UNIVERSITY OF CENTRAL PUNJAB

Final Project

Group members:

Duaa Khan (L1F20ADBA0053)

Ariba Asif (L1F20ADBA0080)
Hassan Asghar (L1F20ADBA0094)
Usman Javed (L1F20ADBA0067)

Seminar on Stock exchange

Stock exchange (intro)

• Organized and regulated financial market where securities (bonds, notes, shares) are bought
and sold at prices governed by the forces of demand and supply

Tentative objectives

• Establishment of stock exchange in Pakistan

• Why we need stock exchanges (features & role)

• Why we have to invest in stock exchange (advantages)

• Rules of traders and members in stock exchange

• Procedure of investment and trading (through S.E)

• What factors we have in mind to investtrade in S.E

• Weather stock exchanges indicates economies of developing countries like Pakistan

• Advantage to invest in Pakistan stock exchange

History of stock exchange in Pakistan

Karachi stock exchange: -

• KSE was established on September 18, 1947. It was incorporated on March 10, 1949

• Only five companies were initially listed with a total paid-up capital of 37 million rupees.

• .The first index introduced in KSE was based on fifty companies and was called KSE 50 index.

• Computerized trading system called KarachiAutomatedTrading System (KATS) was

introduced in 2002

Lahore stock exchange

• In 1970, Established under the Exchange Ordinance of 1969 by the Government of Pakistan

• In response to the needs of the provincial metropolis of the province of Punjab.

• It initially had 83 members and was housed in a rented building in the crowded Bank Square
area of Lahore

• The LSE was the first stock exchange in Pakistan to use the internet.

Islamabad stock exchange: -

• Established in Islamabad, the capital city of Pakistan on October 25, 1989

• To cater to the needs of less developed areas of the northern part of Pakistan

• It was licensed as a stock exchange on January 7, 1992 Pakistan stock exchange

• All these three exchanges had separate management, trading interfaces, indexes, listing criteria
etc.

• This structure inherently created conflict of interest and perceived to jeopardize the investors'
interest
• Therefore, the Stock Exchanges Act, 2012 (known as "Demutualization Act") was promulgated
by the Government. As a result, three exchanges were merged together to form a new combined
exchange called Pakistan

• As on October 7th, 2016 there are 576 companies listed in PSX and the total market
capitalization is Rs. 8,384.864 billion.

Information

Interesting information 

 A stock index or stock market index is a measurement of the value of a section of the stock
market. It is computed from the prices of selected stocks (typically a weighted average). It is a
tool used by investors and financial managers to describe the market, and to compare the return
on specific investments.

Indexes in Pakistan stock exchange

A.KSE 100 index

B. KSE all share index

C. KSE 30 index

D.KMI 30 index

E. PSX-KMI all share index

Stock exchange and capital market Introduction 

Capital market is a broader term that includes the stock market and other venues for trading
financial products. The stock market allows investors and banking institutions to trade stocks,
either publicly or privately. Stocks are financial instruments that represent partial ownership of a
company.

• Only secondary securities are traded in stock exchange

• Capital market consist of both primary and secondary market

Instrument use in stock exchange

• Stock issued by listed companies

Shares

Securities

• Unit trusts
A trust formed to manage a portfolio of stock exchange securities Small investors can buy units

• Derivatives something which is based on another source.

• Types

Forward contract

Future contract

Option contracts

Swaps

 Instrument use in stock exchange

• Pooled investment products

A “pooled fund” is a unit trust in which investors contribute funds that are then invested, or
managed, by a third party. A pooled fund operates like a mutual fund, but is not required to have
a prospectus under securities law.

• Bonds

A bond is a debt instrument in which an investor loans money to an entity (typically corporate or
governmental) which borrows the funds for a defined period of time at a variable or fixed rate.

• Types of bonds

• Treasury bonds. Other government bonds. ...

• Investment-grade corporate bonds. ...

• Foreign bonds. ...

• Mortgage-backed bonds. ...

• Municipal bonds.

Features

• Organized market

• Regular market (9:00 a.m - 5:15 p.m)

• Clearing house

• Second hand securities

• Listed securities

• Information media

• Speculation

• Contribution toward economic development

Role

• Common forms of capital raising

• Going public

• Limited partnerships

• Venture capital

• Corporate partners

• Mobilizing savings for investment

• Facilitating company growth

• Profit sharing

• Corporate governance

• Creating investment opportunities for small investors

• Government capital-raising for development projects

• Barometer of the economy

Types of investment in stock exchange 

Buy and Hold"Trading:

This is the passive approach used by many individual investors when they trade stocks or buy
stocks online You choose a stock which you hope will go up in price and/or pays an attractive
dividend. (to hold)

Active StockTrading:

• To maximize their opportunities and minimize their losses.

• You don’t execute stock trades every day, but you monitor your holdings frequently and make
adjustments where appropriate in your portfolio.
DayTrading:

• to devote a little time each day in return for the potential of regular income

• where they can quickly open and close a position.

Factors that Affect stock prices 

ECONOMIC FACTORS:

• Interest rates

• Exchange rates

• Income or GDP

• Inflation & deflation

FIRM-SPECIFIC FACTORS/FIRM FUNDAMENTALS:

• Expected +NPV investments

• Dividend policy changes

• Significant debt level changes

• Stock offerings and repurchases

• Earnings surprises

• Acquisitions and divestitures/divestment (a strategy to remove some of a group's assets under

its current business portfolio)

 MARKET-RELATED FACTORS:

• January effect – general increase in stock price in January

• Noise trading

• Trends

MEMBERS AGENTS ANDTRADERS (ELIGIBILITY STANDARDS) RULES, 2001 

Agent
• means a person appointed by a member of a Stock Exchange to act on his behalf for the
purpose recognized by a stock exchange and includes a sub- broker or head of a branch office.
Trader

• means an employee of a member who is authorized by such member to execute trade of the
investors through the automated trading system in such exchange.

Eligibility criteria

• is not less than 21 years of age;

• is a citizen of Pakistan;

• is not a lunatic or a person of unsound mind;

• has not been convicted of any offence involving fraud or breach of trust;

• has not been removed as an agent by a member of a stock exchange for fraud or breach of trust
and furnish a certificate of that effect from his previous employee;

• has at least passed graduation or equivalent examination from an institution recognized by the
Government: Provided that the Commission may relax the educational qualification on merits
having regard to the applicant’s experience;

• has attended a course for the agents prescribed by the stock exchange and approved by the
Commission;

• has at least two years experience in a related field such as banking, accountancy or in a broker’s
office;

• has faithfully complied with all general and specific directives of the Commission;

• in the case of partnership a firm or a body corporate, the partners or directors, as the case may
be, shall comply with the requirements contained in clause  (i).

Procedure of investment and trade in stock exchange

• A person who has saved money and want to invest it called investor.

• Investor select a broker on which he believes that giver proper and timely information to him.
(broker is reg. member of stock exchange)

• Next step is to open account with broker.

• Than investor has to select order

• Next step is to place the order to broker.

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• Broker further refer the order to market specialist who deals with that stock.

• Specialist will execute the order in best possible price available. (normally)

• Lastly shares or money transfers to the investors account opened with the broker.

Advantages of investing in PSX (Domestic)

• High rate of returns

• Easy procedure to get registered ( less legitimations)

• Not saturated

• Price fluctuations can lead to more money

• No exchange rate risk

• Ease of research

Advantages of investing in FOREX Demerits of domestic exchange (PSX)

 Stable prices

• Strong portfolio

• Large opportunity (types of stocks)

• 24-Hour Market Action

The Stock Market and the Economy in Pakistan 

 • Published:

The Pakistan Development Review 40: 2 (Summer 2001) pp.

• Variables:

Independent: - stock market

Dependent variable: -

Consumption Expenditures, Investment, Spending, GDP etc.

Why should I buy stock?

Stockowners can earn a profit in two ways:

1. Dividends: portions of a corporation’s profit. They are paid out to stockholders of many
corporations every quarter (3 months). The higher the corporate profit, the higher the
dividend. If a corporation makes no profit, there is no dividend.

How to make a lot of money in the Stock Market

The second way stockholders earn money:

2. Capital Gain: When a stock holder sells stock for more than he or she paid for it.

Ex. I buy a share of Kodak stock for $20. The value of the stock increases to $21, and I sell it for
a profit of $1.

When a stock holder sells stock for less than he or she paid, it is a capital loss.

Stock goes up and down

Stock value increases and decreases according to the company’s performance and how people
think the company will do in the future.

Stock value goes up when a company has good sales or invented a new product.

Stock value goes down if a company has to lay off people, doesn’t sell much or does not make a
profit.

Making and losing money

Can you lose everything in the market?

• If you are foolish, yes. If you invest more than you can afford to lose, and the stock loses
value, you are in trouble.

• But, if you invest only what you can afford, and diversify your investments (buy stock of
many different companies), you can do very well. If you diversify, even if one investment
 loses money, the others will still be okay. And, stock prices go up and down a lot. If you
lose money today, the stock can still go up tomorrow. You only lose if you sell!

So how do I make money?

• The smart stock strategy is to invest over the long term. Diversify your portfolio (buy a
lot of different stock) and let the stock price increase over time. Even if stocks go down,
it is okay- just wait until they go back up. The market as a whole always goes back up.

• Some people play the market like a casino; they gamble on quick money. They may get
lucky, but it is VERY RISKY! One bad move, and you lose all you invest.

Types of Stock

• Income Stock: stock that pays dividends at regular times in a year

• Growth Stock: pays few to no dividends. All profits are reinvested in the business.
Owners of growth stock are interested in making money through capital gains.

• The company determines what stock it offers.

Ownership of a Company

Stockholders are part owners of the company, and as such have a say in decisions the company
makes. But, since most companies have thousands of shareholders with millions of shares, most
stockholders have little say in the company.

• Controlling Share: Owning 50% of a company’s stock. This person controls the
company.

Making ownership decisions

Common Stock: stockholders are voting owners of the company.

But, most people own such a small percent of a company’s shares, they do not wish to vote on
company decisions.

Preferred Stock: stockholders do not vote in company decisions, but receive dividends before
owners of common stock.

Where are stocks traded?

• Stock Exchanges: markets where businesses buy and sell stock. Most industrialized
nations have one. The U.S. has several.
 • In the U.S. the two largest are The New York Stock Exchange (aka. Wall Street), which
represents the oldest and largest corps. in the country. The NASDAQ in Chicago
represents newer companies.

How are stocks traded?

• Stockbroker: licensed intermediary between buyers and sellers of stock

• Brokerage Firms: businesses which specialize in trading stock.

• Daytrader: stockbrokers who buy and sell large amounts of stock very quickly to turn a
profit in one day’s trading. (get it?)

Bull and Bear Markets

• Economists describe the stock market activity as being a:

– Bull Market: steadily rising stock market over time

– Bear Market: steadily falling stock market over time

Stock Performance Indexes

• With thousands of publicly owned corporations, selling billions of shares of stock, it is

impossible to keep track of how the market is doing as a whole. Stock Performance
Indexes are used to look at parts of the stock market to make a generalization about the
market as a whole.

Two Stock Performance Indexes

The Dow Jones Industrial Average

• The Dow is an index that shows how 30 companies in various industries change in value
from day to day.

The S&P 500

• The S&P is an index that tracks the performance of 500 different stocks.

• By watching the indexes, we can tell if it is a Bull or Bear market, and when to invest or
not!

Our Conclusion

• From above discussion we conclude that stock exchange is a tool to transfer money to those
who want to invest it in productive way. We also observe that stock exchange necessary from
both individual (investor) point of view as well as for countries’ economy, but one should have
to take care of some aspects for trading in stock market

• And we see that there is correlation between stock market and macroeconomic factors, and its
going stronger with passage of time in Pakistan that’s why we can say that stock market is
indicator of courtiers’ economy even in developing countries

Acknowledgement

In performing our Project, we had to take the help and guideline of some respected persons, who
deserve our greatest gratitude. The completion of this Project gives us much Pleasure. We would
like to show our gratitude Mr.Shahzeb khalid , Course Instructor, University of Central Punjab
for giving us a good guideline for Project throughout numerous consultations. We would also
like to expand our deepest gratitude to all those who have directly and indirectly guided us in
writing this Project. In addition,Many people, especially our classmates and team members itself,
have made valuable comment suggestions on this project which gave us an inspiration to
improve our Project. We thank all the people for their help directly and indirectly to complete
our Project.