Lse

University of Education Okara campus Ph: 0442-552399 UE/Okara/2008 Date: 12 Jan 2008

Director and Member of Lahore stock exchange Lahore SUBJECT: COOPERATION IN PREPARATION OF RESEARCH ASSIGNMENT Dear Sir, Hoping this mail finds you best in your health. Mr. Ummad ul Haq and Mr. Ikram ul Haq Zahid, students of BBA 5th semester, morning programs, Roll No 133 and 142 respectively of this campus are assigned some research work of your esteemed organization. Their research assignment titled “An overview, functioning and achievements of LSE� needs full cooperation at your end.

Kindly equip them with possible cooperation and practical experiences.

We advice thanks in anticipation for your co-operations.

Yours sincerely

(Muhammad Saleem) HOD, Department of Management Sciences University of Education Okara Campus

History: Lahore Stock Exchange LSE was established in October 1970 and is the second largest stock exchange in the country with a market share of around 12-16% in terms of daily traded volumes. LSE has 519 companies, that are listed on the Exchange with total listed capital of Rs. 555.67 billion having market capitalization of around Rs. 3.64 trillion. LSE has 152 members of whom 81 are corporate and 54 are individual members.

Activities of Lahore Stock Exchange (LSE) LSE has increased significantly in all operational areas since its inception. Over the years, LSE has successfully met various challenges and has now emerged, fully geared and positioned to aggressively compete with its fellow Exchanges, contributing towards the growth of Capital Markets in Pakistan.

Important Developments over the Past Years •

LSE was the first Exchange in the country to undertake automation of trading at the exchanges in 1994. LSE has made large investments in technology & automation to keep pace with globalization of securities trading. The Exchange is fully committed to providing a transparent, efficient, fair and investor friendly environment for the benefit of Investors and Issuers. The goal is to bring LSE up to international standards in operational, technical, regulatory and quality management areas and to ensure that not only domestic but also foreign investors are attracted.

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LSE has made direct investment in Pakistan Credit Rating Agency (Pvt) Ltd. (PACRA), Central Depository Company Ltd. (CDC), National Clearing Company of Pakistan Ltd. (NCCPL), and National Commodity Exchange Ltd. (NCEL), all of which play a central role in developing the infrastructure around the financial markets of Pakistan. In addition, LSE is an active member of the Federation of Euro-Asian Stock Exchanges (FEAS) and the South Asian Federation of Exchanges (SAFE), helping to expand its outreach, presence and profile beyond the boundaries of Pakistan.

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LSE was the first Exchange in Pakistan to offer Internet based trading to its members in the year 2001. It enables the brokers to reach out to the untapped retail markets. Currently, more than 50% of the total trading volume at the LSE originates from Internet trading terminals. The aim of this measure is to transform the LSE from a regional to a national player over a period of time.

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LSE has increased its geographical outreach by establishing its branches in other cities of the Province. Two such branch offices have become operational in Faisalabad and Sialkot. Similar Offices in other cities are also being contemplated. LSE’s trading system has already been modified to connect branch offices in real-time fashion. There is a growing need for remote trading terminals reflecting the confidence of traders in the use of stable Internet Trading Systems.

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LSE has improved the quality of operations and upgraded them to modern international standards. This has included upgrading LSE’s IT infrastructure, updating regulations and procedures to incorporate existing and expected technological changes, as well as reorganizing and restructuring the workforce.

As a result, LSE’s capabilities as both a front-line regulatory body and a service organization have been significantly enhanced.

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LSE has successfully launched Unique Identification Number (UIN) System with an objective to bring more efficiency and transparency to the stock business and to improve the surveillance and monitoring capacity of the Exchange.

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LSE has implemented a regular timetable for the Broker System Audit, in order to build investors’ confidence. Also, LSE has taken effective risk and exposure management measures including the implementation of a fully automated inhouse developed Trade Risk Filter (TRF) to efficiently monitor members’ pretrading exposures on a real time basis. This has been a quantum leap for LSE in improving its risk management systems.

Introduction Everyone today appreciates the need to save whether for a house, for children’s education, a wedding, or for use after retirement. All these goals can be realized through excellent financial planning. An intelligent plan entails investing your money in an appropriate combination of assets with potential to generate the income needed to achieve your goals. If you invest wisely, you can maximize the earning on your investments.

There are many investment avenues available, but a wise investor does not invest on impulse, a hot tip or follow the herd. An investor should discriminate between information, casting away irrelevant and illogical pieces of information, and checking for opportunities and facts before making an intelligent choice of investments

What is the Stock Exchange?

The stock exchange provides a market place where shares can be bought and sold.

1. What is the Role of the Stock Exchange? o The stock exchange admits companies for trading at their securities. o It provides a market for raising capital by companies. o It provides a market place for shares of listed public companies to be bought and sold, by bringing companies and investors together at one place.

The exchange's role is to monitor the market to ensure that it is working efficiently, fairly and transparently.

2. Stock Exchanges in Pakistan: There are three stock exchanges in Pakistan: o Karachi Stock Exchange (Guarantee) Ltd. o Lahore Stock Exchange (Guarantee) Ltd. o Islamabad Stock Exchange (Guarantee) Ltd. o

Of these, Karachi Stock Exchange is the biggest exchange in the country.

3. Trading and Settlement: The stock exchanges have introduced a computerized trading system to provide a fair, transparent, efficient and cost effective market mechanism to facilitate the investors.

The trading system comprises of four distinct segments, which are: o T+3 Settlement System o Provisionally Listed Counter o Spot Transactions o Futures Contracts

I. T+3 Settlement System: a. In the T+3 settlement systems, purchase and sale of securities is netted and the balance is settled on the third day following the day of trade.

II. Benefits of T+3 Settlement System: a. It reduces the time between execution and settlement of trades, which in turn reduces the market risk. b. It reduces settlement risk, as the settlement cycle is shorter.

III. Spot/T+1 Transactions: a. Spot transactions imply delivery upon payment. Normally in spot transactions the trade is settled within 24 hours.

IV. Futures Contract: a. A Futures contract involves purchase and sale of a financial or tangible asset at some future date, at a price fixed today.

What are shares?

Each share represents a small stake in the equity of a company. You can buy large or small lots to match the amount of money you want to invest. A company’s share price can rise or fall as a result of its own performance or market conditions.

Once the shares are brought and transferred in your name, your name will be entered in the company’s share register, which will entitle you to receive all the benefits of share ownership including the rights to receive dividends, to vote at the company’s general meetings to receive the company’s reports.

If you decide to sell your shares you will need to deliver share certificates to the broker in time for the transaction to be completed.

With the introduction of the Central Depository System (CDS), an investor can have shares in paper form or can own shares in an electronic book- entry form at the Central Depository Company (CDC).

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Why Do Companies Issue Shares?

Companies issue shares to raise money from investors. This money is used for the development and growth of businesses of companies.

A Company can issue different types of shares such as ordinary shares, preference shares, shares without voting rights or any other shares as are permissible under the law. These give shareholders a stake in the company’s equity as well as a share in its profits, in the form of dividends, and a voting right at general meetings of shareholders.

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Why Do Investors Buy Shares?

Studies have shown that over a twenty-year span, investment in shares has provided greater returns than most other forms of savings. Shares can provide you with a regular stream of income through dividends as well as the potential for your investments to grow in value. If the prices of shares go up, you can sell them for more than you paid. This is called capital gain.

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What are Dividends?

Dividends are returns paid to shareholders out of the profits of the company.

Returns can be in the form of cash or additional shares of the company called bonus shares. Dividends are usually paid once or twice a year depending upon the company’s profit distribution policy.

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What is Capital Growth?

This is one of the ways in which shares differ from deposit accounts. The principal amount of money you put in a bank or any fixed income savings scheme always stays the same e.g. if you start with Rs.100,000 you will always have Rs.100,000 (other than any interest earned).changes in value according to the performance of the company. With good management, the value of your investment in shares of a company can grow over time so that your shares are worth more than you paid for them. This is capital growth.

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Risks And Rewards: Buying shares can offer advantages over saving in deposit accounts: your investment may increase in value besides paying you dividends. You share the rewards when the company does well and the price of the shares goes up. But if the company performs badly, the share price may go down and the value of your investment will be reduced. Other factors, such as the performance of the stock market as a whole and the general economic climate, may also affect the price of your shares. Investment in shares is therefore investment in ‘risk capital’. The shareholders can be rewarded for taking this risk and the potential return on your money can be higher than that on other investments. You can reduce your risks with careful planning.

How to trade?

Your first step is to contact a stockbroker or an investment adviser.

• Introducing Stockbrokers: Stockbrokers are your link to the stock market. Their job is to help you get the best price available when you want to buy or sell your shares. Be careful in selecting your broker.

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The Mechanics of Share Dealing:

There are various ways of investing in the stock market: you can deal directly in shares; or let your investment be handled by an advisor.

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Opening of Account:

Once you have decided the broker with whom you intend to deal, you should ensure that an account is opened in your name by filling the account opening form. It is imperative that the terms and conditions prescribed in the account opening form are read very carefully and well understood. It will be in your interest if you give clear instructions as to who can operate the account. It is preferred if the investor gives instructions that business can only be transacted in the account on his instructions.

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Buying/ Selling Directly:

When you have decided to buy/sell shares in a particular company, contact your stockbroker. You can ask to buy/sell a fixed number of shares or shares up to a certain value. Get the contract note confirming your order immediately and check for the following information. o o o o o

Name and number of securities; Date on which the order is executed; Nature of transaction (spot, ready or forward and also whether bought or sold); Price at which the transaction is executed; and Commission charged by the broker;

There are two types of orders: o o

Limit Orders: In a limit order, the client specifies the price at which the order is to be executed.

Market Order: Also known as at best order, the order is executed at the prevailing market rate.

Ways of becoming a share holder •

Initial Public Offering (IPO):

When companies offer shares to the general public for the first time it is known as a flotation or an Initial Public Offering (IPO). These shares can be bought directly from the company without paying stockbroker’s commission. You might see an advertisement in a newspaper from a company issuing shares or your stockbroker might tell you about a company making an IPO. Simply fill in the share subscription form and deposit the form along with subscription cheque in a branch of the designated bank.

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Right Issues:

Right shares are issued when companies need to raise additional capital to finance their new expansion projects or to meet working capital needs, etc. In case of rights issues, the existing investors have the right to subscribe to these new shares in proportion to their respective shareholdings.

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Trading Market:

The most common way of buying/selling in stock market is through trading in the secondary market. Through a stockbroker you can buy shares from existing investors who wish to sell them and vice versa.

Important considerations for investors?

Before you invest in shares, you must consider a number of factors • How Much Money Can You Afford to Invest?

Investment in shares does not result in instant yields. Do not invest any money which you may need immediately, since the price of shares can go up and down, It is advisable to keep some money in a deposit account to meet your financial obligations in the near future. In this way, you will not be forced to sell shares even at low price, if cash is needed urgently.

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How Do You Want to Invest?

There are various ways of participating in the stock market: o You can invest directly by purchasing shares through a broker. You may buy shares in one company or you may spread your risk by investing in a number of different companies to give you a ‘portfolio’ or collection of shares. o You can invest indirectly and through collective investment schemes such as open-ended unit trusts and closed-ended mutual funds. This would reduce your risk further.

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Do You Need Advice or Do You Want to Make Your Own Decisions?

Investors can choose to make their own share dealing decisions or take advice from a professional. Buying and selling shares and tracking their performance can be time consuming but it is rewarding for those who have the time to manage their own investments. Some investors deal with stockbrokers directly while others prefer to use the services of professional managers who have discretionary powers to manage the investment portfolio.

Trading Mechanism Companies can trade on Lahore stock exchange through different mechanisms like…  Telephone calls  Online Chat  Messengers (Yahoo , MSN)  SMS  Letters (To some extend) Workers of Lahore stock exchange are in communication with companies all the time.

Mostly they are using electronic media for communication instead of using letters which is a slow mechanism of communication, because company’s share prices may fluctuate in seconds.

Trading can be done according to situation. Following methods are mostly used for trading now-a-days.

Regular Market: This is also called “Ready Market”, because shares can be traded any time when you want from any where. You can contact to your broker for sale and purchase of shares whenever you want.

T+2 Market: In the T+2 settlement systems, purchase and sale of securities is netted and the balance is settled on the second day following the day of trade. It is a type of market in securities of company is traded after one day. Like when you want to sale or purchase shares you can do transaction one day before. The transfer of shares occurred on the very next day.

Odd Lot Market: In Odd lot market shares can be traded in the form of lots or bulks.

The minimum number of shares in a lot is 100, and the maximum number of shares is 500.

Future Market: Future market is a form of market in which shares of public limited company are traded after one month on the price, which is fixed today. This market is

beneficial to reduce the risk, because the future contract for the sale and purchase of shares is signed at the fixed price, mostly the current price of shares is used.

Seats Selling Criteria: Total seats in Lahore Stock Exchange are 153 out of which 120 members are active members and remaining 33 are inactive members. No seats would sell by the active members because are they are the existing investors and traders of securities in Lahore Stock Exchange. If anyone wants to buy a seat then he or she can buy from inactive member.

If the seat is sold in LSE then its current price is about 2,50,00000 to 3,000,0000.

Note The maximum number of seats in LSE is 200, but if they want to extend their seats they need approval from Security Exchange Commission of Pakistan.

Blue chips: Blue chips are the companies whose shares are traded more than any other companies listed on LSE. It means if anyone want to sell these shares buyers would ready to buy them. For example:    

OGDC PPL MCB PTCL

Can a private company listed on LSE No, a private company cannot be listed on LSE.

Market capitalization Market capital can be found by using this formula: Market capital = total number of shares * its current market rate

Stock index Stock index is the representation of the market. Stock index of Lahore Stock Exchange is 25 and it is represented by LSE-25 index. Stock indices of exchanges in Pakistan are as under:  LSE-25 index  KSE-100 index  ISE- all share index (total numbers companies listed on ISE are about 238. So due to less number of companies, all the companies include in its share index) Listed capital = total number of shares * its face value

Fluctuations in a company’s share price: The price of a company’s share depends on number of sellers and buyers. It follows the “Demand And Supply Rule”. Prices of shares can increase or decrease at any time. If Buyers Strong = Increase in Prices Sellers Strong = Decrease in Prices It means if their are more buyers for a company’s share their demand in marker increases so their prices go up. Similarly if sellers are more than buyers the prices will go down.

Because the supply is more than demand.

Rules and regulations for Membership Any person, Corporate Body/firm can become a member of the Lahore Stock Exchange provided he is considered fit and is qualified according to the Rules and Regulations laid down, and is acceptable as a member by the Board of Directors of the Exchange. A member may resign from the membership of the Exchange and nominate any person in his place.

QUALIFICATIONS FOR STOCK EXCHANGE MEMBERSHIIP The Board of Directors of the Exchange may admit a person, Corporate Body/Firm to become a member of the Exchange provided he has satisfied the Board on the following: a) He is a man of considerable means and his net worth is not less than 2.5 lakh rupees. b) He may be 'graduate' c) He has a good business standing in the knowledge of the business community. d) He has been paying the Income tax regularly e) He provides the bank references etc. to the satisfaction of the Board f) He is not less than 21 years of age. g) He is a citizen of Pakistan. h) He has not been convicted of an offence involving fraud or breach of trust. i) He has not been at any time expelled or declared a defaulter by a Stock Exchange. j) He has not been adjudicated an insolvent or has suspended payment or has compounded with his creditors k) He has had experience of the business of Securities for a period of not less than 2 years previous to his application l) In case of Corporate Body having paid-up capital of Rs.10 million m) He has not been previously refused admission to membership, unless a period of one year has elapsed since the date of such rejection.

NET CAPITAL REQUIREMENTS. Every member shall at all times maintain a net capital balance in the capital account of not less than Rs. 75,000/-. Provided that a member who is also the member of any other Stock Exchange, shall maintain a net capital balance of not less than Rs. 250,000/-.

Provided further that in the case of a firm, the amount of the net capital balance to be

maintained, shall be the amount obtained by multiplying seventy five thousand rupees or two hundred fifty thousand rupees, as the case may be, by number of such partners of firm as are members of the Stock Exchange.

RESIGNATION: A member may resign from the Exchange by giving one month's notice 'in writing to the Secretary of the Exchange of his intention to resign. The Secretary, on receipt of such notice, shall forthwith, past it on the Notice Board for a period not less than 15 days for any objections that may be raised and received by the Secretary in writing. On the expiry of 15 days the Secretary shall place the resignation with any objection received, before the Board who may accept the resignation at their discretion. The Board shall not be bound to give any reasons for their refusal to accept any resignation.

Listing fee schedule for companies Initial listing fee

0.1% of paid-up capital, subject to maximum of Rs.1,000,000,

Service charges

Rs. 10,000 at the time of listing.

Annual Listing Fee

Paid-up Capital Up to Rs. 50 million Rs. 50 million to 200 million Above Rs. 200 million

Fee Rs. 10,000 Rs. 25,000 Rs. 55,000

Conditions for de-listing of company A company declared de-listed when:    

Winding up Merger Liquidation Buy-Back of Shares

De-listed companies Dawood Fibre MillsLtd.

Buy Back of Shares @ Rs. 10/-

12/02/2007

Haroon Oils Ltd.

Buy Back of Shares @ Rs. 170/-

19/03/2007

TFCs Issue of Pharmagen Ltd.

Exercise of Call Option & Full Redemption 02/05/2007

Guardian Modaraba

Merged with B.R.R. International Modaraba (1:1.22)

TFCs Hira Textile Mills Ltd.

Exercise of Call Option & Full Redemption 18/07/2007

Crescent Standard Investment Bank Ltd.

Merged with Innovative Housing Ltd. (0.005:1)

20/07/2007

Colony Textile Mills Ltd.

Merged with Colony Mills Ltd. (9.5:1)

23/07/2007

Sarhad Cigarette Industries Ltd.

Buy-Back of Shares @ Rs. 50/- per Share 06/08/2007

TFCs-Dawood Leasing Company Ltd.

Full Redemption

17/08/2007

Wali Oil Mills Ltd.

Buy Back of Shares @ Rs. 40/-

20/09/2007

Suzuki Motorcycles Pakistan Ltd.

Merged with Pak Suzuki Motor Company Ltd. (21:1)

29/10/2007

Noon Textile Mills Ltd.

Buy-Back of Shares @ Rs. 92/- per Share 01/11/2007

PICIC Commercial Bank Ltd.

Merged with NIB Bank Ltd. (1:2.27)

02/01/2008

Pakistan Industrial Credit & Investment Corporation Ltd.

Merged with NIB Bank Ltd. (1: 3.18)

02/01/2008

25/05/2007

LSE's BOARD OF DIRECTORS2007 Mr. Hamesh Khan : Chairman President, The Bank of Punjab, 7-Egerton Road, Lahore

Lahore Stock Exchange (G) Ltd. 19, Khayaban-eAiwan-e-Iqbal Lahore

Mobile : 0301-8431023

Mobile :

Phone : 9200173/9200189

Phone (Off) : 6368000, 6316972

Fax : 9200297

Fax : 6368484-85

Email : hamesh@lhr.comsats.net.pk bopmd@lhr.comsats.net.pk

Email :

Mr. Ibrar A. Mumtaz

Mr. Syed Asim Zafar

Chairman : Fazal Din Pharma Plus Mall Mansion, 20Shahrah-e-Quaid-e-Azam Lahore.

Nominee : Zafar Securities (Pvt) Ltd. Corporate Member, LSE Room No. 519, LSE Building, Lahore.

Mobile : 0300-8446880

Mobile : 0300-8441922

Phone (Off) : 7355713, 7355458, 7320135-6 6666998

(H) :

Fax : 7358025 Email : fazaldins@yahoo.com

Phone (Off) : 6375445, 6375449 Fax : 6375450, 5789595 Email :

Mr. Sikandar Mustafa Khan

Mr. Adeel Zafar

Chairman : Millat Tractors Limited 83-A, E/I, Main Boulevard, Gulberg-III Lahore.

Member : Lahore Stock Exchange (G) Ltd. Room No. 515, LSE Building Lahore.

Mobile : 0320-4208100

Mobile : 0300-8478784

Phone (Off) : 5874835-36

Direct: 5782453

Phone (Off) : 6368222, 6301774

Fax : 5782454

Fax : 6316204

Email : smkhan@millat.com.pk

Email : az_063@hotmail.co.uk

Mr. Ammar-ul-Haq

Mr. Shahid Mahmood

Nominee : Al-Haq Securities (Pvt) Ltd. Corporate Member LSE Room No. 405/407, LSE Building 19, Khayaban-e-Aiwan-e-Iqbal Lahore

Nominee : 128 Securities (Pvt) Limited Corporate Member LSE, 1st Floor, 15-L, CCA, Defence Housing Authority, Lahore Cantt.

Mobile : 0321-8451264

Mobile : 0300-8452909

Phone (Off) : 6362010, 6361901

Phone (Off) : 5731747

Fax : 6368782

Fax : 5734501

Email : alhaqsecurities@hotmail.com

Email :

Mr. Omar Khalil

Mr. Arif Saeed

Nominee : Networth Securities Ltd. Corporate Member LSE Room No. 211, LSE Building Lahore

Chief Executive : Dar Essalam Textile Mills Limited, Service House, 2-Main Gulberg, Lahore

Mobile : 0300-8482642

Mobile :

Phone (Off) : 6307701-04

Phone (Off) :

Fax : 6307705

Fax :

Email : okmalik@hotmail.com

Email :

Head Office Postal Address: 19, Khayaban-e-Aiwan-e-Iqbal, P.O. Box: 1315, Lahore-54000, Pakistan PABX: (92-42) 6368000 FAX: (92-42) 636 8484-85 TELEX: 44821 E-mail Address: info@LahoreStock.com Web Site: http://www.lahorestock.com/

Faisalabad Office Postal Address: Lahore Stock Exchange (G) Ltd. Faisalabad Trading Floor 2- Liaqat Road, 5th Floor State Life Building Faisalabad PHONE: (92-41) 2622502 FAX: (92-41) 2604157 E-mail Address: Khalid@LahoreStock.com Web Site: http://www.lahorestock.com/

Sialkot Office Postal Address: Lahore Stock Exchange (G) Ltd. Sialkot Trading Floor 2nd floor cantt plaza, Allama Iqbal Road, Sialkot PHONE: (92-52) 4566262, 4566363 FAX: (92-52) 4566000 E-mail Address: AwaisButt@LahoreStock.com Web Site: http://www.lahorestock.com/

References Lahore Stock Exchange (Guarantee) limited 19-khayaban-e-Awan-e-Iqbal Lahore Barket Ali Anjum Deputy Secretary Ready Section/Trading Hall www.lahorestock.com www.google.com/lahorestockexchange