Annual Report 2012 - Lahore Stock Exchange

Directors’ ReportESTABLISHMENT OF THE SETTLEMENTGUARANTEE FUNDIn Pakistan, although the three stock exchangesestablished a separate clearing and settlement companyto bring automation and transparency in the process ofsettlement, however the company did not provide anycentral counterparty mechanism with full settlementguarantee against the regular trades taking place on thethree stock exchanges. In order to establish a completecentral counterparty mechanism in the country, LSEBoard decided to take up the matter with NCCPL andencouraged the company to act a central counterparty forall market orders settled through NCCPL's platform. As aresult of this push by the LSE, NCCPL has decided toestablish a settlement guarantee fund (SGF). This will goa long way in improving the settlement system in thecountry.MEASURES TO PREVENT UNAUTHORIZEDMOVEMENTS FROM INVESTORS ACCOUNTSDuring the last few years, the Exchanges have beenreceiving many complaints about the unauthorized saleof securities from the investors sub-accounts by thebrokers. Although the measure of introducing theautomation of the securities transfers in 2010 wasthought to improve the system whereby the securitiesagainst market trades were only allowed to be moveddirectly from/to respective Sub Accounts based on theUIN number used for trading, however during the lastcouple of years, LSE still faced a number of defaults by thebrokers wherein the defaulting brokers had wiped out theaccounts of the investors by selling all securities lying inthe sub-accounts of the investors. In order to furtherimprove the custodial measures for the investors'securities, LSE took up the matter with CDC. As a result,CDC introduced the following two improvements in itsregulations/practices which have reduced the chances ofmisuse of the investors' securities: Revamping of Free Delivery Reason Codeswith Additional System Controls for theMovement of Securities: Earlier many optionsexisted for the transfer of the securities from oneparticipant to another under the free deliveryarrangements. However, in order to provide an effectiveoversight over such transfers, many free delivery optionswere disabled for regular usage and were made subject toadditional documentation by the participants. Furthermore,such transfers were allowed to target UINs only onmandatory basis. Automatic SMS Alerts to CDC Sub-accountHolders: In order to enable all investors to get an instantinformation about the movement in their sub accounts, allinvestors, whose mobile numbers were available in theirrespective sub account application forms, wereautomatically subscribed for SMS alert on free of cost basisexcept where certain sub-account holders had specificallyrequested the facility to remain disabled. This measure, hasalso improved the flow of information to the investorsthereby adding to their protection.MARKET PROMOTION & AWARENESS ACTIVITIES Second IPO Summit: After successful holding first IPOSummit on October 3, 2011, LSE continued its efforts inbuilding the IPO supply pipeline, and undertook a numberof exercises during the year under review which includedpreparing ‘guide to Listing’ to help aspiring companiesprepare themselves to go public and better manage theirlisting process. The 2nd IPO Summit was organized incollaboration with SAFE at Karachi on July 10, 2012. Wealso plan to organize companies outreach program forselected companies and provided necessary guidance forthe companies' readiness to go public.Investors Education: The continued ability of investorsto participate in LSE, and invest well, is of paramountimportance to the Exchange. In ensuring investors benefitfrom the enhancements implemented by LSE, the effort tokeep investors updated through investor education andinvestor awareness programs continue to be organized.For the period under review, a total of 90 informedinvesting briefings were conducted. InvestorEducation/Awareness Campaign includes “CampusOutreach Program” which encompasses arrangement ofvarious lectures regarding Stock Exchanges and theirfunctions at institutional level. As part of the Program,educational institutions are joining hands with LSE toparticipate in series of sessions on financial literacy. Underthis program, LSE conducts three sessions for eachinstitution namely: First Session: Financial Markets RegulatoryEmpowerment Second Session: Financial Products and Services Third Session: Field Trip/Visit to the Exchange30LAHORE STOCK EXCHANGE