What is Stock Exchange? A stock exchange is the market place for the purchase and sale of second hand securities. It provides “trading” facilities for stock brokers and traders, to trade shares of the listed companies and other financial instruments such as Term Finance Certificates and Derivatives. Stock exchanges also provide facilities for the issue (listing), redemption (delisting) of securities and other capital events including the payment of income and dividends. It is a key institution for smooth functioning and steady growth of the corporate sector and can be seen as a key to the economic life of a nation.
Stock exchange is the home of the capital and pivot of the money market, providing proper mobility for capital. The securities of joint-stock companies, government securities and securities issued by semi-government organization are dealt with on a stock exchange. History of Stock Exchange The history of stock exchanges can be traced to 12th century France, when the first brokers (the role of an individual or a firm when it acts as an agent for a customer and charges the customer a commission for its services) are believed to have developed, trading in debt and government securities.
Unofficial share markets existed across Europe through the 1600s, where brokers would meet outside or in coffee houses to make trades. The Amsterdam Stock Exchange, created in 1602, became the first official stock exchange when it began trading shares of the Dutch East India Company. These were the first company shares ever issued. By the early 1700s there were fully operational stock exchanges in France and England, and America followed in the later part of the century. Share exchanges became an important way for companies to raise capital for investment, while also offering investors the opportunity to share in company profits.
The early days of the stock exchange experienced many scandals and share crashes, as there was little to no regulation and almost anyone was allowed to participate in the exchange. Today, stock exchanges operate around the world, and they have become highly regulated institutions. Investors wanting to buy and sell shares must do so through a share broker, who pays to own a seat on the exchange. Companies with shares traded on an exchange are said to be ‘listed’ and they must meet specific criteria, which varies across exchanges.
Most stock exchanges began as floor exchanges, where traders made deals face-to-face. The largest stock exchange in the world, the New York Stock Exchange, continues to operate this way, but most of the world’s exchanges have now become fully electronic. Functions of Stock Market ? Ready Market Stock exchange is a continuous market for the resale of existing securities. It is a centre where buyers and sellers assemble to deal in securities at any time during the business hours. It enables investors to realize quickly their shares and debentures.
This facility encourages people to invest in business enterprise by means of buying industrial securities. It helps new investors to obtain securities at any time at market price. ? Protection to investors Protection of the interest of the investors is another function of stock exchange. This it does by ensuring safety and fair dealing to the average investors through strict enforcement of its rules and regulations. Without the cover of a stock exchange there may be unfair competition between different brokers. The investors may be deceived by clever and dishonest brokers.
In a stock exchange any malpractice by a broker carries a severe penalty. ? Profitable use of funds Another major function of the stock exchange is the mobilization of surplus funds of individuals firms and companies for investment in industrial securities. Without the stock exchange, these funds would have remained idle. It directs the surplus funds into the most profitable channel and thereby secures their effective utilization. People invest their savings in companies yielding good returns. Stock exchange in Pakistan In Pakistan there are three stock exchanges, ? Karachi stock exchange (KSE) Lahore stock exchange (LSE) ? Islamabad stock exchange (ISE) Karachi Stock Exchange The KSE is the first stock exchange of Pakistan established in September 18, 1947 and incorporated in March 10, 1949. KSE start with 5 companies with a paid-up capital of RS 37 million. The first index was the KSE 100 index. KSE Indices Family ? KSE 100 The KSE100 index is a benchmark by which the stock price performance can be compared to over a period of time. In particular, the KSE 100 is designed to provide investors with a sense of how the Pakistan equity market is performing.
Thus, the KSE100 is similar to other indicators that track various sectors of the Pakistan economic activity such as the gross national product, consumer price index, etc. The KSE-100 Index was introduced in November 1991 with base value of 1,000 points. The Index comprises of 100 companies selected on the basis of sector representation and highest market capitalization, which tracks over 85% of the total market capitalization of the companies listed on the Exchange. ? 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 is: ? Based on the “Free Float Methodology” ? It includes only the top 30 most liquid companies listed on the KSE. ? KMI-30 ? Index introduced in September, 2008 ? Tracks the 30 most liquid Shariah-compliant companies listed at KSE weighted by free float adjusted market capitalization. ? Shariah Screening performed by Shariah Supervisory Board of Meezan Bank (chaired by Justice (Retd. ) Mufti Muhammad Taqi Usmani). ? KSE All Share Index ? It consists of all the companies listed on the KSE. ? KSE-GTOi
Oil & Gas Sector plays vital roles in Pakistan’s economy and therefore KSE has developed a Tradable Oil & Gas Index which tracks at least 80% free-float market capitalization of the Oil & Gas Sector. This index provides Investors and Market Intermediaries with an appropriate benchmark that captures the performance of each segment of the economy. KSE-100 Composition Basis The selection criteria for stock inclusion in the existing KSE-100 Index is based on three main filters, namely Sector rule, Capitalization rule and Default rule. The top sector companies may also qualify for inclusion on the basis of their market capitalization. Sector Rule Largest market capitalization in each Karachi Stock Exchange sectors excluding Open-end Mutual Fund Sector ? The Largest Capitalization Rule The remaining index places are taken up by the largest market capitalization companies in descending order. ? The Default Counter and Non Tradable Rule Company which is on the Defaulters’ Counter and/or its trading is suspended; declare Non-Tradable (i. e. NT) in preceding 6 months from the date of re-composition shall not be considered in the re-composition of KSE-100 Index . How many stocks are registered and categories? The total number of companies listed in KSE is 572 with a listed capital of RS. 1103072. 80 million ? In KSE companies are listed under following categories according to the nature of their industry. |Sector Wise Categories of Companies | |Oil and Gas |Pharma and Bio Tech | |Chemicals |Media |Forestry |Travel & leisure | |Industrial metals and mining |Fixed line Telecommunication | |General industries |Electricity | |Electronic and electrical Goods |Multiutilities | |Engineering |Commercial Banks | |Industrial Transportation |Non Life Insurance | |Support services |Life insurance | |Automobile and Parts |Real estate investment and services | |Beverages |financial services | |Food Producers |Equity Investment Instruments | |Household Goods |Software and computer services | |Leisure Goods. |Technology Hardware and Equipment | |Personal Goods | | |Personal Goods | | |Tobacco | |
Advance /Decline: If there is increasing trend in the prices of share then we said that the market gains the index or points and vice versa. Points: Points shows the Overall worth of the market. There are many factors that influence the market points and due to these factors market’s point increases or increases. These factors consist of formulae of capital structure and other related things. In Pakistan value of 1 point is approximately equal to 5 crores and it changes due to inflation and other economic factors. When an individual invest an amount equal to 5 Crores then 1 point increases and when he/she pull back his investment then 1 point decreases 1 point = 5 Crores