1. Financial Literacy Initiative- Campus Outreach Program by: South Asian Federation of Exchanges (SAFE) Financial Markets – Operations of Stock Exchange

2. What is Financial System?  A financial system is the system that allows the transfer of money between savers (and investors) and borrowers. The role of the financial system is to intermediate between lenders and borrowers, providing a menu of saving vehicles with differing risk and return characteristics.  Financial intermediaries help the investors find the financing they need, taking into account the returns and risks on the project they wish to undertake.  For a given level of saving, more efficient intermediation increases the productivity of investment. It seems obvious that the more efficient the financial system is, the stronger would be the economic growth.

3. Constituents of Financial System  Surplus Units (Savers/Investors)  Deficit Units (governments, corporate borrowers, financial institutions, etc)  Financial Markets  Money Markets & Capital Market  Primary Market & Secondary Market  Financial Intermediaries  (Banks, Mutual Funds, Leasing Companies, Modarabas, Insurance Companies etc)

4. Difference Between Money Market & Capital Market 1.Money market is a place where banks deal in short term loans in the form of commercial bills and treasury bills. But capital market is a place where brokers deal in long term debt and equity capital in the form of debenture and shares. 2.In money market maturity date of repayment may after one hour to 90 days. But in capital market, loans are given for 5 to 20 years and if issue of shares by co., its amount will repay at winding of company. But investors have right to sell it to other investors if they need the money. 3.Rate of interest in money market is controlled by SBP or central bank of any country. But capital market’s interest and dividend rate depends on demand and supply of securities and stock market’s conditions. Stock market regulator is in the hand of SECP. 4.Main dealer of money market s are commercial banks like MCB, NBP and other financial institutions. Main dealers are all the public and private ltd. Co. and investors. 5.In Pakistan, money market is famous with dealing of money fund and banker’s acceptance instruments. But capital market in Pakistan is famous with KSE, LSE & ISE and stock regulator is Securities & exchange commission of Pakistan (SECP).dividend

5. Capital Markets Defined  A market for medium to long-term financial instruments focusing on capital raising for business purposes.  Financial instruments traded in the capital market include securities and bonds issued by the Government, corporate borrowers and financial institutions. 5

6. Classification of Capital Markets: (1) Primary Market The market for new shares of securities. A primary market is one in which a borrower issues new securities in exchange for cash from an investor (buyer). (2) Secondary Market Once new securities have been sold in the primary market, an efficient manner must exist for their resale. Secondary markets give investors the means to trade existing securities 6

7. History of Stock Exchanges

8. History of Stock Exchanges Unofficial share markets existed across Europe where brokers would meet outside or in coffee houses to make trades 11 th Century 14 th Century Till 1600 1602 In France, courtiers de change (first Brokers) traded in debt and government securities In Bruges (Belgium) commodity traders gathered in house of “Van der Burse”. That meeting was called “Bruges Bourse”. That idea spread in neighboring countries and bourses were formed in various places Amsterdam Stock Exchange (first Stock exchange) was created and it began official trading shares of Dutch East India Company

9. History of Stock Exchanges Europe & Others By early 1700s there were fully operational stock exchanges in France and England. America followed in the later part of the century by signing Buttonwood Agreement. Other parts of the world followed later in 19 th century. There are now a large number of stock exchanges in the world. Title Add your text Sub-continent of India Before Independence there were many stock exchanges established in sub-continent during 1800s. In 1934 Lahore Stock Exchange was formed but it was closed after partition and later on merged with Delhi Stock Exchange. Karachi Stock exchange was founded in 1947.

10. Functions of Stock Exchanges

11. Functions of Stock Exchanges Raising Capital for business Redistribution of wealth Barometer of the economy Mobilizing saving for investment Facilitating company growth Creating investment opportunities for small investors Corporate governance Bought & sold Efficiently & fairly Vetting Companies

12. Governing Laws The Securities and Exchange Commission of Pakistan (SECP) is the main regulator of the stock market. It regulates the stock market through following major statutory laws/rules:  Securities and Exchange Ordinance 1969  Securities and Exchange Rules 1971  Securities and Exchange Commission of Pakistan Act 1997  Specific Purpose Legislations for Conduct of Trade Stock Exchange’s Regulations:  Memorandum & Articles of Association  Listing Regulations  General Regulations

13. Regulatory Structure Parliament Ministry of Finance Securities & Exchange Commission of Pakistan State Bank of Pakistan Federal Board of Revenue ISE CDCNCCPL

14. Custodial Functions Central Depository Company of Pakistan Limited (CDC) provides custodial services for shares. It ensures efficient handling and transfer of shares. Types of CDC Accounts: –Main Account for Brokers ( a gateway account) –House Account (a family account of the Broker) –Sub-Account (An investor account with CDC through Broker) Investor Account Services. (Facilitating the Investors to open their independent CDC Accounts) Initial Account Opening Fee: Rs.500/-. Annual renewal Fee Rs.500/-.

15. Broker Buying Investor Shares Buying Investor Shares UTS Selling Investor Broker Buying Investor NCCPL Shares Activity Chart Broker Shares Amount Selling Investor Proceeds Selling Investor Proceeds

16. Basic Concepts Ex-Dividend Dates: When a company declares a dividend, it sets a record date when you must be on the company's books as a shareholder to receive the dividend. Earning per share (EPS): A profitability indicator calculated by dividing the net after-tax earnings (earnings available to common shareholders) during a period by the average number of shares outstanding at the end of that period. Stop-Loss Order: An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor's loss on a security position. Also known as a "stop order" or "stop-market order".

17. Sensitivity of Stock Market Emotions News Economy & Politics Earnings of Companies Rumors Demand & Supply Stock Market

18. Corporate Structure of the Stock Exchanges  The affairs of the Exchanges are run by the Board of Directors.  Composition of the Board:  Elected from Members of the Exchange 5  Nominated by SECP 4  The Managing Director 1  Total10  Managing Director is a member of the Board by virtue of his office. The Chairman of the Board is elected out of the non-member directors.

19. Customers of ISE Members ISE has a base of investors as compare to other Exchanges Investors 261 Companies are listed in ISE Rs. 200 million paid- up capital public offer should be Rs.100 million or 20% of the capital whichever is higher 500 applicants Issuers ISE has 119 Members/ Brokers 26 individual 93 corporate Pakistani Citizen Having certain taxable income Graduate Not defaulter of any public institution Not penalized for any moral guilt Membership Fee Stakeholders of ISE

20. Trading Systems The stock exchanges have fully computerized trading systems and out-cry systems no more exist. Bids (buy orders) and offers (sale orders) are placed in the trading software and then executed accordingly. Types of Trading: Regular Future Trade Orders: Market Order Limit Order

21. Step 1 Step 2 Step 3 Selecting Stock Broker Opening Account with Stock-Broker Placing Orders Commission/Brokerage Fee Delivery Clearing & Settlement Procedure for Trading in ISE

22. Stock Market Index KSE-100 INDEX LSE-25 INDEX ISE-10 INDEX ISE-10 INDEX: Date of launching: Jan 1, 2004 The main objective for the construction of an index is to track the performance of the various listed stocks according to their market capitalization. A capital weighted index is composed of a basket of securities, which captures the change in market capitalization due to the variation in prices. Mathematically this can be represented by: Index Value = Total market capitalization * 1000 Index divisor

23. Sources of Revenue of ISE  Listing Fees Initial listing fee @.1% of total paid-up capital maximum upto Rs.1.00 million Annual Listing Fee Paid-up Capital Upto Rs. 50 mn Rs. 10,000/- P.A. Above Rs. 50 mn to Rs. 200 mn Rs. 15,000/- P.A. Above Rs. 200 mn Rs. 25,000/- P.A. Additional Listing Fee @ 0.1% of the increased capital  Trading Fee @ 0.0015% - Rs.1.50 per Rs.100,000 value of transaction  Any Other Income Source

24. Assessing Securities Fundamental Analysis Technical Analysis Economic Factors Industrial Sectors Companies Analysis Charts Graphs Technical Indicators

25. Word of Advice 1.Understand the nature of Stock Investment before making any investment decision. 2.Always Invest Through a Registered Broker of the exchange. 3.Diversify your investment to a possible extent. 4.Keep Complete record of your Investments. 5.Maintain your own CDC account for the safe custody of your shares. 6.The key to making money in stocks is not to get scared out of them.

26. 26 DOS & DON’TS

27. 27 Avoid Herd Mentality…Develop Independent Thinking

28. 28 Expect the Unexpected!

29. 29 Be Flexible and Adapt to Changing Situations

30. 30 PATIENCE…TEMPERAMENT… CONTROL…HOLD…LONG TERM

31. 31 DON’T BE IN A HURRY

32. 32 At the End of the Day …Pray!

33. 33 …and Believe in Yourself !

34. 34 …and Believe in Yourself !