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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2005
KARACHI STOCK EXCHANGE
Muhammad Yasin Lakhani
Chairman
The Karachi Stock Exchange (KSE) has
achieved another milestone as the KSE 100
Index crossed the level of 10,000 points and
closed at 7,450.12 points on June 30, 2004
and the market capitalization increased from
US$ 29.0 billion to US$ 47.0 billion on March
15, 2005 and closed at US$ 34.0 billion on
June 30, 2005. The record-breaking
performance of the KSE during the last five
years is attributed to the positive and
consistent policies of the government and a
number of measures implemented by the
Exchange including stringent risk
management. The consistent policies and
measures adopted by the Exchange were
HISTORY AND DEVELOPMENT
The KSE has been declared as the “Best
Performing Stock Market of The World For
the year 2002”, as declared by the
international magazine “Business Week”.
Similarly the US newspaper, USA Today,
termed Karachi Stock Exchange as one of
the best performing bourses in the world. As
of June 30, 2005, 659 companies were
listed with the market capitalization of
around US$ 34.8 billion having listed capital
of US$ 7.4 billion. The KSE 100 Index closed
at 7,450.12 on June 30, 2005. The KSE
came into existence on 18 September 1947.
It was later converted and registered as a
company limited by guarantee on 10 March
1949. Although as many as 90 members
were licensed at that time, only half a dozen
were active as brokers. Initially, only five
companies were listed with a paid-up capital
of Rs 37 million (US$ 0.62 million).
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.
Privatization has been adopted as a
philosophy, and activities that were
previously reserved for the public sector
have now been opened to the private sector.
The record-breaking performance of the
KSE during the last five years is attributed
to the positive and consistent policies of
the government and a number of measures
implemented by the Exchange including
stringent risk management.
instrumental in the Exchange being declared
as “The Best Performing Market of the
World” for the year 2002 by international
magazine “Business Week” and a United
States (US) newspaper, “USA Today”. The
KSE has taken a number of measures to
increase investor’s confidence by making the
Exchange more transparent and introducing
modern technology in order to convert the
market into a truly modern and efficient one.
In this regard Internet based trading has
started from December 6, 2004. Margin
Financing has also been introduced from
October 08, 2004.
The change is most marked in the financial
sector where a number of commercial
banks, investment banks, discount
institutions, leasing companies, life
insurance companies, Modarabas and
mutual funds have been created by private
initiatives.
The regulatory agency is the Securities &
Exchange Commission of Pakistan (SECP),
formed on 1 January 1999 by dissolving the
Corporate Law Authority that was
established in 1981. The SECP administers
the compliance of the Companies
Ordinance, 1984, the Securities and
Exchange Ordinance, 1969, the laws
governing Modarabas, leasing companies,
NBFIs and other corporate laws, and is run
by five commissioners under the chairman.
The Asian Development Bank’s Capital
Market Restructuring Plan envisages the
conversion of the CLA into the SECP as an
autonomous regulatory authority. The new
system provides autonomy to the SECP and
at the same time an accountability
mechanism through the establishment of the
Securities and Exchange Policy Board. All
policy decisions are made by the Board on
recommendation of the SECP, which is also
to take suo moto action and is answerable
to the Parliament.
In addition, corporate governance is now
part of KSE’s listing regulation. Transparency
has been enhanced with the implication of
quality audits, quarterly financial reports and
timely dividend payouts. During the first half
of 2005, 12 public offerings were made
which includes shares of Kot Addu Power
Company and United Bank Limited whose
shares were offered first time to the general
public under government's privatization
program.
FUTURE OUTLOOK
The coming period is expected to be very
challenging and the KSE is contemplating
the initiation of further projects and initiatives
to ensure that the KSE should remain one of
the premier growing stock exchanges of the
world. The future goals are as follows:
• listing of companies on the OTC to pave
way for the smaller companies to raise
financing through the stock exchange;
• introduction of new derivative products
including Index Futures;
• introduction of cross border listings;
• introduction of new indices, which are
more market reflective & representative;
• increase in the free float by bringing more
companies to the KSE and also to
encourage the already listed companies to
increase their capital and / or to make their
shares available in the market;
• educate the investors and guide and train
the brokers and their staff;
• publish guides on investment in equity in
local languages;
• promote quality research and to
encourage careers in this important area;
• strengthen the existing monitoring of
compliance with the code of Corporate
Governance by listed companies;
• strengthen the Market Monitoring and
Surveillance Department; and
• consolidate the existing Exchange Rules &
Regulations in a single Rule Book.
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