JUNE 2013 - FEAS

FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2013
KARACHI STOCK EXCHANGE
We remain committed to enhancing our risk
management and surveillance measures.
Nadeem Naqvi
Managing Director
The year 2010-2011 was full of challenges,
economic growth managed to grow by 2.4%.
Global economic conditions also affected
the domestic economy. The global economy
slow down further due to deep-seated euro
zone sovereign debt crisis, fragile financial
conditions, and intractable fiscal issues running
through other developed economies such as
USA and England. The downgrade in credit
ratings of many advanced economies has
complicated the matters to raise debt finance.
Despite being a slow year, the headline inflation
averaged at 13.7%, agriculture sector managed
to overcome the floods and posted real growth
of 1.2 percent, services sector on the other
hand supported the growth and shown the
growth of 4.1 percent. Strong remittances and
gradual monetary easing by the State Bank
of Pakistan led to encouraging corporate
performance. The KSE 100 index declined by
5.61 percent in 2011.
It is also encouraging to note that four
companies raised equity capital of
Rs.16,010.92 million and seven companies
listed their TFCs of Rs.16,254.8 million in 2011
this signals a path to recovery in market activity
for the next year.
To restore volumes and liquidity KSE launched
Margin Trading, Margin Financing and
Securities Lending and Borrowing products as
some of the landmark initiatives. To enhance
Risk management measures at KSE the
Exchange in conjunction with the National
Clearing Company of Pakistan introduced
an exposure drop-out facility for members
who have met their settlement obligations,
this will increase the capacity to trade and/ or
reinvest in the market due to prompt margin
release. Exchange also developed an online
reporting system to facilitate Brokerage Houses
in complying with SECP Rule pertaining to
intimation to the Exchange regarding any fall in
the Net Capital Balance.
Moving forward, we remain committed
to enhancing our risk management and
surveillance measures to further increase
transparency and to ensure a level playing field
for all investors.
HISTORY AND DEVELOPMENT
The KSE is the biggest and most liquid
exchange amongst the three exchanges
of Pakistan. It came into existence on 18
September 1947. It was later converted and
registered as a company limited by guarantee
on 10 March 1949. Initially, only five companies
were listed with a paid-up capital of Rs. 37
million (US$ 0.62 million).
The year 2010-2011 was full of challenges,
economic growth managed to grow by 2.4%.
Global economic conditions also affected the
domestic economy. The global economy slow
down further due to deep-seated euro zone
sovereign debt crisis, fragile financial conditions,
and intractable fiscal issues running through
other developed economies such as USA and
England. The downgrade in credit ratings of
many advanced economies has complicated
the matters to raise debt finance.
The KSE 100 Index registered decline of
5.6 percent and closed at 11347.66 points.
As of Dec 31, 2011, ordinary shares of 638
companies were listed having listed capital of
Rs. 1,048.44 billion (US$ 11.67 billion) with the
market capitalization of Rs.2,945.78 billion (US$
32.80 billion).
In 1991 the secondary market was opened to
foreign investors on an equal basis with local
participants. This measure, along with a policy
of privatization, has resulted in rapid growth of
the market since 1991.
Management
The KSE has an independent Board of Directors
(10 directors) with representation from the
Members of the Exchange & from the Corporate
Community. Five directors are elected from
amongst the 200 members of the Exchange
and four non member directors are nominated
by Regulator i.e., SECP, the Chairman is elected
by Board from amongst non member Directors
whereas, Managing Director is ex-officio
member of the board.
KSE is in process of demutualization, it is
presently a company limited by guarantee, will
be converted into a company limited by shares.
Automation of the Exchange
KSE has a fully automated trading system with
T+2 settlement system whereby all trades
settle on the second day after the trade. Internet
based trading system was also launched in
December, 2004 to provide an additional facility
for investors to enter their orders. KSE has also
launched a single exchange-traded market for
trading corporate bonds in Pakistan using BATS.
KSE’s BATS provide live system based, on
screen electronic Trading Platform which offer,
market participants a transparent and efficient
trading system features and facilities crucial
for the Debt market Securities Trading. KSE
also launched Stock Index Futures Contract
and sector indices. This marks a momentous
achievement for the KSE
Unique Identification Number was introduced
to provide a traceable link between every
order entered at the trading system of the
Exchange. VaR based margining system was
also introduced in place of a slab based Risk
management system. The new RMS included,
amongst others, a new netting regime; a
margining system based on Value at Risk
(VaR) and Capital Adequacy. KSE has also
adopted the FIX protocol (Financial Information
Exchange) for both trading and market data.
The National Clearing & Settlement Company
and Central Depository System has also
been introduced. Transparency of the listed
companies has been enhanced with the
introduction of quality audits, quarterly financial
reports and timely dividend payouts. Corporate
governance is also now the part of the KSE’s
listing regulation.
FUTURE OUTLOOK 2012
Introduction of New Products and New
Measures:
KSE plans to introduce new products into the
market, to further cater to the growing needs of
its investors and help develop Pakistan’s capital
markets. KSE will be introducing: Exchange
Traded Funds, new derivative products- options,
etc, and Introduction of SME board.
Corporatization and Demutualization of stock
Exchange:
KSE is in process of demutualization, it is
presently a company limited by guarantee, will
be converted into a company limited by shares.
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