In the name of Allah The most Merciful And Who Help me Guided me And I always solicit at every step,

at every moment.

DEDICATION

This effort is dedicated to my sweet parents And Respectable teachers who always remind The Source of my guidance and encourage me.

ACKNOWLEDGEMENT

First of all I am thankful to Almighty Allah Whose Grace Has no limit and without Whose Blessing and Mercies I never am able to complete this project. Secondly I am a lot of thankful to my parents, teachers, and to friends great whose deal in really the contribution

successfully completion of my project.

3

I would like to thank my reader for investing the time and effort. Finally I want to welcome and invite your suggestion, thought, ideas to improve my knowledge

PROJECT OUTLINE
1. 2. 3. 4. 5. 6. 7. 8. Mission Vision Corporate Profile What is Stock Exchange? Who needs a Stock Exchange? Importance of Stock Exchange How does stock exchange work? What are stock shares? a. b. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. New Issue Offer for Sale

Why does the stock market Rise & Fall? What is KSE-100 Index2 What is meant by Bulls & Bears? History of Karachi Stock Exchange Trading Growth What is the Central Depository? Why do we need the Depository? The main operations performed in the CDS are as follows: Who will trade then? a. b. c. d. e. Main Account House Account: Sub-account (Client Account): Group Client Account: Cash Account

19.

How does it work?

20.

Corporate actions will be handled by the CDC in the following manner: a. b. c. d. e. Notice of meetings Dividends Bonus Shares Rights Issues Share Sub-division & Consolidation

21. 22. 23. 24.

Listing of Securities Meaning of Listing Advantages of Listing Operators at Stock Exchange a. Members of stock exchange (1) (2) b. (1) (2) Jobbers Brokers Remiser Authorized clerk

Non-members acting for members:

25. 26.

Functions of stock exchange Recommendation

1.

Vision.

To be a leading financial institution, offering efficient, fair and

transparent securities market in the region and enjoying full confidence of the investors. 2. Mission. a. 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. b. To provide state-of-the-art technology and automated trading operations, driven by a team of professionals in accordance with good corporate governance.

c.

To protect and safeguard the interests of all its stakeholders, i.e. members, listed companies, employees and the investors at large.

d.

To reflect the countrys economic health and behavior and play its role for the growth, development and prosperity of Pakistan.

3.

Corporate Profile a. b. c. Chairman. Mr. Muneer Kamal Mr. Nadeem Naqvi

Managing Director.

Director (1) Mr. Ashraf Bava (2) Mr. Shazad G. Dada (3) Mr. Abid Ali Habib (4) Mr. Mohammad Qasim Lakhani (5) Mr. Abdul Qadir Memon (6) Mr. Zafar Siddiq Moti (7) Mr. Asif Qadir (8) Mr. Mohammad Sohail Company Secretary. Mr. Muhammad Rafique Umer

d.

4.

What is Stock Exchange?

Stock Exchange is a market where shares

and securities are bought and sold by the Member/Broker on behalf of their clients and also on their accounts. Stock Exchange is a capital market. Deals on the Stock Exchange take place on open offers and bids which reflect the prevailing flow of supply and demand for the market. Stock Exchange enables the buyers and sellers to enter into transaction without the necessity of individual hawking. 5. Who Needs a Stock Exchange? The Stock Exchange provides a way

in which peoples savings can be put to work. A business needing new machinery or premises has two options. Either the company use the profits kept in the business or it will borrow from the bank. But Banks are willing to provide shortterm finance. They are reluctant to provide money on a permanent basis for longterm projects. So companies turn to the public, inviting people to lend them money or take a share in the business, in exchange for a share in future profits. Stock Exchange acts as a bridge between the companies & the investors. The investor will not be prepared to entrust his savings to a company seeking cash for expansion, unless he can be sure that he would be able to get it out again. If the company has invested his money in launching a new product, it will not be able simply to hand it back. So these problems can be easily handled through a Stock Exchange. When the saver/investor needs his money back, he does not have to go to the company with whom he originally placed it. Instead, he sells his shares to some other saver/investor who is seeking to invest his money. Large companies need a way to tap the saving of the public at large. This they do by issuing stocks & shares in the business through the Stock Exchange. By doing so they can mobilize the savings of individuals and institutions. 6. Importance of Stock Exchange. The Stock Exchange is one of the

most important instruments in mobilizing national resources & broad basing industrial ownership to promote economic development of a country. The Stock Exchange, the world over has assumed a very important & vital place in the sphere of industrial finance because of its role in promoting investment climate &
8

capital formation. It also ensures the maximum opportunities for equity participation for growth & expansion of small & medium sized industries in the country. The Stock Exchange channel lays the capital lying idle with the potential to industry and commerce. At the establishment of large-scale industries has been possible due to this institution. As such, the Stock Exchange constitutes an important segment of economy & helps to promote national prosperity & also contributes to the laudable objective of diffusion of ownership. The Stock Exchange provides necessary stimulant to institutions, working for promoting virtue of thrift, in carrying out their aims & objectives which are mainly to attract the savings of individuals, & to utilize such savings profitably for industrial development. With these actions of the capital market the base of industrial finance has greatly widened & a large number of small investors are induced to their savings in equity investment. With rapid economic development, the equity finance in private & public sectors has acquired vital importance because of more funds required for industrial expansion. It is obvious that for such a purpose the existence of the Stock Market becomes indispensable because through this institution alone it would be possible to mobilize savings of general public for investment & medium-sized industries either for setting up such industries or for their expansion, thereby increasing employment opportunities. The Stock Exchanges the world over is rightly considered as the barometers of the economy of their countries. The prospective investors look to the Stock Exchange for guidance for investment. 7. How Does Stock Exchange Work? Stock Exchange is a market where

shares & securities are bought & sold by the Members/Brokers on behalf of their clients and also on their accounts. Dealings on Stock Exchange take place by open offers and bid which reflect the prevailing flow of supply and demand for the market. The Stock Exchange enables buyers and sellers to enter into transaction without the necessity of individual hawking. The law of supply and demand determines the prices on the Stock Exchange floor. It also helps investors to
9

choose good scripts, as before granting enlistments of a scrip, the Stock Exchange satisfies itself that the company is substantial, its shares are legally issued, its shares are widely owned and the company agrees to issue adequate, timely public notices of its financial position and for closure of its book for the purpose of dividend, right issue and bonus issue. 8. What are Stock Shares? A share of stock represents ownership in a

corporation. A corporation is owned by its shareholders (also known as stockholders) often thousands of people and institutions each owing a fraction of corporation. When you buy a share of corporation you become a part owner or shareholder, you immediately own a part, no matter how small, of every building, piece of office furniture, machinery whatever that company owns. As a shareholder, you stand to profit when the company profits. You are also legally entitled to a say in major policy decisions, such as whether to issue additional shares, sell the company to outside buyers, or change the board of directors. The rule is that each share has the same voting power, so the more shares you own, the greater your power. You can vote in person by attending a corporations annual meeting or you can vote by using an absentee ballot, called proxy, which is mailed before each meeting. The proxy allows a yes or No vote on a number of proposals. Alternatively, stockholders may authorize their votes to be cast consistently with the Board of Directors recommendations. There are a number of classes of shares and the most common are: a. New Issues. For a new company in order to build up its capital it

may issue lots of the capital to be raised. b. Offer for Sale. In an existing company where the majority

shareholding is held by a holding company, the latter may sell its shares to the public with or without a premium to broad base the company.

10

* A premium is additional money requested by the company on each share on any issue, over and above its par value. When an unquoted company applies for Stock Exchange listing, a firm that is a member of the Stock Exchange must sponsor it. This sponsoring member firm has the responsibility of ensuring that the company meets the requirements for listing, and carries out the necessary procedures to ensure a successful issue for the companys shares e.g. by advising on an issue price for the shares, or by trying to attract institutional investors in buying some of the shares. A Company about to issue new securities in order to raise finance might decide to have the issue underwritten. Underwriters are financial institutions or individuals who agree, in exchange for a fixed fee, to purchase at the issue price any securities, which are not subscribed for by the public. 9. Why Does The Stock Market Rise & Fall?The market as whole does well

when many people invest; it suffers when investment activity is down. A number of factors influence whether and why people buy stocks. Some of these factors are economic, productivity level in the economy, interest rates and exchange rates. Ample money supply stimulates investments of all kinds; tight money holds them down. Changes in tax rates can also have an impact on stock buying patterns. In addition, investors often consider the influence of social or political factors upon economic stability. The unsettling economic effect of domestic unrest, pending elections or international conflict can make investors cautious and slow down stock market activity. 10. What is KSE-100 Index.The KSE-100 contains a representative sample of

common stocks that trade on the KARACHI Stock Exchange. The KSE stocks that comprise the index have a total market value of Rs.114 Billion for over 500 stocks on the Karachi Stock Exchange as on November 1st, 1991. In the simple form, the KSE-100 index is a basket of price and the number of shares outstanding. The value of the basket is regularly compared to a starting point or a base period i.e. 01-11-1991, to make the computations simple, the total market value of the base
11

period has been adjusted to 1000 points. Thus, the total market value of the base period has been assigned a value of 1000 points. The formula for calculating KSE-100 is: Sum of shares outstanding * Price for period * 1000 Sum of shares outstanding * Price for base period For example Suppose the price of 100 shares in the index increase to Rs.

57.900 Billion as compared to the base price of Rs. 57.281 billion, then index will move to 1010.8 i.e. by 10.8 points as shown on the next page. 57.900*1000 = 1010.8 57.281 11. What is meant by Bulls & Bears? The market goes through cycles,

tending upwards for periods of time, and then reversing it, and vice versa. Arising period is known a BULL MARKET. Bulls are being the market optimists who cause prices to rise. A BEAR MARKET is a falling market, where the pessimists are driving prices lower. The stock market is a constant attack sweeping their paws downward while bulls toss their horns upward. A useful struggle between the bulls and the bears, both groups tugging in opposite directions. Popular notions abound regarding the origin of these labels. One common myth is that the terms reflect the animals method of attack-bears but not the true origin. 12. History of Karachi Stock Exchange. Karachi Stock Exchange

is the biggest and most liquid exchange in Pakistan. It was declared the Best Performing Stock Market of the World for the year 2002. As on May 30, 2008, 654 companies were listed with a market capitalization of Rs.3, 746.203 billion (US$ 56.334 billion) having listed capital of Rs.705.873 billion (US$ 10.615 billion). The KSE 100TM Index closed at 12130.51 on May 30, 200

12

a.

Trading.

The exchange has pre-market sessions from 09:15am to

09:30am and normal trading sessions from 09:30am to 03:30pm. It is the second oldest stock exchange in South Asia. The Karachi stock exchange has undergone a considerable deal of downturn partly due to global financial crisis and partly on account of domestic troubles. It remained suspended in excess of 4 months and resumed normal trading only on December 15, 2008. The KSE 100 Index and KSE 30 Index after hitting the low around mid January has now rebounced and recovered 20-25% till March 12th 2009. 2 b. Growth. The KSE is the biggest and most liquid exchange in

Pakistan and in 2002 it was declared as the Best Performing Stock Market of the World by Business Week. As of December 20, 2007, 671 companies were listed with the market capitalization of Rs. 4364.312 billion (US$ 73 Billion) having listed capital of Rs. 717.3 billion (US$ 12 billion). On December 26, 2007, the KSE 100 Index reached its ever highest value and closed at 14,814.85 points.Foreign buying interest had been very active on the KSE in 2006 and continued in 2007. According to estimates from the State Bank of Pakistan, foreign investment in capital markets total about US$523 Million. According to a research analyst in Pakistan, around 20pc of the total free float in KSE-30 Index is held by foreign participants. KSE has seen some fluctuations since the start of 2008. One reason could be that it is the election year in Pakistan, and stocks are expected to remain dull. KSE has set an all time high of 15,000 points, before settling around the 14,000 mark. Karachi stock exchange Board of Directors has recently (2007) announced plans to construct a 40 story high rise KSE building, as a new direction for future investment. Disputes between investors and members of the Exchange are resolved through deliberations of the Arbitration
13

Committee of the Exchange. KSE began with a 50 shares index. As the market grew a representative index was needed. On November 1st, 91 the KSE-100 was introduced and remains to this day the most generally accepted measure of the Exchange. Karachi Stock Exchange 100 Index (KSE-100 Index) is a benchmark used to compare prices overtime, companies with the highest market capitalization are selected. To ensure full market representation, the company with the highest market capitalization from each sector is also included. In 1995 the need was felt for an all share index to reconfirm the KSE-100 and also to provide the basis of index trading in future. On August the 29th, 1995 the KSE all share index was constructed and introduced on September 18, 1995. c. 2008 Karachi Stock Exchange Crisis: (1) April 20 : Karachi Stock Exchange achieved a major milestone when KSE-100 Index crossed the psychological level of 15,000 for the first time in its history and peaked 15,737.32 on 20 April, 2008. Moreover, the increase of 7.4 per cent in 2008 made it the best performer among major emerging markets. (2) May 23: Record high inflation in the month of May, 2008 resulted in the unexpected increase in the interest rates by State Bank of Pakistan which eventually resulted in sharp fall in Karachi Stock Exchange. (3) July 16 : KSE-100 Index dropped one-third from an all-time high hit in April, 2008 as rising pressure on shaky Pakistan's coalition government to tackle Taliban militants exacerbates concern about the country's economic woes

14

(4)

July 17 : Angry investors attacked the Karachi Stock Exchange in protest at plunging Pakistani share prices.

(5)

August 18: KSE 100 Index rose more than 4% after the announcement of the resignation of President Perwez Musharaf but Credit Suisse Group said that Pakistan's Post-Musharraf rally in Stock Exchange will be short-lived because of a rising fiscal deficit and runaway inflation.

(6)

August 28 :Karachi Stock Exchange set a floor for stock prices to halt a plunge that has wiped out $36.9 billion of market value since April

(7)

December 15: Trading resumes after the removal of floor on stock prices that was set on August 28 to halt sharp falls.

13.

What is the Central Depository?

The Central Depository System is an

electronic book entry system to record and transfer securities. This system changes ownership of securities without any physical movement of certificates or necessity for execution of transfer deeds. The CDS is normally operated by a Central Depository Company which records and transfers the beneficial ownership of securities and works similar to a bank. Securities will be deposited into the CDS and transactions will be effected electronically, thereby removing the current need to count, verifies, store and transport countless certificates. The components of the CDS include the hardware, software, networking environment, legal framework, participants and the CDC management. Some international examples of scrip less trading are New York, Hong Kong and the London stock exchanges. These systems all vary from each other in one-way or another. In Hong Kong for instance, the Central Clearing and Settlements System (CCASS) is employed for settlements. The CCASS is a computerized securities and settlements. Without automation and immobilization of certificates, the delivery and settlement of
15

securities would become unmanageable, not to mention highly risky. System that has replaced the physical delivery system, Under the CCASS, certificates representing securities traded on the stock exchange In the Kuala Lumpur Stock exchange semi-scrip less system is being used. A specific number of shares have been deposited with the central depository and the rest are traded physically. 14. Why do we need the Depository? There are a number of advantages

that the CDS brings with it but there are three main reasons for the CDS. The Stock Markets in Pakistan, in the last few years have registered exceptional growth, especially with the entry of foreign investors in the local market. Trading volumes have increased manifold and are likely to increase further with the passage of time and the physical handling of certificates will become more cumbersome and time consuming Secondly, the current delivery, settlement and transfer procedures have traditionally been plagued by lengthy delays, risks of damage, loss, forgeries, duplication and considerable investment in time and capital. Implementation of the CDS will not only minimize these problems, but also assist in the development of the capital market. Thirdly, the implementation of CDS in Pakistan will fulfill the recommendations made by the Group of Thirty, a private international body whose charter is to raise awareness and understanding of major international and financial issues. Its objective is to standardize the settlement procedures and reduce associated inherent risks on a global basis. The most important recommendation made by the Group of Thirty was to setup securities depositories by major stock exchanges worldwide so as to facilitate delivery and settlement of transactions. The Group of Thirty's recommendations have been adopted by the International Federation of Stock Exchanges and are supported throughout the international securities community. The CDC will act as a trustee for investors and all securities within the CDC will be registered in its name. CDC however will have no beneficial rights to these securities; it will hold them as a nominee on the investors' behalf. Therefore all rights and benefits, such

16

as dividends, bonus, rights entitlements and voting rights, will remain with the actual owner of those securities.

17

15.

The main operations performed in the CDS a. b. Deposit of existing and new securities into the depository Withdrawal of securities in the form of certificates from the depository to cater for investors who prefer to have physical possession of certificates. c. Free transfer or book entry transfer of securities without any associated cash movement. d. Pledge/release/call like placing a lien on securities in favors of a lender, which can only be released/called by the lender. e. Stock borrowing or lending through the mechanism of transfer with or without associated money movement through the depository system. f. Corporate action like bonus issues, rights entitlements, sub-division, consolidation and any other action that changes the number of securities held in a participant's account or involve the determination of entitlement to beneficial owners. g. Delivery versus payment, book entry transfer of ownership of a security in exchange for payment to settle a transaction. Cash only movement, movement of cash from one account to another without any associated securities movement.

18.

Who will trade then?

As soon as a company is put on the CDS all

physical trade will no longer be possible. Now it will be the participants who will trade for their clients. These participants will be limited to securities institutions such as stockbrokers, financial institutions and some qualified private investors. Retail investors will participate through these institutions. The participants of CDC

18

will be able to settle their transactions within the CDS through five types of accounts, namely: a. Main Account. Each participant in the system will be allocated a

main account by virtue of being a participant in the CDS. This account will mainly be used as a transit account for movement of securities. b. House Account. Used for securities owned beneficially by

participants. Holding a house account is optional and a participant may create any number of such accounts. c. Sub-account (Client Account). This account is used for keeping securities belonging individually to each of the clients of a participant. A participant may open any number of sub accounts he requires and maintain these sub-accounts on behalf of his clients. d. Group Client Account. This account is used for keeping securities, which are beneficially owned by the participant's clients. It will be used for clients who are not willing to utilize the facility of opening separate sub-accounts. Each group account will contain the securities owned by a group of clients. The participant will hold the detailed break-up of the securities held by each client of such a group and no such record will be maintained within the CDS. e. Cash Account. Each participant in the system who opts to avail

the Delivery vs. Payment (DVP) facility will be required to deposit, in advance, a rolling settlement fund to be used for the settlement of his DVP obligations. The balance of the participant's rolling settlement fund will be stored in this account. 19. How does it work? This is perhaps the most common question and

pops up in every mind. The first step of course will be to deposit the certificates in
19

the CDC if a transaction is to be made. The CDC will declare securities eligible for deposit in the CDS. A participant will initiate a deposit transaction either on his own behalf or on behalf of his client. The certificates after due verification by the issuer will be canceled and the nominee holding of CDC will be increased in the relevant register of the issuer. At the same time, the beneficial owners' account will be credited in the CDS. However there are investors who might want to keep their certificates. There is no compulsion that all certificates be deposited with the CDC. So the CDC to cater for investors who prefer to keep certificates will provide this option. Withdrawn certificates however will not be eligible to be used to settle a market trade. In order to be traded in the market they will have to be redepositing into the CDS. Participants may also apply to issuers or their appointed registrar/ transfer agent in order to withdraw securities by sending them the prescribed withdrawal form. Subaccount holders, will affect withdrawals through their participants. Once the issuer has approved the withdrawal form, he will issue a certificate/s in the name of it's beneficial owner and reduce CDC's nominee holding accordingly. Securities can also be pledged through the CDC. A participant, acting either on his own behalf or on behalf of his client, can place securities under pledge with an eligible pledged from whom a loan is to be taken. Placing securities under pledge will result in securities being flagged as no longer available for transfer /delivery until such time as they are released from pledge or transferred on the instructions of the eligible pledges to the account of a participant. Any benefits will however, still accrue to the pledges. Participants on behalf of their clients can maintain sub accounts. The client, however, will not be able to operate the account himself. The relevant participant will handle all his transactions for him through this sub-account. The participant will open, maintain and operate this sub account in the name of the sub-account
20

holder, so as to record his title to the securities in his account. A sub account holder will receive confirmation of his account balance from the relevant participant. Moreover, he can also request the CDC to directly confirm his balance. The Central Depositories legislation has specific provisions for protecting the subaccount holder. For example, a participant is not legally allowed to undertake any transfers, pledges or withdrawals from sub-accounts without specific instructions from the sub-account holder. Violation of this clause by a participant is punishable by a significant fine and imprisonment. 20. Corporate actions will be handled by the CDC in the following manner: a. Notice of meetings. The law requires that the issuer give notice

of a general meeting to its shareholders at least 21 days before the meeting. The depository will produce a list of beneficial owners containing the relevant details. This will enable the issuer or its appointed registrar, to issue notices of meetings to the right people. b. Dividends. The CDC will prepare a list of beneficial owners who are to receive entitlements from the issuer. This report will be prepared on the last day before the start of the book closure period announced by the concerned company. These lists will be sent to the concerned issuer or his appointed R/ TA, and dividends will be dispatched accordingly. c. Bonus Shares. In case of bonus shares, upon receipt of

information from the issuer, the depository will increase the positions held by each participant by the amount of bonus share issued. d. Rights Issues. Will be dealt with in a manner similar to bonus

shares. Beneficial owners will be credited automatically with their entitlements. This will ensure that trading in 'unpaid rights' can start immediately.
21

e.

Share Sub-division Consolidation. In the case of share sub-division & consolidation, the CDC wilt calculates the new share balances, which the shareholders in the Depository System will be entitled to, based on their existing share holdings. On the date when the subdivision or consolidation is approved by the issuer, a program will be run which will replace the old balances with the new share balances calculated above.

21.

Listing of Securities.

All corporate securities like shares, stocks, bonds,

debenture etc. are not allowed to be deal with in the stock exchange. Every stock exchange maintains a list containing the names of selected companies whose securities can be traded in that stock exchange. This list is called official trade list Unlisted securities cannot be dealt in the stock exchange. The company, which wants its securities to be traded in a recognised stock exchange, should apply to the stock exchange and get its name included in the official trade list. 22. Meaning of listing the inclusion of the name of a company in the

official trade list of a stock exchange is called listing. Earlier, listing optional. Listing is now made compulsory for all public companies, however, subject to certain exemptions. 23. Classification of listed securities. a. Cleared Securities. forward list. b. Non-cleared Securities. Are traded in spot transactions. They are called securities in cash list. 24. Advantages of Listing. Listing gives the company a higher status. It Listed securities may be

classified into two categories: Cleared securities are the securities in which forward trading can be done. So they are also known as securities on

enables a company to enjoy the confidence of the investing public. By widening the market for the securities it helps the company to raise the future finance easily.
22

It provides price continuity for securities. It facilitates the correct evaluation of securities in terms of their real worth. 25. Operators at Stock Exchange a. Members of stock exchange (1) Jobbers. Jobbers are security merchants dealing in shares, debentures as independent operators. They buy and sell securities on their own behalf and try to earn through price changes. Jobbers cannot deal on behalf of public and are barred from taking commission. In India, they are called Taravaniwalas. (2) Brokers. Brokers are commission agents, who act as intermediaries between buyers and sellers of securities. They do not purchase or sell securities on their behalf. They bring together the buyers and sellers and help them in making a deal. Brokers charge a commission from both the parties for their service. Brokers are experts in estimating trends of price and can effectively advice their clients in getting a fruitful gain. Brokers get orders from investing public and execute the orders through Jobbers and they are entitled to a prescribed sale of brokerage. b. Non-members acting for members.Some non-members with limited rights are allowed to enter the house and to act on behalf of members. There are two types of such agents. (1) Remiser. He acts as an agent of a member of a stock exchange. He obtains business for his principal i.e., the member and gets a commission for that service. -189- -190(2) Authorized clerk. The authorized clerks are mere employees of the members, appointed by the member of stock exchange. The authorized clerks transact business on behalf of their
23

employers on the floor of the stock exchange. They are paid a salary, plus a commission 26. Function of the stock exchange: a. Raising capital for businesses. selling shares to the investing public. b. Mobilizing saving for investment. When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in a stronger economic growth and higher productivity levels and firms. c. Facilitating company growth.Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion. d. Redistribution of wealth. Stocks exchanges do not exist to The Stock Exchange provides

companies with the facility to raise capital for expansion through

redistribute wealth. However, both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses. e. Corporate governance. By having a wide and varied scope of

owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations
24

imposed

by

public

stock

exchanges

and

the

government.

Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors). However, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies (Pets.com (2000), Enron Corporation (2001), One.Tel (2001), Sunbeam (2001), Web van (2001), Adelphia (2002), MCI WorldCom (2002), or Parmalat (2003), are among the most widely scrutinized by the media). f. Creating investment opportunity of small investor. As opposed

to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors. g. Govt. capital- rising for development project. Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax
25

the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature. h. Barometer of the economy. At the stock exchange, share

prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy. 27. Recommendation. In comparison to earlier years, currently the stock

market is considered a viable investment avenue for individual and institutional investors. This report has presented a history of the market, its trends, its recovery since September 2001 and future expectations of growth. Having analyzed alternative forms of investments available in Pakistan, the KSE today provides higher returns to investors. Despite certain barriers to growth, there exist strong fundamentals, which according to analysts would bring the index level to 16,000 points thus making the stock market a profitable investment opportunity

26