Price Earning Ratio :

The P/E ratio (price-to-earnings ratio) of a stock (also called its "P/E", or simply "multiple") is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share The P/E ratio can therefore alternatively be calculated by dividing the company's market capitalization by its total annual earnings.

Market Average:
A measure of the overall price level of a given market, as defined by a specified group of stocks or other securities. A market average equals the sum of all current values of stocks in the group divided by the total number of shares in the group.

What is Badla Financing

Badla is a mechanism to carry forward a speculative trade. It is also known as the Carry over Transaction (COT).

Badla Finance in simple terms means putting money on interest. The mechanism is very easy for the stock broking society but complex for the ordinary investor.

Mechanism of Badla :
A person buys shares with the intention to make profits but without blocking money. The purchase at the end of the settlement is carried forward to the next settlement. Here is where the client / Badla financiers steps in. The financier's block the money for taking delivery of shares purchased by the speculators. He gives the money to the exchange for shares bought. For this facility the speculator pays interest to the financiers. This interest is known as Badla

Badla Financing through Stock Broker

The financier gives money to his broker who in turn, hands over the same to the Exchange. The shares are retained by the Exchange under custody, on behalf of the broker's client. Since the shares and the money lie with the Exchange, broker's risk is also eliminated. Example: If "A" has purchased 1000 shares of MCB @ Rs. 50 per share in Settlement 1, he has to take delivery from "B" who has sold the same. "A" would like to carry forward his position to the next settlement by letting "C" (Badla Financier) take delivery at the prevailing interest rate. In settlement 2 "A" will have to purchase the shares at a higher badla rate as determined by the Exchange. If the Badla was Rs. 0.20 in settlement no.1, "A" will have to buy MCB @ Rs. 50.20 per share from "C".

The difference in purchase price in settlement no.1, and sale price in settlement no.2, is the earning for the Badla Financier

When a Stock is Attractive to Trading?

There are two general ways of determining a stock's potential as an investment. You can look at the fundamentals or you can look at technical analysis and of course you can look at both

Fundamental analysis
Fundamental analysis looks at factors such as earnings, cash flow, debt, strength in its industry, outlook for the industry, general economic factors, interest rates, and so on. If these factors are good, then even if there are short-term setbacks, over the long run, the stock should do well.

Technical analysis
Technical analysis looks at factors like volume of trading, cyclical behavior, trends, moving averages and many others.

Some investors use both approaches. They use fundamentals to determine the long-term potential of a company and technical analysis to decide when to buy. For example, you may believe that a certain company has great potential over the long-term and will be worth much more in years to come.

 Index calculation
The stock exchange index is a relative measure of the performance of all or a numer of stocks that are traded on a stock exchange. A stock index is generally a portfolio of stocks, bonds or other kinds of investments which are used to represent either segments of an exchange or the whole exchange. One of the most common ways to understand a stock index is to have a look at the composition of the stocks it represents

Stock market index

A stock market index is a method of measuring a section of the stock market. Many indices are cited by news or financial services firms and are used as benchmarks, to measure the performance of portfolios such as mutual funds
Indexes used in Pakistan include: KSE100, KSE30, LSE25, ISE10 ,BR 30 AND KMI 30. The most commonly quoted index is the KSE100; it provides a good indication of how the Pakistan equity market is performing. KSE100 is a value weighted index. 100 stocks in the index are selected based on two fundamental rules. Largest market cap stock from each of the 34 KSE sectors The remaining 66 companies are selected based on market cap The KSE100 index captures about 80% of the total market capitalization of firms listed on the KSE KSE100 is reconstituted every six months

 KSE 100:
Karachi Stock Exchange 100 Index (KSE-100 Index) is a stock index acting as a benchmark to compare prices on the Karachi Stock Exchange (KSE) over a period of time. In determining representative companies to compute the index on, companies with the highest market capitalization are selected

Calculating the KSE 100

Hypothetical Example Step 1:The Base Period Day 1

Stock
A
B C

Share Price (Rs.)

20.00
30.00 40.00

No. of Shares
50,000,000
100,000,000 150,000,000

Market Value (Rs.)

1,000,000,000.00
3,000,000,000.00 6,000,000,000.00 10,000,000,000.0 0

Total Market Capitalization

 Note: Base Period Value / Base Divisor = Rs.10,000,000,000.00 = 1000.00 Step 2

Index Value as on Day 2

Stock
A B C

Share Price (Rs.) No. of Shares

22.00 33.00 44.00 50,000,000 100,000,000 150,000,000

Market Value (Rs.)

1,100,000,000.00 3,300,000,000.00 6,600,000,000.00

Total Market Capitalization

11,000,000,000.00

Sum of Shares Outstanding x Current Price ----------------------------------------------------------- x 1000 base Period Value

Index =

11,000,000,000.00 -------------------------- = 1.10 * 1000 = 1100 10,000,000,000.00

 KSE-30 Index :
The Karachi Stock Exchange has launched the KSE-30 Index with base value of 10,000 points, formally implemented from Friday, September 1, 2006. The main feature of this index that makes it different from other indices are:

KSE-30 index is based only on the free float of shares, rather than on the basis of paid-up capital. The other indices in Karachi Stock Exchange represents total return of the market. That is, when a company announces a dividend, the other indices at KSE are not reduced/adjusted for that amount of dividend (whether cash or bonus).Whereas, KSE-30 Index is adjusted for dividends and right shares

 KSE BRIndex30
BRIndex30 or BR Index 30, BR stands for (Business Recorder), composition of BRIndex is based on average turnover of past 6 months trading days. Companies' stocks are included (or removed) based on the largest average turnover recorded in the last six months.

KMI-30 index KSE Meezan Index (KMI-30) comprises of those 30 companies which qualify the KMI Shariah screening criteria. The index was introduced on Karachi Stock Exchange in September 2008 and the base period for this Islamic index is June 30, 2008 The index is calculated using the "free float market capitalization". At any point of time, the level of index reflects the free float market value of selected Shariah complaint shares in comparison with the base period. KMI-30 is rebalanced semiannually.

Free-Float Methodology'
Free-Float means proportion of total shares issued by a company that are readily available for trading at the Stock Exchange. It generally excludes the shares held by controlling directors / sponsors / promoters, government and other locked-in shares not available for trading in the normal course. Free-Float Calculation Methodology Total Outstanding Shares Less: Shares held by Directors/sponsor Government Holdings as promoter/acquirer/controller Shares held by Associated Companies (Cross holdings) Shares held with general public in Physical Form

xxx

xxx xxx xxx ____ XXX ____ XXX _____

FREE FLOAT

XXX ____

Market Capitalization'
Market capitalization (often market cap) is a measurement of the value of the voting ownership interest that shareholders hold in a business enterprise. It is equal to the share price times the number of share outstanding (shares that have been authorized, issued, and purchased by investors) of a publicity traded company. As outstanding stock is bought and sold in public markets, capitalization could be used as a proxy for the public opinion of a company's net worth and is a determining factor in some forms of stock valuation

Preferred shares are not included into the calculation.

Credit rating
A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as corporation or a government.

Credit ratings are determined by credit ratings agencies. The credit rating represents the credit rating agency's evaluation of qualitative and quantitative information for a company or government; including non-public information obtained by the credit rating agencies analysts.
Credit ratings are not based on mathematical formulas. Instead, credit rating agencies use their judgment and experience in determining what public and private information should be considered in giving a rating to a particular company or government. A poor credit rating indicates a credit rating agency's opinion that the company or government has a high risk of defaulting, based on the agency's analysis of the entity's history and analysis of long term economic prospects

 Right share
Right shares are the shares which are offered by the company to the existing shareholders. Simply stated the existing shareholders have a right to subscribe for the shares which are offered by the company after initial allotment until some special right is reserved for any other person by special resolution in this respect.
Bonus share A bonus share is a free share of stock given to current shareholders in a company, based upon the number of shares that the shareholder already owns. While the issue of bonus shares increases the total number of shares issued and owned, it does not change the value of the company. Although the total number of issued shares increases, the ratio of number of shares held by each shareholder remains constant

ADJUSTMENT FOR CASH DIVIDEND

The LSE25 assumes that dividends paid out by a component company are not reinvested. In the LSE25, no price adjustments are made when any component company issues cash dividends. No adjustment of cash dividend will be made contrary to the practice applicable in KSE-100 Index also.

Adjustment for Bonus, Rights and Newly Issued Capital

Index calculation needs to be adjusted for issue of bonus and rights issue. If no adjustments were made, a discontinuity would arise between the current value of the index and its previous value despite the non-occurrence of any economic activity of substance. At the LSE Index Cell, the base value is adjusted, which is used to alter market capitalization of the component stocks to arrive at the index value. The LSE Indices Department keeps a close watch on the events that might affect the index on a regular basis and carries out daily maintenance of all LSE Indices.

 Adjustments for Rights Issues when a company, included in the compilation of the index, issues right shares, the free-float market capitalization of that company is increased by the number of additional shares issued based on the theoretical (ex-right) price. An offsetting or proportionate adjustment is then made to the Base Market capitalization.

Adjustments for Bonus Issue When a company, included in the compilation of the index, issues bonus shares, the market capitalization of that company does not undergo any change. Therefore, there is no change in the Base Market capitalization; only the 'number of shares' in the formula is updated.

Other Issues Base Market capitalization Adjustment is required when new shares are issued by way of conversion of debentures, mergers, spin-offs etc. or when equity is reduced by way of buy-back of shares, corporate restructuring etc.

INVESTMENT POLICY & TAX INCENTIVES

Foreign Investor specific

The foraging investors are freely allowed to operate in the capital market with out any retention period.

There are no restrictions on the extent of foreign ownership stake except in life insurance companies. however, permission of the State Bank of Pakistan (central bank) is required in case of transfer of 5% or more shares of any bank of financial institution. There is no limit for holding the shares for trading purposes.

Funds invested in the capital market are freely transferable along with dividend income.
Foreign investor re treated at par with local investors in tax treatment.

Local Investor Specific: Capital gains on sale of listed securities are exempt from income tax upto for 2007. This exemption is available since 1974. The dividend is subject to withholding tax at different rates. where recipient is a public company or an insurance company the rate is 5%. for other the rate is 10%. however, where the company declaring dividend is a power generation entity the tax is withhold at 7.5% from recipient other that public and insurance company. Dividend income is taxed as a separate block of income in the hands of individual shareholders.

TRADING & SETTLEMENT SYSTEM:

The stoke exchanges has introduced an state-of-art computerized trading system known as Automated Trading System to provide a fair, transparent, efficient and cost effective market for the investors.

Currently, the exchange conducts one trading session from Monday to Thursday and two sessions on Friday. The Trading is divided into four distinct segment, each of which has its own clearing and settlement procedure. These are: T+3, Provisionally Listed Companies, Spot(T+1) Transaction and Future Contracts.

T+3 Counter
Transaction in this segment are settled through the Clearing& Settlement / NCCPL that nets out the purchases and sales and the financial obligation thereon of each member/firm for the notified clearing period. Payments from and to member are routed through the Clearing & Settlement/ NCCPL For the securities declared "eligible securities" by the Central Depository Company the Clearing & Settlement take place through NCCPL.
In order to handle the clearing of all the three stock exchange of the country under one roof, the National Clearing and Settlement System (NCSS) has been introduced by NCCPl which managed by Central Depository Company of Pakistan Limited.

Spot / T+1 Transitions

For about 5 days before the closure of shares transfer book notify by the company for any corporate action, transaction are settled on T+1 basis. For non-CDC securities the delivery and payment is settled through the Clearing House of the Exchange, however, delivery is tendered directly between the buying and selling members as per the instruction of Clearing & Settlement. the transaction in CDC eligible securities are settle through NCCPL.

Future Contracts:
Under the Regulation Governing Future Contracts, trading in Future
Contracts started in July 2001. Presently 30 companies are traded under Future contract.

 Circuit Breakers:
Stock Exchanges has devised scrip wise upward and downward circuit breaker limits in order to control the extreme price fluctuation on all trading counters i.e. T+3, Future, Odd Lots and Square-up Markets. Theses are in the form of order rejects. i.e. system rejects a bid or offer outside the circuit breaker limits. Details of the same mentioned hereunder:

T+3:
The existing upward circuit breaker limit is fixed at 5% or Rs. 1.00, whichever is higher form last closing price and for downward circuit breaker limit is 5% or Rs. 1.00 whichever is higher form last closing price.

Future Market:
Circuit breaker limits placed are similar to T+3 i.e. 7.5% or Rs. 1.50 for upward and 5% or Rs. 1.00 whichever is higher from last closing price for downward movement. No trade in the Future Contract market will be allowed beyond the above price fluctuation.

 Odd Lots Market: The circuit breaker limits for Odd Lot Market are 20% or Rs. 3.00, whichever is higher form the last closing price in the Ready Market, this is applicable on both the sides, i.e. upward as well downward.

Square-up Market:
Currently the applicable upward and downward circuit breaker limits in the Square- up Market are 5% or Rs. 2.00, whichever is higher from the last closing price tine the Ready Market. In order to strengthen the Risk Management, the amount of Net Capital Balance has been enhanced Rs. 2.5 million under the Capital Adequacy Ratio the members are allowed to trade yup to 25 time of the Net Capital balance.

::::: COMMISSION STRUCTURE :::::

Slab
01 - 100
Delivery (LHR/KHI) Difference (Lahore) Difference (Karachi) Carry Over

0.10

0.08 0.13 0.18

0.08 0.15 0.20

0.001 0.001 0.001

101 - 300 0.10

301 - Max

0.10