing more to pay.
Alternatively, you can go to a stockbroker who will buy them for you.
Most share dealings take place in what is called the secondary market. This is where
existing shareholders sell and new investors buy.
Today, buying shares is easy. You can buy and sell shares by making contact with a
stockbroker, bank or investment adviser, either in person or over the internet or telephone.

How can I decide which shares to buy?

1. A stockbroker carries out buying and selling on his propriety accounts and on behalf of
his clients as individuals cannot deal for themselves in the market. A list of stockbrokers
is available from the Stock.
Exchange on KSE website www.kse.com.pk. Stockbrokers offer a variety of services but
if you know exactly what you want, simply call the broker for an 'execution only' service
and ask them to buy the shares of your choice. KSE offers three market segments.
a) Cash market based on two day clearing and settlement
b) Continuous Funding system (CFS) MKII where cash market's net purchases can be
carried over for another 22 working days
c) Deliverable Future Contracts allow investors to purchase or sale on a forward contract
basis clearing and settlement of these contract takes place on last Friday of the months
and new contract starts on the following Monday Cash settled Future Contract where
contract is for 90 days, but investor has a choice to enter into any of the three contracts
that are always open for end of the month expiry based of cash settlement with underline
cash market price of the scrip.
2. After having instructed your broker to buy shares, the broker will draw up contract notes,
which typically are sent to your address or mobile phone number within next 24 hours.
This will show details of the transaction carried out on your behalf.
3. You must send payment for your shares immediately upon receiving your contract note.
In June 2007 the Stock Exchange adopted a two-day settlement system called T+2
systems, under which transactions are due for settlement 2 working days after dealing.

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 4. Upon receipt of payment, the purchased shares are transferred in your name in your
Central Depository Company (CDC) account electronically. You are now the proud owner
of a portfolio.
5. At this stage you can sell your shares if you wish. You are now entitled to attend the
company's Annual
General Meeting (AGM). Talk to the other shareholders, especially representatives from the
institutional investors. Just one sizeable disinvestment could make all the difference to the
outcome of your overall operation.
A stockbroker or financial adviser can help you choose which shares to buy, and advice on
the best time to sell. You will need to decide:
Will I need the money soon?
On the other hand, can I leave my money to grow over a number of years?
Alternatively, Do I want a combination of both?
How much money can I afford to invest?
Will I spread this over a small number of shares, or a larger number?
Do I want to invest directly in shares?
Do I want shares in blue chip companies, medium-sized companies or new, small
companies (which can be less secure)?
On the other hand, do I want the relatively safe government backed investment
schemes available through National Saving System (NSS), or Pakistan Investment
Bonds (PIBs)?
Am I interested in indirect ways of investing, through closed end Mutual Funds or
through Term Finance Certificates available at the Stock Exchange?

How can I find a Stockbroker?

Stockbrokers today have a range of services tailored for the needs of the growing
numbers of small shareholders. Some operate from the Stock Exchange Building, some from
Queens Road and other similar locations around the city, and some only by telephone. Most
large banks offer share-dealing services as well.
Before choosing a stockbroker, contact several of them and ask how much they will
charge. They expect you to compare their fees with those of other brokers.
An individual investor should choose a retail broker, preferably one that meets his
requirements in terms of services needed. When he lacks the time to analyze individual
companies and stocks, then a full service broker is recommended. In choosing a broker, the
investor should see to it that the broker is a member of good standing at the Karachi Stock
Exchange. It is important that the investor should trust his broker and that he is satisfied by the
services it is giving him, such as market reports, quality of advice regarding stock selection and
timing of purchases and sales, quality of trade executions, on-time delivery of important
documents and other services.
There are three levels of service you can take:

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1. Dealing or execution only:
You simply call the broker and instruct them to buy or sell the shares you want. They
carry out your instructions, but will not give you any advice on your decision. You can always
take advice from any other properly qualified financial adviser.

2. Advisory:
With this service you will get the benefit of the broker's expert advice. They will discuss
with you their views on various companies and recommend whether you should buy, sell or keep
hold of your shares. Make sure you feel comfortable with and understand what your broker is
saying to you.

3. Discretionary:
The broker will take all the buying and selling decisions, contact you regularly to keep
you informed, and tell you how much your portfolio is worth.
You can get a list of stockbrokers from:
The Member's Info section of the Karachi Stock Exchange (www.kse.com.pk)
By telephoning the Karachi Stock Exchange on (+21) 111-00-11-22
By checking with the local branch of your bank or Investment Company.

When you buy:

Once you instruct your broker to buy shares, he/she buys the shares for you at the best
price available at the time. By the end of day's trading, you will receive a confirmation-note. This
shows the details of the transaction. Your broker will indicate when he/she needs to have your
money to pay for the shares.

When you sell:

Immediately you give your broker an order to sell, he/she again negotiates the best
possible price. By the end of day's trading, you receive a contract note confirming the deal. If
you hold the share certificate, you must send this to your broker in accordance with his/her
instructions. If your shares are held in Central Depository Company (CDC), you will not have a
share certificate to worry about.

How do I safe keep the acquire shares?

Once you have bought your shares, there are two ways to hold them: as a certificate or
electronically (via CDC account). Your stockbroker can advise which option depending on
individual company's shares.
Traditionally shares have been held in paper form, known as certificates. A share
certificate is a piece of paper that is evidence that you are the owner of the shares. Your name
will appear on the company's share register and this entitles you to receive directly all the benefit

15
of share ownership including dividends, the right to vote at a company's annual meeting and to
receive company reports twice a year.
If you decide to sell your shares you will normally need to deliver the certificate to the
broker in time for the transaction to be completed.
Today you can choose to hold your shares as an electronic record, receiving a statement
from time to time. This is similar to your bank statement, which shows your cash balance as held
by the bank.
If you choose to hold your shares electronically they are placed in a nominee account with
the Central Depository Company (CDC). These accounts are often run by stockbrokers who
administer the shareholding on your behalf. You do not have a certificate to keep safe or deliver
to your broker in time for the transaction to be completed. You remain the real owner of the
shares and you shall receive the dividends, even though the shares are registered in the name of
the nominee.
Your company also provides you with copies of the company reports and with the right to
vote at general meetings.
When you have bought or sold the shares, your transaction is completed (or settled)
electronically through a service known as National Clearing & Settlement System (NCSS). This
system links banks, stockbrokers and Central Depository Company (CDC).

How much does it cost to buy shares?

Costs of trading in stocks vary according to the level of service you get from your broker.
You should select the service that meets your needs. Execution-only will generally be the
cheapest service. You will pay more for research base advice. The most important figure to ask
your broker is about the minimum commission you will be charged. You should also ask whether
there are any other charges for their services. Ask if there are any ongoing costs, other than
dealing commission, each time you buy or sell.
You should note that you will pay a tax, known as CVT, when you buy shares but not
when you sell. This is currently 0.002% percent of the price of the shares.
The way you choose to hold your shares will also vary in cost. If you decide to hold a
certificate, there may be an additional charge as it will be necessary to transfer it to you or the
new owner.

How can I keep track of my Shares?

Once you have bought shares, you can put them away for a long term or short term, you
can keep an eye on how the price is moving. Details of share prices are published in most
national newspapers every day. The daily price is also available on our website
www.kse.com.pk.

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 The newspapers' financial pages will comment on companies that are in the news -
perhaps because they have published their profit figures, or they are subject to a takeover bid, or
they have opened a new factory.
Every piece of information about your company helps you build a clear picture of how it
is doing and is expected to do. In addition, there are several specialist magazines to assist private
investors. As a shareholder, and therefore part owner, of a business, you can contact the company
if you want further information. Alternatively, your stockbroker might keep you informed
through a regular newsletter.

How are Settlement and Clearing done?

Clearing and settlement of all stock exchange transactions are provided by National
Clearing Company (NCCPL), which acts as go between for KSE and Central Depository
Company (CDC) which is the share depository company. Shares move between share-accounts
held by the different participant-brokers of the Central Depository Company (CDC).
Stock market transactions are settled on the second day after the trade. Transfers are
based on trades done at KSE. Shares are transferred on settlement date (T+2) to the buyer, and
the buyer pays the seller through the clearing banks within the same settlement period. This
means that transactions done on Monday must be settled by Wednesday. Settlements of accounts
are done in the clearing house through National Clearing & Settlement System (NCSS), which is
a fully automated electronic settlement system. Visit NCCPL website for further details
regarding clearing and settlement, www.nccpl.com.pk.

What are the Central Depository Company (CDC)/ Central Depository

System (CDS)?
The CDC is a company that operates an electronic share register called the Central
Depositary System (CDS). The CDS eliminates the need for physical movement of share
certificates. CDC electronically manages book entry system for custody and transfer of
securities. CDS was introduced to replace the manual system of physical handling and settlement
of shares at the stock exchange and is managed by the Central Depository Company (CDC),
which is incorporated under the Central Depositories Act 1997. Investors can open their accounts
directly with CDC called Investor Accounts or open sub accounts with a brokerage firm. It has
also solved investor problems related to stock handling on the settlement date, registration of
shares, and exercise of corporate action benefits. Visit CDC website for further details regarding
shares safe keeping. (www.cdcpakistan.com).

Taxes and Legal Aspects Income Tax:

When you receive your dividend cheque, income tax has already been deducted by the
company at basic rate. Basic- rate taxpayers have nothing more to pay.
Higher-rate taxpayers have to pay the difference between basic and higher rate at the end
of the tax year. Non-taxpayers can reclaim the tax deducted through their local tax office.

Capital Gain Tax:

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 You make a capital gain when you sell shares at a higher price than you are paid. If you
sell at a lower price, you make a loss.
There is no Capital Gain Tax in Pakistan at present.
Tax is a very complex subject - you should always speak to a properly qualified tax
adviser to make sure you have a complete picture of the tax rules.

Who is ineligible to open a trading account?

Upon discovering that an investor fits any of the descriptions below, the stockbroker
should refuse to accept his or her application to open an account, or refuse to take orders from
such customer to buy, sell or subscribe securities:
Minors who do not have the authorization of their legal guardian
Personnel or employees of the authorities in charge of securities matters and regulators
Person is declared bankrupt and rights have not been reinstated
A person's opening an account that cannot supply proof of his identity
Securities dealer who have not been approved by the competent authority. DISPUTE

Resolutions:
How does the client know if he/she has a case against Stock Exchange
Member?
Just because the client has lost money while dealing in securities doesn't mean that he/she
has a case against the member. The financial markets have always gone through periodic down
turns and upturns and these fluctuations are not always the fault of member. However, it is the
responsibility of a member to invest money according to the client's instructions. There are
certain malpractices against which a client can lodge a complaint such as:
Unauthorized trading (Sale/Purchase)
Unauthorized transfer/movement of shares
Non-supply of statements of account
Non-supply of trade confirmations within 24 hours
Overcharged commission
Failure to execute investors' instructions/orders
Suspension of payment
Non-Delivery of securities

What are the different ways to handle a problem with stock Exchange
Member?
1. Amicable Settlement:
Although the client has the recourse to approach the relevant stock exchange, SECP or the
Courts for lodging complaint, it is strongly advised that the complaint/problem should first be

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taken up directly with the member. This will not only save the time consumed in correspondence
and procedures but will also preserve the trust and confidence.

2. Arbitration committees of Stock Exchanges:

The client also has the alternative of taking up his/her complaint with the management of
the concerned stock exchange. All the stock exchanges have their own Arbitration Committees
that look into the grievances/disputes between the Investor and the Members.

3. SECP:
The client can also lodge his/her complaint with the Vigilance Cell which has been setup
at SECP to ensure that grievances/complaints of the general public are heard and redressed, in a
quick and efficient manner. All the complaints received by the Vigilance Cell against Stock
Exchange members are forwarded to the Investor Complaint Wing (ICW) of the Securities
Market Division (SMD) for further processing. However, SECP is not empowered to force the
member for compensation/damages.

4. Civil Courts:
The client can also file his/her complaint with the Civil Courts.

What are different forums available for pursuing a claim against Stock
Exchange?
There are three forums available for pursuing claims against Stock Exchange members:

1. Arbitration committees of Stock Exchanges:

The Stock Exchanges are Self-Regulatory Organizations (SROs) empowered to take
cognizance of complaints against the members under the approved Rules and Regulations. All
the Stock Exchanges have their own Arbitration Committees that look into the
grievances/disputes between investor and members. Arbitration Committees after perusing the
documents and providing the parties an opportunity of being heard pass an Arbitration Award in
accordance with the relevant Rules and Regulations of the Exchange.

2. SECP:
The SECP has established a Vigilance Cell which is responsible for ensuring that
grievances/complaints of the general public are heard and redressed, in a quick and efficient
manner. The client can file his/her complaint with the Vigilance Cell against Stock Exchange
members on the prescribed Complaint Registration Form (CRF) which is available, free of cost
in the offices of Stock Exchanges and the Commission including the Company Registration
offices (CROs). CRF may be downloaded from the official website of SECP:
http://www.secp.gov.pk/ComplaintForm1.htm. The ICW after perusing the documents and
giving the parties an opportunity of being heard passes an Order according to the relevant Rules
and Regulations. Any party dissatisfied with the Order can file an appeal before the Appellate

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Bench of the Commission within thirty days from the date of issue of such Order under Section
33 of the SECP Act, 1997.

3. Civil Courts:
The client can also file his/her complaint with the Civil or Criminal Court. However this
forum is more appropriate for claiming compensation or damages.

Arbitration:
Arbitration is an alternative dispute resolution mechanism provided by the Exchanges for
those persons who do not wish to go to Court. Through this method disputes between the trading
members and between trading members and their constituents (i.e. clients of trading members),
may be addressed and resolved in respect of trades done on the Exchange. This process of
resolving a dispute is comparatively faster than litigation.

Who are the persons who can act as Arbitrators?

The Arbitrators are members and management of the Exchange and non-member
directors of the Exchange. For further details please refer to Regulation 29 of the General Rules
& Regulations of Karachi Stock Exchange (Guarantee) Limited
Disclaimer: The information contained herein is subject to change without prior notice.
While every effort is made to ensure accuracy and completeness of information contained, the
Commission makes no guarantee and assumes no liability for any errors or omissions of the
information. No one can use the information for any claim, demand or cause of action.

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