FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2009
KARACHI STOCK EXCHANGE
Record after record was made during the
year in spite of soaring oil and commodity
prices.
Adnan Afridi
Managing Director
After consecutive six years of bullish run at
Karachi Stock Exchange, the bench mark KSE
100 Index closed the year 2008 at 5865.01 which
is 58.33% lower than last year’s closing of
14075.83. Record after record was made during
the year in spite of soaring oil and commodity
prices. The KSE 100 index reached an all time
high record of 15676.34 points on April 18, 2008.
During the year 10 companies listed their shares
on the Exchange adding over US$ 193.82 million
to the listed capital. The KSE also listed 7 debt
instruments of US$ 335.44 million. The average
daily turnover of T+2 trading shares during the
period was 146.55 million and the market
capitalization was US$ 23.53 billion on December
31, 2008.
The economic liberalization and reforms has
helped Pakistan emerge as an open and liberal
economy. Foreign investors enjoy equal treatment
with domestic investors and often assigned
preferential treatment to ensure swift entry. Due to
these reasons Pakistan managed to attract
significant investment. Over half of the banking
assets are with global banks. Telecom Operators
are managing bulk of the mobile business and the
subscribers has risen substantially. Pakistan has
managed to privatize its power sector both
generation and distribution sectors have been
offered to private sector. The process of economic
liberalization has been facilitated by the smooth
privatization of public enterprises that has been a
HISTORY AND DEVELOPMENT
The KSE is the biggest and most liquid exchange
amongst the three exchanges of Pakistan. It came
into existence on 18 September 1947. It was later
converted and registered as a company limited by
guarantee on 10 March 1949. Initially, only five
companies were listed with a paid-up capital of Rs.
37 million (US$ 0.62 million). As of 31 December
2007, ordinary shares of 654 companies were
listed having listed capital of Rs. 671.27 billion (US
$ 10.9 billion) with the market capitalization of
Rs.4329.9 billion (US$ 70.2 billion).
The Karachi Stock Exchange was declared as “The
Best Performing Market of the World” in the year
2002, by international magazine “Business Week”
and a US newspaper “USA Today” on registering
increase of 112% in the KSE 100 Index.
In 1991 the secondary market was opened to
foreign investors on an equal basis with local
participants. This measure, along with a policy of
privatization, has resulted in rapid growth of the
market since 1991. Privatization has been adopted
as a philosophy, and activities that were previously
reserved for the public sector have now been
opened to the private sector.
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key agenda of all the successive Governments.
Pakistan successfully floated sovereign bond
issues and GDRs for some companies.
Over the past few years KSE has done much to
develop and promote Pakistan’s capital market by
introducing innovative new products and new risk
management system to increase transparency
and to enhance the investors’ confidence.
KSE has a fully automated trading system with
T+2 settlement system whereby all trades must
settle on the second day after the trade. A VaR
based margining system was introduced in place
of a slab based Risk management system. The
new RMS included, amongst others, a new netting
regime; a margining system based on Value at
Risk (VaR) and Capital Adequacy. KSE has also
adopted the FIX protocol (Financial Information
Exchange) for both trading and market data. Due
to this technology, KSE will be able to attract local,
regional and global liquidity by providing KSE
members to seamlessly interact with their
automated trading platform and offer access to
their international trading partners.
Unique Identification Number was introduced to
provide a traceable link between every order
entered at the trading system of the Exchange.
The UIN system allocates each individual client
and trade a separate number such that a record
of each client’s trade is stored and can be
Management
The KSE has an independent Board of Directors
(10 directors) with representation from the
Members of the Exchange & from the Corporate
Community. Five directors are elected from
amongst the 200 members of the Exchange and
four non member directors are nominated by
Regulator i.e., SECP the Chairman is elected by
Board from amongst non member Directors
whereas, Managing Director is ex-officio member
of the board
A Memorandum of Understanding was signed
between SECP & KSE for demutualization of KSE,
whereby KSE presently a company limited by
guarantee, will be converted into a company
limited by shares.
Automation of the Exchange
In 1997 the KSE introduced state-of-the-art
computerized trading system known as Karachi
Automated Trading System (KATS) to provide a
fair, transparent, efficient and cost effective market
for the investors. It is home grown software
capable of handling more than 500,000 trades. An
internet based trading system was also launched
in December, 2004 to provide an additional facility
for investors to enter their orders.
accessed at any time. The UIN system has
significantly enhanced the risk management at
client level and also considerably improved the
Exchange’s ability to monitor the market.
The KSE also introduced Client Level Netting
system: This system was developed based on the
core KSE business requirement of exposures,
profits, losses and margins to be calculated client-
wide, scrip-wide and market-wide on the
outstanding buy and sell positions.
KSE also launched another derivative product –
Stock Index Futures Contract at the beginning of
April. This marks a momentous achievement for
the KSE. However, trading is yet to pick up in this
product. KSE also provides real time data and
historical data on stock trading. It has been
decided to package the data into special products
so as to provide media, retail investors and
financial institutions with data that better caters to
their needs.
In the coming year, the KSE plans to introduce
new products into the market, to further cater to
the growing needs of its investors and help
develop Paksitan’s capital markets. KSE will be
introducing: Exchange Traded Funds, Sector
Based Index, new derivative products. Our efforts
are also directed towards the demutualization of
the Exchange.
The National Clearing & Settlement Company has
already been established. The company handles
clearing and settlement of three exchanges of the
country under one roof. Physical settlement to
online real-time book-entry settlement of the
securities through Central Depository System has
also been introduced to eliminate the opportunities
for forgery, fraud and delay in transfer.
Corporate governance is now the part of the KSE’s
listing regulation. Transparency of the listed
companies has also been enhanced with the
implication of quality audits, quarterly financial
reports and timely dividend payouts.
FUTURE OUTLOOK
The Karachi Stock Exchange is determined to
remain one of the growing investment institutions
not only within the country but globally as well. The
future projects include:
• Corporatization and demutualization of the
Exchange,
• Introduction of new products and new measures,
• Strengthen the management capacity of the
Exchange,
• Upgrading the I.T. infrastructure and;
• Investigate cross-border listing possibilities.